Blockchain is one of the most important innovations over the past decades. One would say it promises the same level of disruption that Uber brought to private transportation and AirBnB brought to the hospitality industry. A lot has been said about the promises that blockchain brings, particularly in the area of finance and investing.
Blockchain provides a way for untrusted parties to agree on the state of a database, without any middleman, by providing a trusted ledger that doesn’t require administration by a third party, blockchain could be used to provide certain financial services like payments or identity verification without a trusted third party, like a bank. Also, blockchain allows for the use of tools like “smart contracts,” which potentially automates manual processes, — from clearing and claims processing to tokenising commodities.
Some of the applications of blockchain in finance and investing that can cause this revolution, include:
Currently, facilitating payments is very profitable for banks, and it provides very little incentive for them to lower fees. From local bank transfers to cross-border remittances and even letters of credit generate a sizeable part of revenues of banks.
Cryptocurrencies like Bitcoin, Ethereum or Ripple are built on public blockchains where anyone can use them to send and receive value, without a trusted 3rd party. The speed of these transfers could be as fast as seconds, or in dire cases of network congestion, take up to 16 hours — as experienced during the December 2017 price hike. This still presents a better solution to the current ACH system used in most developed countries in the world today. While developers are still working to further optimise the number of transactions per second many blockchains can process, blockchain companies like Bitpay & Fliqpay enable merchants accept cryptocurrencies as a mode of payments at cheaper and faster rates.
Most traded assets are difficult to transfer or subdivide. Buyers and sellers trade paper that represents all of, or a portion of, the asset. They also have to trust third parties to verify the authenticity of these assets, which could be complex, inefficient and can be hard to track. One solution would be ‘Tokenisation’ — the ‘slicing up’ and ‘digitisation’ of assets. This would give investors far easier access to a larger range of asset classes. Commodities, Stocks and other financial assets could be tokenised and traded easily on exchanges.
Faster clearing & settlement
Legacy structures existing for clearing & settlement houses in finance often don’t receive the innovation that they deserve. Thus, the structure hasn’t changed much in decades and, as a result, it hasn’t kept pace with technology. The clearing process is slow. Trades still take up to 48 hours to settle and clear. This introduces an element of risk into the system. The process is also manual and relatively inefficient, with different layers of communication still happening (often by phone) between the clearinghouse and other counter-parties involved.
The use of blockchain has been estimated by Accenture to have the potential to save as much as $10 billion.
With the application of smart contracts, the transparency of transaction data on the blockchain will enable near-instantaneous settlement of trades. This would also make transactions easier to audit and ensure that all parties involved in transactions have fair and equal access to information.
Traditionally, new businesses have to target Venture Capitals, Angel Investors, or even banks. Initial Public Offerings (IPOs) via a stock exchange also came about. However, IPOs are a more advantageous route for self-established businesses. Nearly all these forms of fundraising are infested with many intermediaries including exchange operators, investment bankers, lawyers, auditors and crowd-funding platforms. These often take some time to be complete.
Blockchain technology is transforming this by allowing businesses in spite of size, to raise funds on a peer-to-peer platform through Initial Coin Offerings (ICOs). The startup industry is already under transformation by this new funding mechanism.
The article in this link touches more on this subject.
Know Your Customer procedures are a major pain point for all financial institutions according to Thomson Reuters 2017 KYC report, with the costs ranging in tens of millions of dollars. While there is an emergence of id-techs, such as Shufti Pro, Onfido and others, blockchain could allow for a wider and readily accessible database that all organisations worldwide can use to verify identities, without duplication. This would serve to further reduce the costs.
Blockchain has the potential to reduce costs, accelerate administrative processes and increase trust in financial transactions. To ensure worldwide adoption it needs to surmount the hurdles of legacy systems and regulations.
This article is in partnership with Quidax. Quidax is a European based digital assets exchange with a focus on Africa. We provide a seamless platform for users to send, receive, buy and sell cryptocurrencies using their local currencies.
Why Bitcoin could be worth $1,000,000
Leader of Europe’s biggest crypto exchange revealed the price of the flagship crypto could hit the $1,000,000 million mark.
Jesse Powell, the leader of Kraken, Europe’s biggest crypto exchange said Bitcoin could be priceless and the world will soon give up pricing the world’s most popular crypto asset in U.S dollar terms.
