Blockchain: Financial Democratization
The next generation of NeoBank on Blockchain
The 2008/09 crisis, known as the Subprime crisis, was an economic recession that emerged within the financial market caused by the provision of high-risk mortgage loans. When it imploded, the crisis revealed the fragility and the danger of concentrating so much economic power in the hands of the banks.
Motivated by this event, a group of people linked to technology created an alternative capable of transacting value, making payments between two parties (peer-to-peer), without the participation of an intermediary in the operation, that is, eliminating the need for banks.
This new system became known as blockchain. Blockchain is a public, decentralized and immutable transaction database. When performing any operation within the network, the data are registered in cryptographically created and connected "blocks", forming a chain structure and being transmitted to all nodes in the network. A chain of blocks certifies the reliability of the information and forms a consensus through a protocol mechanism. This operation sequentially records, in chronological and permanent order, the actions taken in the blockchain, as well as the parties involved, making it impossible to change any information contained therein.
Thus, blockchain has become the main component of electronic money and gave rise to Bitcoin, the first digital currency, marking a major advance for the monetary system of human society.
In 2019, the World Economic Forum addressed the theme of Globalization 4.0 and debated on new technologies that will impact the economy in the coming years. Blockchain was one of the emerging themes cited with the potential to transform our current reality, causing a real financial revolution. Over the years it has been possible to observe the increasing use of blockchain and Bitcoin consolidating the importance of this technology.
Also according to the World Economic Forum, by 2027, more than 10% of all the planet's GDP will be exposed in the digital assets market. Understanding the reason for the existence of Bitcoin, its practical use in people's daily lives, in addition to electronic market transactions and its growth history, are fundamental factors to analyze the infinite business possibilities that arise from this revolution.
In 2020, during the economic crisis generated by the COVID-19 pandemic, people and institutions began to look at Bitcoin differently.
Although, at first, the cryptocurrency suffered a devaluation, it showed a rapid recovery and resilience. This antifragile positioned Bitcoin as a store of value, as well as gold, mainly in the eyes of large institutional investors.
These types of investments are considered typical protective assets, a way of safeguarding assets in times of uncertainty such as wars and economic crises.
Even with the growth of the market, the increase in the number of active wallets and the growing adoption of cryptocurrencies, some countries are still lagging behind, and even resistant to the regulations and legislation for this market. This lack of connection between the growing demand and people’s interest in the crypto market with the capacity of countries keeping pace with changes only widens the gap between the world of traditional finance and blockchain.
Exchanges were created to serve traders in the crypto asset market. They are electronic platforms that facilitate the purchase, sale and exchange of digital currencies and tokens.
The principle of these companies is to connect buyers and sellers, ensuring a practical and secure transaction. However, it still has its own slowness. An example: To buy a cryptocurrency through the exchange, it is necessary to open an account at the exchange, create a deposit intention, transfer the money from the traditional bank to it, wait for the compensation, then be able to place a purchase order and carry out the transaction. This process, full of steps and involving many players, happens both in the purchase and in the sale of the assets. In addition to being charged fees at both ends, exchanges and banks.
Even so, even if there is no impediment to the direct exchange of cryptocurrencies, exchanges offer a suitable structure and a safe environment, respecting the current legislation for the purchase and sale of crypto.
The creation of blockchain was based on the principle of decentralization of power for the issuance of currencies and also on the registration of transactions, making it possible, for the first time in history, to create a truly interference-free economy.
Blockchain was born to democratize financial power, passing economic control directly to the hands of people who choose to use this network to transact value.
Its disruptive nature aims not only to decentralize the power of banks, but also to present itself as a safe and democratic option for people.
- Reliability: Blockchain technology has an open and transparent code. Network participants can learn the rules of operation of the system, verify the authenticity, integrity of the content and history, ensuring that the related information is reliable. The result is to improve the traceability of all data and reduce the system’s trust risk.
- Decentralized: As blockchain data is usually stored on thousands of devices on a distributed network, the system and that data is highly resistant to technical failures and malicious attacks. Each block chain is capable of replicating and storing a copy of the database.For this reason, there is no central point of failure.
- Data Survival: Because it has a fully decentralized application, even when one of the parties leaves the operation, the information remains recorded forever, unlike the traditional data base, where it is lost at the end of an operation. Therefore, the blockchain guarantees the survival of the data. This ends up attracting more users to the network, adding even more value.
