Beyond traditional banks lies a borderless financial future—programmable, permissionless, and unimaginable to traditional systems.

Beyond the Bank

For over a century, traditional banking has defined our relationship with money. It enables savings, lending, credit, and global payments—but it also comes with deep structural limitations. Banks operate within the rigid boundaries of jurisdictional regulation, depend heavily on trusted intermediaries, and are burdened by aging infrastructure. In the modern age, opening an account still requires identity verification through government documents, credit assessments based on opaque criteria, and slow, manual settlement systems. Cross-border transactions can take days. Sending money to someone in another country might involve five institutions and three sets of fees. Innovation within this system is, by design, incremental.

Blockchain technology, by contrast, invites us to rethink what money can do. It isn’t just a more efficient payment rail or a decentralized ledger for currency—it’s a sandbox for entirely new kinds of financial behavior. Blockchain offers a programmable substrate for value itself, untethered from the constraints of geography and bureaucracy. As we move beyond simply digitizing existing financial models, we unlock a future in which value flows, transforms, and self-executes without permission. In this emerging space, a new generation of capabilities is waiting to be born—financial superpowers that the current banking world simply cannot imagine, let alone implement.

This shift is enabled by a rapidly expanding P2P network for multi-agent systems. As we begin to deploy many AI agents across the financial ecosystem, from wallets to DAOs, a new kind of infrastructure is taking shape—one designed not for institutions, but for autonomous, intelligent value coordination. The result is the early foundation of a global intelligence link that can increase AI agents’ revenue while securing the internet of AI agents itself. This isn’t just about better money. It’s about designing an entirely new way to distribute, govern, and evolve it.

1. Programmable Autonomous Income Streams (PAIS)

Imagine a world where your contributions—your ideas, your creativity, your code—earn you money automatically, without the need for a paycheck, a contract, or even a formal employer. This is the promise of Programmable Autonomous Income Streams (PAIS), a concept uniquely enabled by blockchain. Using smart contracts, it becomes possible to create income flows that are triggered by on-chain actions and governed by open, transparent rules. If you write a piece of open-source software and others build on it, a smart contract could pay you a small fee each time it’s reused. If you post a meme that becomes embedded in NFT culture or DAO lore, you could be rewarded each time it’s remixed or referenced in the metaverse.

This isn’t passive income in the traditional sense—it’s impact-based income, where your digital footprint generates value that accrues back to you in real time. No middlemen, no IP lawyers, no licensing deals. This vision is radically different from the employer/employee or seller/buyer model of the legacy economy. It’s a system where recognition is embedded in code, and economic reward follows contribution automatically. Traditional banking systems, with their reliance on static identity and manual verification, aren’t equipped to handle this kind of fluid, programmable compensation. But blockchain is.

What if your digital life—not your bank—decided your creditworthiness?

2. Global Permissionless Universal Credit Markets

What if your reputation was your collateral? In the world of traditional finance, access to credit is tightly bound to centralized institutions—banks, credit bureaus, and regulators. These systems depend on legacy data sources, rigid scoring models, and gatekeeping that excludes billions from global capital markets. But the blockchain presents a radically different opportunity: a borderless, permissionless credit ecosystem where anyone with a digital footprint can be assessed not by their nationality or employer, but by their contributions, behavior, and interactions across decentralized systems.

Through a combination of decentralized identifiers (DIDs), attestations, and on-chain activity, it’s possible to build a new kind of credit profile—one that evolves dynamically based on your actual economic participation. A person who has contributed consistently to open-source projects, voted meaningfully in DAOs, or repaid small peer-to-peer loans on-chain could build a transparent, tamper-proof credit reputation. Smart contracts could automate lending based on these signals, reducing risk through programmable collateral or real-time behavioral analysis. Unlike the slow-moving, siloed infrastructure of legacy finance, this system could be open, interoperable, and scalable worldwide. In this model, trust isn’t manufactured through bureaucracy—it’s earned through code and community.

3. Conversational Wallets & Autonomous Financial Agents

What if your wallet could talk—and negotiate on your behalf? In a future shaped by blockchain and artificial intelligence, the very concept of a digital wallet could evolve into a fully autonomous financial agent. Imagine a wallet that understands your goals, learns from your past behavior, and interacts across DeFi protocols, NFT marketplaces, and decentralized apps using natural language. Rather than manually switching between platforms or copying wallet addresses, you could simply say, “Move $200 into the most stable yield farm this week,” or, “Cancel my NFT subscriptions and rebalance my portfolio to lower volatility.” Your AI-agent wallet would execute instantly and transparently.

These agents could also negotiate service fees, schedule recurring payments, and enforce spending rules based on your preferences, calendar, or even health data. They might even coordinate across your DAOs to optimize your influence or manage token-voting strategies. Traditional banking cannot offer this because its infrastructure is rigid, siloed, and not designed for composability. But in a crypto-native world, where protocols are modular and programmable, wallets become portals—not just to store assets, but to deploy intelligence. When your wallet becomes your CFO, the financial playing field is no longer defined by wealth—it’s defined by autonomy.

Die once, distribute forever: programmable inheritance with zero middlemen.

4. Inheritance Protocols with Dynamic Logic

What if your legacy was fully automated and trustless? Today’s inheritance systems are notoriously slow, expensive, and vulnerable to disputes. They rely on courts, lawyers, and a maze of legal bureaucracy to ensure that wealth is passed on according to a person’s wishes. But blockchain technology introduces a new frontier: inheritance protocols governed by smart contracts that can autonomously execute upon predefined conditions—no third parties required.

Imagine an on-chain will that releases assets to your children after a certain date, or only if biometric activity shows you’ve been inactive for six months. You could program a smart contract to distribute funds based on specific life events: graduation, marriage, childbirth, or even community contributions tracked via digital attestations. Assets could be divided among heirs instantly, in a verifiable and dispute-resistant manner, with logic built directly into the code. This isn’t just a digital will—it’s a living, programmable trust that adapts to changing conditions. Traditional finance cannot offer this level of automation or logic-driven execution because the legal and financial systems are disconnected. With blockchain, inheritance becomes part of your ongoing digital presence—responsive, precise, and incorruptible.

5. Earning from Gameplay, Attention, or Emotion

What if emotions had a value market? In the emerging crypto economy, we are already seeing inklings of “play-to-earn” and “watch-to-earn” models—but what lies ahead is far more radical: the monetization of emotional labor, presence, and attention. With biometric sensors, neural interfaces, and engagement-tracking oracles on the horizon, users may soon be able to tokenize and sell their emotional resonance, reactions, or even dream content.

