Scan the headlines on cryptocurrencies or non-fungible tokens (NFT) today and you’re invariably led to believe that all the hype with these newfangled technologies is collapsing on itself.
The spectacular crash of the Luna cryptocurrency in the past month or so has led to wider contagion. For one, the folks behind one of the largest crypto funds – Three Arrows Capital – have been in the news for going missing while the company went bust.
Yes, Bitcoin has rallied in recent days, but this latest “crypto winter” has shaken the certainty and confidence with not just crypto but also the promises of so-called Web3 and even blockchain technologies.
Thus, it is great to see DBS Bank head honcho Piyush Gupta offering a timely reminder of the dramatic impact of blockchain, which he predicts will power the world’s back office operations in five to 10 years.
In that time frame, he told The Straits Times (ST) this week, trade would be digitised a lot better than in the past 30 to 40 years, thanks to the efficiencies that blockchain brings.
He also said decentralised finance (DeFi), which blockchain’s decentralised ledger technology enables, can change the role of stock exchanges, for example.
Notably, in the interview with ST, he said banks have to be more than mere intermediaries that add friction and look after a customer’s interest in an era of smart contracts that promise to remove the middleman.
DBS Bank, Southeast Asia’s largest lender, spends S$600 million a year on experimenting with new technologies like blockchain and artificial intelligence, The Straits Times reported.
That’s a useful reminder of that blockchain technology, the underlying enabler of much of today’s disruptive fintech offerings, is here to stay.
For one, many banks around the world are coming up with their own blockchains – many non-public ones – to overhaul their decades-old databases. Like DBS, they have been taking advantage of the technology without disintermediating themselves from their current middleman role.
Yes, the whole hoopla of blockchain and and a decentralised world is hard to take seriously at times. Think of how inefficient, for example, a transaction is on many of today’s blockchains, because it has to be validated and checked on multiple computers. A better way is needed to avoid killing the planet.
Ultimately, the decentralised economy that many envision today may not be tomorrow’s reality.
While blockchain may enable automatic smart contracts that reduce friction and cost, as well as grow digital trade founded on new ways of building digital trust through transparent records, they do not necessarily create a world free from any form of middleman or government regulator.
Money laundering and fraud are two big areas that regulators are struggling to contain today, and not just with cryptocurrencies. Similar scams seen in NFTs are another reminder that a world without rules, where trade is truly free between any interested parties, isn’t the ideal that many people are after.
Change is needed for today’s bloated banking system, which charges fees for the friction it adds to a transaction. That said, it is also one that is regulated for things like risk, so a run on the bank is less likely than, say, a crypto exchange in trouble.
In other words, can we cut out the unfair, inefficient processes of a traditional middleman system but retain a layer of trust that is built on sound and necessary rules that protect users?