What is the future of finance and banking?

Inflation is only a new invention

The first banks were created in the Middle Ages to remove the risk of loss and theft for travellers who carried quantities of gold and silver coins. Templar Knights would hold your gold and issue you with a paper certificate which was redeemable for gold at your next destination.

Over the next few hundred years, many competitive banks cropped up, and different paper currencies abounded. Paper was easier to carry, and still had the same value as the precious metal. The British Pound (sterling) was redeemable for sterling silver, and the US dollar was redeemable for gold. For around 300 years in the UK, there was almost no inflation: if your grandfather bought his first house for £3, then you could also buy a house for £3.

Greed is good… for the banksters

Over time, banks got greedy, and started to issue far more paper notes than they had bullion. Banks could charge massive interest by loaning out $100 000, even if they only had $10 000 worth of reserves or deposits. The 10:1 debasement of currency has accelerated since the 1980’s, and reached new heights of up to 600:1 during the 2008 GFC. The 2020 Pandemic (#GFC2) has seen new levels of incredulity, as central banks around the world have printed paper currency like a Zimbabwean president.

Every country who has printed fiat currency with abandon has seen massive inflation. Check 1920’s Germany, Venezuela, Brazil and Zimbabwe to see what happened to the price of food and fuel when their governments were unrestrained. The fortunes of those who saved in cash and banks were wiped out, whilst the wealthy who held scarce assets were largely unaffected.

Enter the Bitcoin

The first cryptocurrencies were designed to be scarce and deflationary, a rebellion against the rampant currency printing of unscrupulous banks, and a disruption to their monopoly. Cryptocurrency is also convenient, as funds can be carried safely in your pocket, or transferred across borders, without having to carry bulky gold or silver.

With the advent of decentralised finance (DeFi), you can even earn interest on your cryptocurrency whilst you store, stake or “HODL”. Whilst traditional banks may pay you 0.1% interest on your $10 000, they riskily and greedily lend out ten times that amount and can charge as much as 20% interest on the $100 000. The bank gets $20 000 and pays you $10; it hardly seems fair.

How to make <12% APY

Some DeFi providers allow you to take a loan and pay as little as 1% with no credit checks. If you are a saver, you can earn up to 12% interest on cryptocurrencies and stablecoins. What Uber did to taxis and AirnBnB did to motels, DeFi is doing to banks.

In recent years we have watched many banks closing branches, cutting costs and implementing new technologies to try to stay relevant. More than half the world’s major banks have, or will be, offering crypto custodial services, as they cannot beat the new technology, so they may as well try to adopt it. Traditional banks may exist in the next decade, however, their market share is dwindling rapidly.

A century ago, if you wanted to make a fortune, you would invest into pipelines: steel pipelines that carried gas or oil to homeowners and car owners, and banks or financial pipelines that transferred money to workers and businesses. In the new millennium, many homes and vehicles are increasingly powered by home solar units, and there is little need for a traditional bank when you can carry a crypto DeFi bank in your pocket.

This is the way of the revolution: monopolies of hotels, taxis, power companies and banks are falling. In the new P2P economy, the vast majority of us use rideshare and homestay apps which were unheard of a decade ago. How long do you think it will be before we all avoid traditional banks, and borrow or lend money to others through a DeFi app? You have to admit, 1% loans or 12% annual yields are very ‘interest’-ing.

 

By Jeremy Britton

Jeremy Britton started life as a financial adviser in 1992, and went on to own several financial services businesses. An award-winning best-selling author, he predicted the GFC two years in advance, and was an early adopter of cryptocurrencies. Currently he is the CFO of BostonCoin, the world’s first diversified crypto mutual fund. www.BostonTrading.co

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