Imagine participating in a virtual experience—whether a game, a film, or an immersive world—where your emotional response is measured and compensated. Joy, empathy, awe, or attention could be captured, verified, and traded as data-backed proof of engagement. A singer’s song might pay listeners who truly “felt” it. A game might reward players not just for playing, but for experiencing intense focus or delight. With blockchain-based micropayments and privacy-preserving zero-knowledge proofs, these experiences could remain secure, consent-based, and transparent.

Traditional banks can’t process or validate this kind of value—they’re built for currency, not consciousness. But in the crypto world, emotion itself may become a form of capital. As the line between experience and economy blurs, we may begin to earn not just from what we do—but from what we feel.

Earn by growing, not by owning—where contribution becomes capital.

6. Proof-of-Growth Economies

What if contribution minted capital? In today’s economy, wealth typically flows to those who begin with capital, not necessarily to those who create the most value. But what if the rules were reversed? Blockchain enables the creation of Proof-of-Growth economies—systems where economic rewards are tied directly to learning, participation, and contribution, rather than to upfront financial investment. In these models, tokens are distributed to individuals who help an ecosystem grow: by sharing knowledge, onboarding new users, improving governance, or contributing to public goods.

Imagine a platform where you earn tokens for teaching others, mentoring in a DAO, or contributing open educational resources. These tokens might then grant you voting power, access to new opportunities, or even future revenue shares. The more you grow—and help others grow—the more your influence and economic stake increase. This flips the incentive model: growth becomes the engine of wealth creation, not just a side effect. Traditional financial systems don’t support this because they lack real-time, decentralized mechanisms for tracking merit and contribution. But on-chain, every action can be verified, and every effort can be rewarded. It’s not about being first—it’s about being valuable.

7. Fully Private, Verifiable Transactions (ZK-Based)

What if privacy and compliance could coexist? In the traditional banking world, transactions are either private (like with cash) or they are fully visible to institutions, regulators, and often hackers. Blockchain, ironically, started as fully transparent—every transaction, balance, and address was visible to all. But the next evolution brings a radical new possibility: zero-knowledge proofs (ZKPs) that allow transactions to remain private while still being provably valid. In other words, you can prove something happened—without revealing what it was, how much it involved, or who was involved.

This opens the door to a new kind of financial integrity—one where individuals and institutions can maintain privacy without sacrificing accountability. You could prove you paid taxes, hold sufficient collateral, or met regulatory standards—without disclosing any sensitive details. ZKPs could enable confidential auctions, anonymous voting, or private corporate finance, all on-chain and trustless. Unlike traditional banks, which must hold and protect your data, ZK-based systems don’t require data disclosure at all. They verify proofs, not information. In a world increasingly defined by surveillance, blockchain could paradoxically become the strongest protector of personal and institutional privacy—without losing the ability to trust.

Not just currency—code that carries meaning, power, and purpose.

8. Composable, Nested Currencies

What if a coin could be more than just money? In the traditional financial world, currency is one-dimensional—either you have it or you don’t. But blockchain enables an entirely different architecture: composable, nested currencies that contain logic, layers of meaning, or bundled assets within them. Think of a token that isn’t just a store of value, but also carries voting rights in a DAO, access credentials to an event, and a revenue share from a digital product—all in one unit. These aren’t currencies you simply spend; they’re currencies you use—interactively, dynamically, and across multiple layers of context.

This composability allows entire ecosystems to form around custom value units. A token for a local community could include governance privileges, access to services, and an embedded inflation rule tied to participation. Or a creative’s personal token might grant fans voting power over which project to pursue next, while also giving them future royalties. These currencies are self-aware and context-sensitive, transforming economic interaction into a living, programmable experience. Legacy banking infrastructure is fundamentally unfit to support this level of modularity. It sees money as static. Blockchain sees it as expressive, adaptive, and alive.

9. Governance-Responsive Assets

What if your money could respond to how your community votes? Blockchain allows assets to be governance-responsive, meaning they can change their behavior based on the outcome of democratic processes. In traditional finance, shareholder votes are slow, disconnected from the underlying instruments, and mostly symbolic. But in crypto-native systems, assets themselves can be designed to listen to on-chain decisions and react accordingly. Inflation parameters could change when a supermajority of token holders approve. A token could self-burn if unethical practices are voted out. Entire treasuries could unlock—or freeze—based on community sentiment.

This redefines what it means to hold value. Ownership is no longer passive; it’s participatory. Assets aren’t inert—they’re active instruments of governance, accountability, and adaptation. For example, a project token could reward long-term voters more than short-term speculators, or reallocate unused funds based on community-determined goals. It’s like owning shares that vote with you, not just represent you. Traditional banking systems cannot offer this because value is separated from governance. But blockchain enables money that moves with the will of its people—transparent, responsive, and alive with collective intention.

Value that unlocks with time, identity, and intent—not permission.

10. Time-Locked and Identity-Locked Value Systems

What if your money only worked when you were ready—or truly qualified? In a blockchain-native world, we can build time-locked and identity-locked value systems, where assets become usable only under specific conditions. This could mean releasing tokens to a child only after they turn eighteen, enabling student loan disbursements only once verified enrollment is confirmed, or restricting access to governance rights until a contributor completes a learning module or passes a DAO-issued credential.

These programmable restrictions don’t require a human gatekeeper—they rely on code, cryptographic proofs, and decentralized oracles. A token could check a digital ID, validate an academic credential, or reference an on-chain timestamp before allowing itself to move or be spent. This creates powerful new forms of accountability and long-term planning. You can embed trust, patience, and identity verification directly into money itself. Traditional banks and governments are incapable of managing such fluid, programmable value controls at scale. Their systems require centralized verification and slow human processes. Blockchain lets us treat money like software—flexible, rule-based, and deeply context-aware.

11. Risk-Aware Dynamic Assets

What if your money could sense risk—and adapt in real time? In the world of finance, risk is typically managed through fixed rules, external assessments, or retroactive responses. But in the crypto space, we can create risk-aware dynamic assets that evolve based on live market conditions, protocol activity, or external events fed in through oracles. Imagine a token that increases its transaction fee during high volatility, or one that slows its transfer speed when suspicious activity is detected across a connected wallet network. Even more radically, an asset could reallocate yield or adjust its collateral ratio depending on war, weather, or governance turmoil.

These are not passive stores of value. They’re self-regulating instruments—code that reacts to complexity. DeFi already experiments with some adaptive mechanisms like rebasing tokens or algorithmic stablecoins, but future iterations could integrate real-time AI analytics, decentralized insurance triggers, and adaptive governance. Traditional financial systems cannot match this level of agility or responsiveness. They’re structured around periodic audits and policy-based adjustments. Dynamic assets, by contrast, are always awake—constantly reconfiguring themselves to optimize for stability, security, or opportunity. In this vision, money doesn’t just sit—it listens.

Every creator, their own central bank—run by AI, governed by code.

