The potential for "digital disruption" of the financial industry is one of the major consequences of the cryptocurrency revolution.
The idea behind Bitcoin, the first practical cryptocurrency, was to make it possible to move value over the Internet between two people without the need for an intermediary like a bank.
That concept alone - the elimination of the need for banks - is pretty revolutionary. But it's not the only aspect of cryptocurrency that will disrupt the financial system.
The blockchain - the digital ledger that verifies and stores transactions - will change how financial institutions do all kinds of things.
For example, the blockchain can record ownership. That means it can be used to settle stock trades in seconds rather than the three days it takes now. (Yep. You may think your trade executed instantly, but it doesn't clear through the system for three trading days.)
We're already seeing the first steps toward this with Overstock.com Inc.'s (NASDAQ: OSTK) tZERO subsidiary.
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Blockchain technology can also be used to "tokenize" assets - to create digital shares of a single physical asset that can then be sold to investors like shares of stock. In February, Inveniam Capital Partners began tokenizing four buildings, including an office building in Miami.
What's more, cryptocurrencies are revolutionizing how money moves through the financial system....
The Digital Disruption Has Already Begun
Fintech startup Ripple has signed up more than 200 financial institutions as customers for its Ripplenet service. The service uses the XRP cryptocurrency to transmit low-fee cross-border payments between institutions in seconds. Customers include well-known names like PNC Bank (NYSE: PNC), Banco Santander SA (NYSE: SAN), and American Express Co. (NYSE: AXP).
Finally, crypto has emerged as a new investable asset class. And it's not just retail investors who are buying.
Rui Carvalho, the Global Head of Product Management for Connectivity and Feeds for Intercontinental Exchange (ICE), said at the Consensus 2019 conference in New York that 20% of institutional investors currently have money in crypto.
According to a study by Global Custodian, a trade magazine that covers the international securities industry, 94% of endowment funds said they had made some form of crypto investment in the previous 12 months. More than half had invested in crypto directly, while 46% used some form of crypto fund.
The digital disruption from cryptocurrency is no longer hypothetical. It's happening now.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.