- Cost reduction: The immutability of the blockchain, combined with smart contracts, provides properties that can make the operation possible even without forcing the identification of users. The irreversibility of transactions (immutability) and anonymous ID verification (encryption-based digital signature) can, in many cases, completely ignore the costs of guarantee verification.
- Security: The records stored in the blockchain have the characteristics of transparency, traceability and immutability. Any record, once recorded on the blockchain, is stored permanently and cannot be changed. This makes registered information safe and reliable.
- Social Metadata: Since all files or information data can be incorporated in the form of codes, defining the data processing program in the blockchain, the exchange can be carried out directly in the block chain. For example, smart contracts can record basic user information in the protocol to ensure automatic code running.
It is notable that the more the network grows in membership, the more innovations emerge from the advantages and possibilities generated by it. In the context of the blockchain, derivative cryptography emerges.
In the traditional market, a derivative is a financial contract between two or more parties that is based on the future price of a given asset. Derivatives are instruments developed to protect and increase price predictability, and may reduce the impact of volatility on an investment portfolio or on a company's revenue. They can also be used as leverage, where the exposure of these assets is increased, extending the possibilities of financial gains.
It is natural for the same process to happen within the crypto asset market. In December 2017, the Chicago Board Options Exchange and the Chicago Mercantile Exchange launched the possibility of entering into Futures and Options Market contracts for crypto assets.
A derivative that is gaining prominence is the DeFi - DeFi - Decentralized Finance Applications network. The term is being adopted to describe a particular class of cryptocurrencies that are born with the purpose of being financial innovations and digital and decentralized alternatives for banking services.
Most DeFi projects are protocols run on an existing blockchain that combine that blockchain's cryptocurrency with its own digital asset and, in some cases, with other assets. All of this is performed to automate financial services with security and reliability offered by the network.
Loan protocols have been the most common applications within the DeFi network. Open and decentralized loans have many advantages over the traditional credit system in that they reduce risk between the parties, guaranteeing the instant settlement of transactions and, thus, making them cheaper and faster.
Banking services offered in the blockchain are also being classified as DeFi and guaranteeing the digitization of mortgages, insurance and issuing of stable coins, dollar-backed cryptocurrencies.
One of the greatest innovations in the application of DeFi is the Decentralized Exchanges. These platforms are used to trade digital assets without the need for an exchange intermediating the maintenance of funds. In other words, trades are made directly between users' crypto portfolios with the help of smart contracts. By reducing one step between operations, it is possible to offer greater agility and lower rates.
However, DeFi are not emerging alone as innovations within the blockchain. The arrival of crypto ETFs, for example, is paving the way in the future market for investment by large companies.
A study published in 2020 by PWC found that crypto hedge funds doubled the value of the asset under management from one year to the next, from $1 billion to $2 billion. According to the same survey, the average annual income of these funds was above 30%.The performance strategy took into account the adoption of crypto derivatives and leverage of digital assets.
The year 2020 also marked the entry of cryptocurrencies on the stock exchanges through ETFs made up of 100% crypto assets. The approval of crypto ETFs opens new avenues for market growth and allows investors, accustomed to the traditional market, to monitor the appreciation of cryptocurrencies. As in the capital market, the “buy and hold” strategy is the best way to obtain interesting results in this type of investment.
The use of derivatives to create structured transactions expands the possibilities and strategies for cryptocurrency investors. These operations are important for the consolidation of the market as they end up attracting professional and institutional investors, increasing profits and further driving the adoption of blockchain.
After 12 years of its emergence, blockchain is still viewed with suspicion and as something complex. Its disruptive essence causes fear in most peaple, making the network use adherence the biggest challenge on a global scale.
Inserting people into this new financial universe and making its use natural, intuitive and integrated with everyday needs is the next big barrier to overcome.
“Over the years, the crypto market has grown and consolidated, proving that its large-scale adoption is a matter of time. Right now, nothing prevents us from anticipating the future and being the change that banking services need:
BlueBenx is the best choice for anyone who wants a complete finance and the safest bridge between the world of tradicional and the finance crypto economy."
Roberto Cardassi Founder/BlueBenx CEO