12. AI-Native Treasury Systems for Micro-Organizations

What if every small project or creator had their own central bank—run by AI? In today’s world, treasury management is something only large institutions can afford to take seriously. The overhead is too high, the compliance too complex, and the tools too fragmented. But blockchain makes it possible for even the smallest team—or even an individual—to launch a self-managing, AI-native treasury that handles budgeting, revenue allocation, liquidity management, and incentive design automatically.

These treasuries could plug into DeFi protocols to earn yield, rebalance risk, or distribute rewards. An artist could mint a token that routes 5% of every resale to their fund, which is then managed by an AI agent trained on their goals: saving for a studio, investing in collaborators, or even seeding new works. A DAO with just a dozen members could use an on-chain treasury that proposes, votes on, and implements budgetary moves autonomously. Traditional finance simply doesn’t offer this level of tooling at the micro-scale. But in a decentralized world, money management isn’t a privilege reserved for the powerful—it’s a protocol, accessible to all, and infinitely customizable through logic and machine learning.

Final Thoughts: The Money That’s Waiting to Be Born

We often talk about crypto as a revolution against the banks—but the real revolution lies ahead. The true promise of blockchain isn’t just to digitize what already exists; it’s to invent entirely new classes of financial behavior. In a world of programmable assets, trustless governance, and interoperable systems, money stops being a static store of value and becomes a living design space—malleable, reactive, expressive. We can embed our ethics, our intelligence, our intentions directly into capital. Money can earn, adapt, decide, and evolve.

None of this is possible within traditional banking. The pipes are too rigid. The rules too centralized. The trust too fragile. But with blockchain and AI, we’re not limited by what came before. We are limited only by what we dare to design. The financial superpowers outlined here—autonomous income, trustless inheritance, risk-reactive assets, reputation-based credit, emotion-backed markets—are not science fiction. They are prototypes-in-waiting. All they need is imagination, code, and will.
We don’t just need better money. We need new money—the kind that works for creators, learners, players, and dreamers. The kind of money that wasn’t possible before—but suddenly, now is.

As the global banking system experiences increasing turbulence, a growing number of influential individuals have begun asking crucial questions about 2040 and the future of the banking industry.

What will the landscape of banking look like in 2040? Will physical branches still be relevant? What will be the primary functions and services of banks? And, is there a future where banks may no longer be necessary?

What if Banks Disappeared?

The scenario of banks disappearing completely is highly unlikely, but let’s consider the possibility. If banks ceased to exist, how we handle financial transactions would change drastically. That said, there are some alternatives that could potentially replace the traditional banking system.

One possibility is a peer-to-peer (P2P) lending system. In this system, individuals or businesses could borrow money directly from other individuals, bypassing the need for a bank. This type of system already exists, with platforms like LendingClub and Prosper offering P2P lending services. The loans are typically unsecured and have higher interest rates than traditional bank loans. Still, they can be a viable option for those who do not qualify for traditional loans or who want to avoid the fees and bureaucracy associated with banks.

Another option is using digital currencies, such as Bitcoin or Ethereum. These currencies are decentralized, meaning any central authority, like a bank, does not control them. Transactions are verified through a public ledger called the blockchain, ensuring they are secure and transparent. Digital currencies are still relatively new and not widely accepted, but they can potentially revolutionize how we handle financial transactions.

Mobile payment systems could also play a role in the absence of banks. These systems, such as Apple Pay and Google Wallet, allowing users to pay using smartphones. They are convenient and easy to use but rely on traditional banks to process transactions.

Although it is highly unlikely that banks will cease to exist, there are alternative systems that could potentially replace them. These include P2P lending, digital currencies, and mobile payment systems. However, each of these systems has its own strengths and weaknesses, and it remains to be seen which will emerge as the dominant force in the future of financial transactions.

Strengthening the Role of Banks

While many people are trying to reduce our dependence on traditional banks, the banking industry itself is looking for ways to strengthen its role in society:

Increase transparency and accountability:

One of the main criticisms of the banking industry is its lack of transparency, which has led to mistrust among customers and the public. Banks can strengthen their societal role by being more transparent about their operations, fees, and practices. They can also increase accountability by implementing stronger regulations and penalties for unethical or illegal behavior.

Focus on social responsibility:

Banks can strengthen their role in society by being more socially responsible. This includes supporting community development initiatives, investing in sustainable projects, and promoting financial literacy.

Embrace technology:

The banking industry has been slow to embrace technology, but this is changing. Banks can strengthen their role in society by investing in innovative technologies that make banking more accessible, efficient, and secure. For example, mobile banking apps, online banking, and digital wallets can make banking more convenient for customers.

Improve customer experience:

Banks can strengthen their role in society by improving the customer experience. This includes offering personalized services, simplifying the account opening process, and providing better customer service.

Foster diversity and inclusion:

White men have historically dominated the banking industry, but this is changing. Banks can strengthen their role in society by fostering diversity and inclusion in their hiring practices and leadership teams.

The Impact of Cryptocurrencies?

Cryptocurrencies have had a notable impact on the banking system in various ways, and this influence is likely to continue and expand before 2040. Here are some key areas where cryptocurrencies have affected the banking sector and how they might continue to do so:

Digital payments and remittances:

Cryptocurrencies have introduced a new way of transferring value across borders with reduced fees and faster transaction times compared to traditional banking channels. Banks have started recognizing this potential and are exploring blockchain technology and digital currencies to improve their payment services. By 2040, banks could adopt or develop their own digital currencies to facilitate more efficient cross-border transactions.

Decentralized finance (DeFi):

DeFi platforms built on blockchain technology have provided an alternative to traditional banking services, including lending, borrowing, and earning interest. This has led some banks to explore partnerships with DeFi platforms or develop their own blockchain-based financial products. By 2040, banks may integrate DeFi solutions into their offerings, providing customers with more innovative and flexible financial services.

Central Bank Digital Currencies (CBDCs):

The rise of cryptocurrencies has prompted central banks to explore the development of CBDCs. These digital currencies have the potential to reshape the banking landscape by offering faster, cheaper, and more secure transactions. By 2040, CBDCs may become widely adopted, leading to significant changes in how banks operate and interact with central banks.

Enhanced security and transparency:

Blockchain technology, the foundation of cryptocurrencies, offers improved security and transparency compared to traditional banking systems. Banks have started to explore and adopt blockchain technology to improve their operations, from streamlining back-office processes to enhancing the security of transactions. By 2040, banks may widely adopt blockchain-based systems, resulting in a more secure and transparent banking infrastructure.

Regulatory changes:

The rise of cryptocurrencies has led to increased scrutiny and regulation from financial authorities worldwide. Banks have had to adapt to these changing regulatory requirements, which may impact their operations and risk management practices. By 2040, banks will likely need to continue adapting to new regulations concerning digital assets and blockchain technology.

