Blockchain’s potential to disrupt the financial landscape is evident. Even at this early point in the technology’s development, established institutions — including banks and governments — have been quick to note this potential for disruption, and equally quick to attempt to limit its impact.
However, despite the obvious utility, and many current and fascinating applications of blockchain — from improving supply chain traceability to collecting adorable digital cats — the true potential of this incredible technology is often overlooked: the ability to upend existing power structures by undermining centralization. Ultimately, blockchain and cryptocurrencies look increasingly likely to bring about a shift in the balance and locus of power, moving it away from centralized entities like those aforementioned banks and governments and toward the people, fundamentally changing who wields power and what is done with it.
The current centralized financial system functions in a way that does not directly benefit ordinary people. That is, those who actually use it to transact with their financial assets and data on a daily basis.
On the contrary, having to rely on third parties to manage their finances means relinquishing the power to independently conduct transactions and transfers. Stripping individuals of the authority to manage their finances and entrusting a single entity with this power has a number of negative consequences. These include the increased likelihood for hacks, potential delays in making transfers from one account to another, diminished oversight over personal funds, and spiralling interest rates on the storage of assets.
What’s more, when the control and management of finance by centralized entities goes off course, this has very real effects on people’s daily lives. Economic crashes and high inflation wreak havoc on populations, as demonstrated most recently in disasters such as the Greek government debt crisis, and the Venezuelan hyperinflation crisis. The latter saw inflation of the country’s currency, the bolívar, reach 10 million percent in 2019.
These are far from isolated cases. The current financial system has failed the world’s population time and time again. Yet, little has been done to remove power from these centralized entities. Indeed, the trend has been moving in the opposite direction, further disempowering the vast majority of individuals.
With the advent of cryptocurrencies, a viable option to challenge this control and associated power has finally emerged, offering a level of self-sovereignty and security not found in the current financial system. A new financial system built with blockchain would not be controlled by a central entity, but instead would place power back in the hands of the people.
At a time when traditional financial systems are often embroiled in crises, cryptocurrencies offer a new way to understand and store value — allowing people to reestablish control over their assets. Throughout the period of hyperinflation in Venezuela, for example, rates of cryptocurrency usage have been on the rise. This demonstrates quite clearly that people in dire straits are looking to these emerging technologies as a means to regain control, allowing them to survive in a country where the fiat currency is no longer valuable.
The distributed, decentralized nature of blockchain produces the first level of security. Decentralization not only provides people with greater control of their financial assets, but also improves the security of those assets. Cryptocurrencies are based on a distributed ledger technology known as blockchain. They are therefore more secure than fiat currency in a number of significant ways.
The second level of security lies in the cryptography that’s employed to create an entry into the ledger, from which “cryptocurrencies” derive their name. These inherent technological security features mean that the issues that have plagued centralized financial systems do not and cannot impact blockchain-based alternatives in the same manner.
As such, a move from centralized to decentralized finance can have numerous ramifications for the general population, greatly altering the way people interact with their finances — especially in how much they trust in its security. When considering the different features of these two financial systems — the traditional and its decentralized alternative — it becomes clear that moving toward a decentralized system would engender a transfer of power to the people.
On a concrete, individual level, this shift in power can take simple forms, from enabling increased control of and access to financial assets to permitting access to funds from anywhere in the world and facilitating the global transfer of funds with minimal cost.
On a larger, societal scale, using cryptocurrencies can help to avoid issues such as inflation in local fiat currencies, as seen in the case of Venezuela. Moreover, the variety of cryptocurrencies on offer give people the power to choose which features they would like to prioritize — whether that be speed, cost, the rate of transactions, or increased security and transparency.
The current global financial system wields immense power, which makes the repeated pitfalls of that system all the more egregious. It’s no surprise, then, that the people are ready for change. It’s essential that we break down barriers to the adoption of blockchain technology, providing people with direct access to services and platforms that will change their lives. This is indeed the next great challenge facing this incredible technology, and one that a number of projects are working hard to overcome.
One should never underestimate the ability of innovation and imagination to change the world. From the invention of the automobile, which made it possible for people to traverse vast distances in times previously thought impossible, to the creation and proliferation of the internet, which provided anyone with a computer with access to all the world’s information and means by which to publish their own thoughts and ideas, imagination and ingenuity has propelled humanity ever forward, prompting us to be more curious, to learn more, to grow together. These changes can be frightening, since we become accustomed to the status quo. But truly, what is the danger in allowing individuals more freedom and agency over how their financial presence takes shape? Individuals on the ground are better suited to making such decisions than centralized institutions. Money is power, as the saying goes. So too is the control of money.
The time has come for that power to be returned to the people.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.