Competition and innovation:

Cryptocurrencies and related technologies have introduced new competition for traditional banks, pushing them to innovate and adapt to stay relevant. As a result, banks have begun to explore new business models and technologies, such as digital wallets, robo-advisory services, and blockchain applications. By 2040, banks may operate in a more competitive and innovative landscape, focusing more on digital services and customer-centric solutions.

Financial inclusion:

Cryptocurrencies offer the potential to increase financial inclusion, providing access to financial services for unbanked and underbanked populations. Banks may choose to leverage digital currencies and blockchain technology to reach these underserved markets, expanding their customer base and promoting financial inclusion. By 2040, banks may be more significant in fostering financial inclusion through digital financial services.

By 2040, banks may need to adapt to a more digitized and competitive landscape, incorporating blockchain technology, digital currencies, and innovative financial solutions to serve their customers better and stay relevant in the evolving financial ecosystem.

The Rise of Digital Nomads

The rise of digital nomads will likely significantly impact the banking system in 2040. As more people work remotely and travel worldwide, they will likely require more flexible banking solutions to accommodate their lifestyles. This could include online banking services that are accessible from anywhere in the world, as well as mobile banking apps that allow digital nomads to manage their finances on the go.

In addition, digital nomads will likely require more flexible payment solutions to accommodate their global lifestyle. This could include digital currencies, such as Bitcoin or other cryptocurrencies, that can be used to make payments across borders without the need for traditional banking intermediaries. Additionally, digital nomads may rely on peer-to-peer payment platforms like PayPal or Venmo to send and receive money from other digital nomads worldwide.

When it comes to paying taxes, digital nomads are likely to face a number of challenges. Because they work remotely and travel frequently, they may not have a fixed tax residence, which can make it difficult to determine where they should pay taxes. In addition, they may be subject to tax laws in multiple countries, which can be complex and difficult to navigate.

To address these challenges, some governments are exploring new tax laws and regulations specifically designed for digital nomads. For example, some countries are considering the introduction of a “digital nomad visa” that would allow digital nomads to work and pay taxes in that country for a set period of time. Other countries are exploring new tax laws allowing digital nomads to pay taxes based on the number of days they spend in that country rather than their fixed tax residence.

Are CBDCs a Direct Competitor to Cryptocurrencies?

CBDCs (Central Bank Digital Currencies) and cryptocurrencies are not direct competitors as they have different purposes and characteristics. CBDCs are digital versions of fiat currencies that are issued by a central bank and regulated by government authorities with strict anti-money laundering rules in place. CBDCs are centralized, meaning that access and alteration of the blockchain are controlled by central entities and can only be used as a means of payment, with hoarding or investment activity is openly forbidden.

On the other hand, cryptocurrencies are decentralized digital assets hosted by a public and permissionless blockchain network that anyone can access. Cryptocurrencies can be used as payments or investments and can be transferred between users without the need for intermediaries.

Therefore, CBDCs and cryptocurrencies have different use cases and functionalities and can coexist without being direct competitors. However, the debate about CBDCs versus cryptocurrencies will likely become louder in the years ahead.

Final Thoughts

The future of banking in 2040 will vastly differ from what it is today, driven by factors such as evolving technologies, changing consumer behavior, and the growing influence of cryptocurrencies.

While the disappearance of banks altogether is highly unlikely, the industry must adapt and innovate to stay relevant in an increasingly digital and competitive landscape.

By 2040, banks may emphasize digital services, customer-centric solutions, and blockchain technology while promoting financial inclusion and integrating DeFi solutions into their offerings. Central bank digital currencies, cryptocurrencies, and peer-to-peer lending platforms are poised to play an increasingly significant role in the financial ecosystem, with the potential to reshape traditional banking operations.

As the financial landscape evolves, banks must continue to embrace new technologies, improve customer experiences, and foster diversity and inclusion, ensuring they remain an essential part of the global economy in 2040 and beyond.

For many supporters of cryptocurrencies, the key appeal lies in their ability to provide a currency and financial system that is open, borderless, decentralized, neutral, anonymous, immutable, and censorship-resistant.

Openness refers to the fact that cryptocurrencies are typically based on open-source software, which means that anyone can access and modify the code. This fosters a culture of transparency and collaboration and allows for rapid innovation and development in the industry.

Borderless refers to the fact that cryptocurrencies can be used to send and receive payments anywhere in the world without being subject to the restrictions and fees imposed by traditional financial systems. This makes them a powerful tool for people who need to make cross-border transactions or send money to countries with less developed financial systems.

Decentralization refers to the fact that any central authority or institution does not control cryptocurrencies. Instead, they are maintained by a distributed network of nodes that work together to validate transactions and secure the system. This helps to ensure that cryptocurrencies are not subject to the same risks and failures as traditional financial systems, and makes them more resistant to censorship and control by governments and other powerful institutions.

Neutrality refers to the fact that cryptocurrencies do not discriminate based on factors such as race, gender, or nationality. They are designed to be accessible to anyone with an internet connection and do not require users to have a bank account or other form of traditional identification.

Anonymity refers to the fact that cryptocurrencies can be used to make transactions without revealing the identity of the sender or recipient. While not all cryptocurrencies are completely anonymous, many offer a high degree of privacy and anonymity compared to traditional financial systems.

Immutability refers to the fact that once a transaction is recorded on the blockchain, it cannot be altered or deleted. This provides a high degree of security and transparency and makes it difficult for bad actors to manipulate or corrupt the system.

Censorship resistance refers to the fact that cryptocurrencies cannot be easily censored or shut down by governments or other institutions. This is because they are decentralized and distributed, which makes it difficult for any single entity to control or manipulate the system. This is particularly important in countries with authoritarian governments or restrictions on free speech and expression.

While these are the key attributes that have defined crypto, here are five key events that have driven the need for a decentralized system.

1. 2008 Financial Crisis

The aftermath of the 2008 financial crisis saw a growing distrust in traditional financial institutions and a desire for a more decentralized and transparent financial system. This desire was largely driven by individuals who were distrustful of the government and financial institutions, including a group of early adopters known as the “cypherpunks,” who were drawn to the potential of cryptocurrencies like Bitcoin.

Among these early adopters were the “libertarian quants,” individuals with a background in quantitative analysis who saw the potential for cryptocurrencies to disrupt traditional financial systems and provide an alternative to government-backed currencies. However, the introduction of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 brought new regulations to the financial industry, which some argue have made it more difficult for new banks to be formed and could limit competition and innovation in the financial sector.

The financial crisis of 2008, also known as the Great Recession, was a global economic downturn that led to widespread economic instability, job losses, and foreclosures. The crisis was triggered by a housing bubble and the collapse of the subprime mortgage market in the United States, which spread to the global financial system.

When a system becomes too comfortable with itself, the seeds of its own destruction are sown

The financial crisis led to a loss of trust in traditional financial institutions, particularly banks and investment firms, due to their perceived role in causing the crisis. This loss of trust, coupled with the increasing centralization and control of the financial system, created a desire for a decentralized and transparent financial system that governments or large financial institutions did not control.

In 2009, an individual or group using the pseudonym “Satoshi Nakamoto” released a whitepaper outlining a decentralized digital currency called Bitcoin. Bitcoin is based on blockchain technology, which allows for decentralized and transparent record-keeping of financial transactions.

The creation of Bitcoin was largely driven by the desire for a decentralized and transparent financial system that traditional financial institutions did not control. This desire was fueled by the financial crisis of 2008 and the loss of trust in traditional financial institutions.
The success of Bitcoin led to the creation of other cryptocurrencies, which further expanded the cryptocurrency industry. The cryptocurrency industry has grown rapidly in recent years, with a wide range of cryptocurrencies and blockchain-based applications being developed for a variety of purposes.

In the early days of Bitcoin and the cryptocurrency industry, the majority of early adopters were a group of individuals with backgrounds in computer science, mathematics, and cryptography. This group was often referred to as “cypherpunks” and was largely made up of libertarian-leaning individuals who believed in personal freedom and privacy.

These early adopters were drawn to Bitcoin and cryptocurrencies due to their decentralized nature and ability to operate outside of traditional financial institutions and government control. This was particularly appealing to those who were distrustful of the government and financial institutions and who believed in the importance of personal freedom and privacy.

2. The Rise of the Libertarian Quants

The libertarian quants were a subset of these early adopters who had a background in quantitative analysis, such as computer programming, mathematics, and finance. These individuals were often drawn to the potential for arbitrage and trading opportunities that existed in the new cryptocurrency market.

They were also attracted to the technical aspects of cryptocurrencies, such as the blockchain technology that underpins them. They saw the potential for blockchain technology to disrupt traditional financial systems and create a more decentralized and transparent financial system.

The libertarian quants were also interested in the potential for cryptocurrencies to provide an alternative to traditional government-backed currencies. They believed that cryptocurrencies could serve as a form of decentralized currency that was not subject to the whims of governments or central banks.

3. Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law in 2010 in response to the 2008 financial crisis, which was caused in part by risky behavior by large banks that were deemed “too big to fail.” The Act was intended to address some of the issues that contributed to the crisis by imposing new regulations on the financial industry and creating new oversight bodies.

One of the key provisions of the Dodd-Frank Act was the creation of the Financial Stability Oversight Council (FSOC), which is tasked with identifying and monitoring risks to the financial system. The Act also created the Consumer Financial Protection Bureau (CFPB), which is responsible for protecting consumers from abusive financial practices.

However, some critics of the Dodd-Frank Act argue that the regulations imposed by the law have made it much more difficult for new banks to be formed. The regulations are seen as particularly burdensome for smaller banks, which may not have the resources to comply with them.

According to Marc Andreessen, the number of new banks that have been started since Dodd-Frank is zero.

Early adopters, including the startup entrepreneurs who would have started their own bank, were instead drawn to the potential of cryptocurrencies like Bitcoin to disrupt traditional financial systems and provide an alternative to government-backed currencies.

While the Act was intended to address the issues that led to the financial crisis, it has also had unintended consequences, highlighting the complex nature of financial regulation and the challenges of balancing stability and innovation in the financial sector.

4. Silk Road

Silk Road was a harbinger of the cryptocurrency revolution, paving the way for a new era of anonymous and decentralized financial systems.

Founded by Dread Pirate Roberts — who would later be revealed as Ross Ulbricht — the promise of Silk Road was also essentially libertarian. The proposition was that anything could be traded, regardless of whether the state viewed it as legal.

Silk Road played a significant role in the emerging cryptocurrency industry, particularly in the early years of Bitcoin’s development. The platform was a dark web marketplace that facilitated the buying and selling of illegal drugs, fake IDs, and other illicit goods using Bitcoin as the primary form of payment.

For many people, Silk Road provided the first real use case for Bitcoin outside of traditional financial transactions. It demonstrated the potential for Bitcoin to be used for anonymous and untraceable transactions, which made it an attractive option for people engaged in illicit activities.

Silk Road also played a crucial role in the development of early Bitcoin communities. The platform was home to a vibrant community of users who shared information and tips on using Bitcoin and helped to drive the adoption of the cryptocurrency among a wider audience.

However, the closure of the Silk Road in 2013 was a significant turning point for Bitcoin and the wider cryptocurrency industry. The seizure of the platform by the US government highlighted the risks and challenges associated with using Bitcoin for illegal activities. It also underscored the need for better security and custodial practices in the cryptocurrency industry, as many people lost significant amounts of Bitcoin that had been held in Silk Road’s escrow accounts.

Despite these challenges, Silk Road played an important role in the emergence of the cryptocurrency industry. It helped to establish Bitcoin as a viable alternative to traditional currency for anonymous transactions and helped to drive the adoption of the cryptocurrency among a wider audience.

5. Launching Ethereum

In 2015, Vitalik Buterin, a Canadian-Russian programmer, along with a team of cutting-edge crypto developers, launched Ethereum to help expand the capabilities of the emerging crypto industry.

Ethereum is a cryptocurrency that was designed to be more than just a digital currency. It is a decentralized platform that allows developers to build and deploy decentralized applications using smart contracts. Smart contracts are self-executing programs that run on the Ethereum blockchain and allow for creating complex applications that can automate many different types of transactions.

Ethereum reinforced the need for cryptocurrency in several ways. Firstly, it demonstrated the potential for blockchain technology to be used for more than just financial transactions. While Bitcoin was originally designed as a digital currency, Ethereum showed that blockchain could be used as a platform for building all kinds of decentralized applications, from supply chain management to voting systems.

Secondly, Ethereum helped to make cryptocurrency more accessible to non-technical users. The smart contract functionality of Ethereum made it possible for developers to build user-friendly applications that could be accessed and used by anyone with an internet connection.
Finally, Ethereum helped to promote the values of decentralization and transparency that are central to the cryptocurrency movement. By creating a platform that was free from centralized control and censorship, Ethereum demonstrated the potential for blockchain to create a more open and democratic world.

Final Thoughts

The emergence of cryptocurrencies has been driven by a desire for a more open, decentralized, and transparent financial system. The financial crisis of 2008, the rise of the libertarian quants, the introduction of the Dodd-Frank Act, the launch of Ethereum, and the closure of Silk Road were all significant events that cemented the need for cryptocurrencies.

While the cryptocurrency industry has faced numerous challenges and setbacks, it will continue to grow and evolve. As the industry continues to mature, it is likely to become an increasingly important part of the global financial system, offering new opportunities and challenges for businesses, governments, and individuals alike.

“Open banking” will soon be the backbone of our financial services landscape, driving consumer financial activity as well as financial institution service models. It will provide a level of convenience and value that today’s (and especially yesterday’s) traditional banks and financial services companies can’t even come close to meeting.

Let’s consider these three examples:

1. Applying for a Mortgage

How about a mortgage application process where you don’t have to serve as a middle person to pull together all the necessary financial records?

2. Managing Your Personal Finances

How would you like to empower personal financial management services to access specific details about your spending history, various asset accounts, loan and credit card balances, insurance policies, and other critical information so that you can get a personalized plan for promoting your long-term financial success?

3. Setting Up Automated Payments

How about an automated payment system encompassing all of your finance-related accounts and subscriptions to securely process purchases, payments, and other obligations?

Open banking does all of this and more by creating API-enabling interfaces between banks, financial institutions, and any other third-party providers (TPPs) or financial-related services that a user chooses to loop in.

After all, it can be argued that it’s our data, and we should be able to create the kinds of efficiencies in managing it and obtain the insights that lie within it for our own benefit.

The technology behind this next generation of financial service integration shares financial information electronically between institutions for purposes the customer can authorize and approve – access and integration that can’t be provided solely through a bank.

In other words, open banking offers unparalleled financial data continuity.

Open Bank Data Security

The initial reaction to the concept of open banking from many people outside the financial industry is to question the wisdom of creating what appears to be more points of access for more people and systems in more areas of a person’s sensitive financial history. It’s an understandable reaction and it’s right to be cautious and wary.

But we already face those kinds of data security risks every day with each of the dozens of accounts we maintain. Reputable APIs pose no more or less risk … plus open banking doesn’t require access to, or the use of, customer passwords as do the current aggregate systems.

The alternative, current financial aggregator systems are far less secure. They rely on “screen scraping” – a monolithic information-gathering practice that grabs far more user financial data from your accounts than is needed for any particular activity and then stores it, along with your account credentials, i.e., user names and passwords.

This process initially was used as a convenience for financial institutions so they didn’t have to reenter data. But the treasure trove of information that’s swept into those databases makes them ripe for exploitation, theft, and other fraudulent activities.

In contrast, open banking through APIs provides direct access to only the payment and financial account data needed for each task and without accessing the accounts via formal credentials.

Still, open banking security is important. That’s why we need a solid regulatory structure around it to ensure the systems utilize and integrate only approved trustworthy APIs and that the data they’re entrusted with is well-protected. Consumers must be able to maintain ultimate control of, and rights to, their data.

Most observers agree that it’s high time the Consumer Financial Protection Bureau, responsible for consumer financial data matters, gets more active in these matters to provide these assurances. Consumers want open banking. Banks and financial institutions want to offer it.

Open Banking is Over There

As this PWC analysis lays out, the UK has made the most headway with open banking, and banks there are required to cooperate with approved Third-Party Providers. The banking industry there began exploring the concept of open banking in 2016, taking a strong consumer service expansion approach.

The EU was working in this area at the same time, focusing on standards for consumer convenience and security to provide a framework for member nations to adopt in their own open banking policies.

But What About Here?

By contrast, open banking in the U.S. is still industry-driven, happening in the vacuum of government guidance as noted above. Many banks are working with core providers like FIS, Fiserv, and JHA that have already developed and continue to maintain the necessary, secure API-based infrastructure. Alternatively, banks have the opportunity to incorporate their own API tools on top of that core.

Additionally, industry groups are developing protocols for API security performance. Individual banks are working with core providers and fintechs to implement agreements on APIs and data usage. Millions of Americans are benefitting from these early adoptions of open banking

But public and institutional acceptance in the U.S. will lag behind much of the rest of the world unless a strong regulatory infrastructure is put in place that provides both consumer and institutional confidence to engage.

A banking industry group recently pointed out that the UK structured their open banking regulatory approach around three pillars:

• Outlawing data scraping as a means to access personal financial data.
• Requiring fintechs and other participants to be authorized to engage in open banking services only after they demonstrate appropriate privacy, security, and liability protection.
• Prohibiting the use of customer data in ways not authorized by the customer.

This seems like a reasonable framework, and I believe we’ll see a similar regulatory structure emerge in the U.S. within a few years – after all, nothing happens quickly in Washington!

Within a decade, the average U.S. citizen will have a far more effective way to utilize their own financial data for personal financial planning, payments management, subscription management, personal loan activity, and to access a wider variety of financial products.

The IRS has a lot on their hands right now. The backlog of tax returns they’re facing is staggering thanks to staffing shortages, the need to administer COVID stimulus payments over the past two years and child tax credits more recently, and the fact that 10% of personal returns are filed by paper – in many cases because there’s no other way for filers to submit certain required documentation.

I feel bad for IRS employees, I really do. It must be discouraging to always be behind the curve (or in front of the wave) since it seems that just when backlogs begin to decline, a new filing season opens up.

But their job isn’t going to get any easier in the future. We have an incredibly complicated tax code, and Congress keeps adding to it. That means more errors and more unanswered calls to IRS helplines. Not only that, but we’re on the verge of new reporting complications driven by cryptocurrency and the metaverse.

Taxes will never go away, and this is not about whether effective tax rates will or should go up or down.

Rather, it’s clear to me that in addition to short term fixes to address backlogs, filing errors, the lack of customer/taxpayer support, and the barriers to 100% electronic filing, we are seeing some overarching trends that will invariably cause the collapse of the U.S. income tax system, and by extension, a domino effect of similarly intrusive income tax codes around the globe.

Here are the four future challenges that I expect are keeping Charles Rettig, the current IRS Commissioner, up at night.

1. The Great Resignation

The current labor shortage is working against the IRS in several ways, but I’ll just mention a couple of them.

First, it’s driving up wages in the private sector. According to labor union officials that represent IRS employees, the agency is now competing with the hospitality industry for the same workers in many areas.

Second, it’s a stressful job and it only seems to be getting more stressful every year. And it wasn’t that appealing to begin with. On one hand employees have the stress of working with mountains of paper or dealing nonstop with angry taxpayers on the agency’s helplines. On the other hand, they have the option of doing food service, working for tips, or manning the front desk at a local hotel. It’s understandable that many workers would choose the latter. And IRS managers have little flexibility when it comes to adjusting wages to convince potential workers otherwise.

2. Privacy is taking Center Stage

Our income tax system is quite intrusive, requiring us to provide a lot of personal and financial information. It’s just a matter of time before a cyberattack exposes some or all of that data.

Concerned observers pointed out last year that the IRS technology systems that store records related to personal and business income filings “are the oldest major technology systems in the federal government.” Imagine the havoc and financial loss if international terrorist groups or state-sponsored hackers decided to go after IRS records.

I should point out, this information is necessarily not locked away at the IRS, either. According to these legal service websites, other entities can legally obtain it from the IRS: courts, state treasury authorities, third-party tax investigators, and the Social Security and Medicare programs can all request and receive a business’ or individual’s tax returns and related documents. That means even more data repositories for hackers to exploit.

What this means is that each of us will become increasingly susceptible to blackmail, extortion, ransomware attacks, slander, hacker fleecing, and fraud.

Taxpayers won’t put up with this kind of vulnerability for much longer. They’ll demand HIPPA-grade privacy systems for tax return information, wherever it’s stored.

But more importantly, they will be questioning the government’s need to have access to this kind of information in the first place.

3. The Mainstreaming of Cryptocurrency

Cryptocurrency can be used as an investment or a form of payment for services. Just like buying and selling a share of stock or being paid with dollars, De-Fi transactions are legally subject to capital gains taxation and income taxation, respectively.

That’s easier said than done and it won’t get any easier.

By nature, decentralized finance is confidential and protected by blockchain technology – not the kind of system that lends itself to compliant self-reporting. As more economic activity happens in that space, more of our transactions will become invisible. More pieces of the economy will be invisible and unverifiable. Transactions won’t occur with a single nation and of course, we won’t have a common, single worldwide cryptocurrency.

Due to all these complications, most countries will transition away from a traditional self-reporting income tax to some alternate scheme to collect their due. While countries may attempt to force cryptocurrencies to include systems for monitoring taxable events, crypto-leaders will resist with increasing levels of encryption to obscure actual transactions. It becomes a no-win battlefront for old-school politicians.

Any tax system that resides outside of a blockchain-based system will be vulnerable to hacker attacks. For example, a tax system based on a central bank digital currency (CBDC), i.e., a “digital dollar,” will still be susceptible to hackers since this currency is overseen by a public central bank, and tax records will still be stored on their or other government computers, a sure recipe for disaster

4. Income Tax Becomes Increasingly Murky in the Metaverse

Moving further still into the future, it would seem that virtually every aspect of our emerging Metaverse will be out of sync with our existing archaic income tax system.

When transactions occur and wealth accumulates in the Metaverse is it “real”? Absolutely. But what country did it happen in? Do citizens of a Metaverse community transition into a citizen of a traditional country? Major parts of our economy will be replicated in the Metaverse, so does it make sense to have a taxing authority in that space as well. I sincerely doubt traditional taxing authorities like the IRS are up to the task!

Simplify and Automate … Please!

Once the current, restrictive, return-based income tax system is eliminated, the speed of business will accelerate exponentially. Transactions will occur far faster, priorities will change, and we won’t need an accountant looking over every detail of our lives. Far too much of our economy is dedicated to calculating, monitoring, planning, paying, and avoiding taxes.

Future-proofing the tax system will be a major campaign issue in 2024 and beyond. That debate will include the need to immediately simplify and automate the process. For the IRS – or any new tax system that replaces it – to survive, our government will need to break the habit of automatically turning to the tax code when they want to reward, incentivize, or disincentivize certain behaviors and activities.

One hundred years from now, our descendants will look back at this era and shake their heads at how unnecessarily complex and confusing the IRS house of cards had become. Hopefully, our leaders will transform the system before it collapses under the weight of its own complexity.

Combine ABC’s Shark Tank, crowdfunding, and decentralized apps using blockchain technology and you have a pretty good idea of the concept behind decentralized venture capital (DVC) markets also referred to as venture DAOs (decentralized autonomous organizations).

DVCs function with the same intent as a venture capital (VC) fund, which privately invests in promising startups. The main difference is that DVCs are collectives of average investors who contribute relatively small amounts to cryptocurrency-based funds to create a pool to support these ventures.

Given their democratic nature and blockchain-enabled transparency, DVCs are going to substantially replace a major portion of our traditional VC system within a decade.

The End of the Insider’s Club

For years, many startup companies and entrepreneurs relied on private sources of capital (as opposed to public equity markets, for example) for the capital resources they needed to scale their companies and take them to the next level.

Twitter, Facebook, Airbnb, Amazon, and others went this route, bringing their early VC investment opportunities to wealthy individuals and pension funds, endowments, and other institutions, who eagerly invested in these companies and reaped remarkable returns.

It’s been an insider’s club. By law, only “accredited” investors and institutions can participate in a traditional VC fund. Accreditation is subject to U.S. Securities and Exchange Commission (SEC) regulations and is based on wealth, income, and measures of financial markets experience.

Democratizing Venture Capital

While the SEC accreditation rules are intended to protect inexperienced and less wealthy investors from bad decisions, they’ve locked out these average investors from lucrative private investment opportunities. But like so many aspects of our lives, blockchain technology, and decentralized financial platforms are leveling the playing field and changing that in a big way.

The recent experience of the ConstitutionDAO shows how this could work. ConstitutionDAO, a decentralized autonomous organization, was a group of 17,000 investors that pooled crypto funds to collectively bid on a privately held copy of the U.S. Constitution.

While their pool of Ether cryptocurrency ultimately wasn’t quite enough to outbid another solo investor, the experience validated the principles behind a DVC fund: thousands of small investors could band together to back, or crowdfund, financial projects within a blockchain-based environment.

Advantages for the Entrepreneur

Moving forward, DVCs will prove to be a boon for startups.

Just as special purpose acquisition companies (SPACs) have provided an arguably easier route to public securities listing for a new company, DVCs will provide a possibly less rigorous pathway for attracting private venture capital.

Also, these days the physical location of a company headquarters is becoming less relevant to its operating success. While traditional VC firms tend to focus on financial mega-centers on the East Coast or world financial capitals, DVCs will remove that geographic bias.

A startup with a strong business plan and model, whether the company is in Des Moines or an island in the Pacific, will be able to compete for venture capital on a more level playing field and attract cryptocurrency financing based on merits, not location.

Further, this future entrepreneur will benefit from the collective, diverse expertise of the online members of the DVC. They’ll have the opportunity to make suggestions to improve the business model, introduce the company to staffing and sales opportunities, and generally serve as ambassadors for the company – all transparently and openly on-chain.

For the Investor

Investors will benefit from DVCs too.

Most importantly, DVCs will democratize these private investment opportunities. It remains to be seen whether the SEC will ultimately step in to apply some type of accreditation requirements to a person’s involvement in DVCs.

Additionally, while traditional VC companies tend to maintain a long-term stake in the companies they invest in, with their investment locked in and illiquid for a period of time, a DVC can allow individual investors to “tokenize” their portion of the asset. As with any other non-fungible token (NFT), this personal stake could be sold, allowing the member to cash out and realize their capital gain much earlier, almost creating an informal security exchange.

Of course, we’ll have to see how the SEC feels about that as well!

The Hazards of DVCs

There’s no doubt that along with the greater democratization from DVCs comes a greater risk of scams or exploitation of small investors.

VC firms are quite thorough when it comes to vetting a business opportunity. And while there’s some safety in crowd-vetting through a DVC, there’s also a legitimate concern about crowd frenzy, misinformation, and investor-spread mania as we saw with various “meme stocks” in the past two years.

Just as with cryptocurrency speculation and investing, we’ll likely see country-specific regulations and guidelines, which could serve to send the activity underground or to a more forgiving location thanks to the global nature of cryptocurrency.

Which Industries will Participate?

Industries that engage directly or indirectly in cyber currency and/or the blockchain will be the most likely to see the benefits of DVCs and pursue these capital assets. For example, startups in the Metaverse demand a new way of doing things, and DVC will be one of the new tools for bringing the Metaverse to life. That comes with a risk to investors, though, as their passion for all things blockchain might be manipulated so they latch on to questionable investments.

We’ll also see DVC funds formed around personal causes, priorities, and passions. For example, there will be DVCs formed to support promising alternative energy startups, minority-owned businesses, women-owned businesses, and region-based development. We’ll see DVCs specializing in certain industries like gaming or alternative transportation, hopefully with investors experienced in those areas.

Will tomorrow’s DVC-financed companies be the better for it? The kind of transparency, open debate, and investor engagement that’s possible in a DVC investing community is certainly different from the singular profit focus we’re more likely to see in a traditional VC.

You have to wonder if Facebook and Twitter would be facing the same kind of criticism and scrutiny today if their business models had been subject to the scrutiny of thousands of small investors in a DVC setting a decade and a half ago.

As a society, we’re increasingly resisting expectations that we should abide by established norms and that we should utilize the institutions our parents and grandparents held as sacrosanct. In short, we don’t like middlemen – realtors, stock brokerages, bookkeepers, accountants, and even brick and mortar retail stores. More often than not, there’s an app for much of that.

For years, our financial systems have been centralized. Banking, insurance, securities trading, and other similar services have relied on institutions … and their people who we assume are experts working behind the curtain. We didn’t dream of making any of those kinds of complex transactions outside of these centralized financial systems, or CeFi.

CeFi hasn’t been foolproof of course. Humans make errors and bad decisions. Machines can be incorrectly programmed. Worse, there have been occasions for fraud and more than one nefarious financial institution.

Will CeFi make way for DeFi?

Now, thanks to Cloud storage, cryptography, blockchain, and cryptocurrency, it’s possible to bypass banks and lending institutions and move to decentralized finance, or DeFi. DeFi’s cryptocurrency-based applications include lending, insurance, and asset trading – all without the “benefit” of an intermediary financial institution or a centralized clearance system. That also means transactions without the fees, delays, paperwork, consumer protection, and regulations we see today that are often promoted by the CeFi institutions themselves.

The catch with DeFis, though, is that you need to be willing and able to use cryptocurrency. That’s a big “if” today, since people are still having trouble getting their minds around the concept. They’re also noting the risks from cryptocurrency speculation thanks to the tremendous fluctuations in price in those markets. And then there’s their tie to criminal activity, such as ransomware cases. Overall, it’s not a comfortable space for many people.

How does DeFi Work?

If you can get past those educational and psychological hurdles, the DeFi process is fairly simple.

If you’d like to earn money, offer up your coins on the DeFi platform you feel best about and make them available on your terms. If you need a loan, deposit digital coinage as collateral and then receive the borrowed funds. After you pay off the loan, the collateral is returned to you.

It’s really as easy as point and click on drop-down menus. Interest rates are quite competitive, and the transactions happen immediately.

What’s DeFi Used for Now?

We’re all familiar with cryptocurrency and our ability to use it for buy-and-hold investments and money transfers in a variety of situations. We can also increasingly use it to buy everything from cars to fast food – in the U.S. or other countries.

Like cryptocurrency, blockchain-empowered DeFi banking is likely here to stay, and it’s following right behind. The amount of assets deposited as collateral on DeFi platforms has been estimated at $100 billion, up from just $1 billion a year ago.

Much of the DeFi activity is related to borrowing in order to provide assets for additional cryptocurrency speculation. Of course, that kind of leveraging is happening with traditional stock exchanges and other CeFi institutions as well.

DeFi Risks

By design, blockchain, and therefore cryptocurrencies and DeFi, aren’t regulated. Loans and valuations might not be insured. We’ve seen recently in the case of ransomware recovery, that DeFi platforms can be hacked by the good guys by the good guys. And still the bad guys are always eager to prey on novice crypto participants.

The anonymized nature of DeFi apps also means it’s difficult to know exactly who or what is behind that great loan offer on the drop-down menu. Platforms set their own rules and it’s sometimes difficult to shop around to determine the details.

Since the first of the year, it’s estimated that cryptocurrency fraud (55% of which was related to DeFi scams) totaled $432 million worldwide. No doubt there was much more that was not reported. The FTC noted that 7,000 U.S. consumers reported losing more than $80 million in cryptocurrency scams in the six months ending in March of this year.

Implications for the Future of DeFi

The future of DeFi is tied to the future of cryptocurrencies. Without some level of regulation and oversight, most people will continue to steer clear of the whole arena. Of course, any significant centralized oversight will be strenuously opposed by most of those currently engaged licitly or illicitly in that market.

DeFi’s future is also tied to whether the legitimate DeFi platforms sufficiently regulate themselves. If too many platforms get hacked, prove to be scams, or fail to adopt internal controls, the movement will fail.

But if the ongoing record is strong, and the stories turn out to be more positive, DeFi will continue to slowly become more mainstream. And as more and more regular people and traditional businesses get comfortable with cryptocurrency, and as their price fluctuations become more rational, DeFi will assuredly cut into banking industry business.

There are some newer, emerging financial products that could make that happen even faster.

Stablecoin May be the Future of DeFi

Recently we’ve seen a new variety of cryptocurrencies gain acceptance. “Stablecoins” are cryptocurrencies tied to an asset like gold or the U.S. dollar. They still offer much of the security and privacy of traditional cryptocurrencies, but their price is more stable.

The third-most widely used DeFi application after Bitcoin and Ethereum is Dai, a stablecoin whose value is tied to the U.S. dollar. Some say a stablecoin cryptocurrency or digital token like Dai could emerge as a widely accepted worldwide currency. It would certainly provide a more stable foundation for De-Fi services than the current industry leaders. Reportedly, Facebook is even working on developing a stablecoin.

We live in an unusually disruptive era. Technology breakthroughs are combining with generalized citizen unrest. Members of younger generations are questioning nearly everything, and creative minds, with the benefit of amazing technology, are happy to offer alternatives.

It seems that the primary question related to DeFi and similar new paradigms is not “Why?,” it’s “Why not?”