Speaking to Bloomberg, he revealed the price of the flagship crypto could hit the $1,000,000 million mark within a decade.
— Bloomberg TV (@BloombergTV) March 4, 2021
He said, “The people that are believers in Bitcoin see… it’s going to replace all of the world’s currency so that basically means whatever the market cap of the dollar is, the euro — all of that combined is what Bitcoin could be worth,” Powell continued.
“I think in the near term, people see it surpassing gold as a store of value, so I think $1 million as a price target within the next ten years is pretty reasonable.”
The top European crypto leader was obviously bullish on the flagship crypto-asset;
“Of course, you know, we can only speculate, but when we measure it in terms of dollars, you have to think it’s going to infinity,” he told Bloomberg TV about future price trajectory.
“This national currency’s only fifty years old, it’s already showing extreme signs of weakness, and pretty soon I think people are going to start measuring the price of things in Bitcoin,” he noted.
In addition, a crypto strategist William Clemente said, “Looking at Reserve Risk, this Bitcoin Bullish Run is still in its Early-Mid stages.”
— William Clemente III (@WClementeIII) March 3, 2021
Recall some months back, Raoul Pal, the founding partner and CEO of Global Macro Investor who has more than 50% of his capital in the flagship crypto, predicted a wave of institutional funds that could likely push Bitcoin to $1,000,000 in the next 5 years.
In an interview with Stansberry Research, as seen on Youtube, the former hedge fund manager revealed the global economy was moving from the “hope phase” to the “insolvency phase” as global investors realize that the economy is going to take much longer recovering from COVID-19 pandemic than anticipated.
He said, “There’s no stimulus around, and we’ve got more problems to come to Europe, the US, and elsewhere, and businesses don’t have enough cash flow. They’re closing in droves and that’s what I call the ‘Insolvency Phase’…
“Yeah, I think [$1 million is] about right. Just from what I know from all of the institutions and all of the people I speak to, there is an enormous wall of money coming into this. It’s an enormous wall of money. Just the pipes aren’t there to allow people to do it yet, and that’s coming, but it’s on everybody’s radar screen and there’s a lot of smart people working on it.”
Why buying Bitcoin in Nigeria is not cheap
It appears to have become much difficult for Africa’s most important crypto market to get Bitcoin at a fair value.
It’s no longer news that the recent CBN reminder restricting Nigerian financial institutions from Bitcoin and other Crypto assets have started to spur negative effect in the crypto industry when considering the cost of buying the world’s most popular cryptocurrency at Africa’s largest crypto market.
A recent study by Nairametrics revealed the flagship crypto asset, Bitcoin traded as high as 46% premium on some P2P exchanges and untraditional channels when compared to the use of Nigerian bank debit cards before the Crypto ban took effect, meaning the price of a bitcoin on such platforms was much expensive than its average price on other Crypto exchanges of around $49,000 at the time.
Crypto experts are of the bias that although the Central Bank’s recent directive does not criminalize ownership of Bitcoin, the circular will however make it difficult for them to process debit, credit card, and bank transfer transactions.
This is already increasing the complexity of a significant number of Nigerians that often use their local currencies in buying crypto assets. Many Crypto exchanges interviewed by Nairametrics spoke on the challenges many of its Nigerian users face buying Bitcoin at a fair value on the account that Nigerian leading financial payment providers such as Paystack, Flutterwave have arbitrarily cut ties with Crypto exchanges.
Adding more woes to young Nigerians adamant about buying the flagship crypto asset is the prevailing dollar scarcity in Africa’s leading economy which had often led many to buy the dollar at the black market rate of as high as N500, knowing fully well that all Crypto assets value are denominated in U.S dollar.
Adding credence to this, Rume Ophi a.k.a. Cryptopreacher, and Nigerian Crypto Educationist said;
“Nigeria’s bitcoin price isn’t consistent because it is pegged to the dollar (Usdt), which is a bit different from the parallel market, the one we call the black market or abokifx.”
He added weight to the exchange rate disparity on some Crypto exchanges and other channels Nigerians have been left with
“At the time of writing, Paxful an online peer 2 peer platform pegged 1 USDT to 475. This means you need 475 naira to get 0.0000004sat (the smallest unit of bitcoin is called sat). Whereas a black market vendor is also known as OTC will sell for 480/$,” Ophi said.
The effect of the CBN crypto ban is already breeding bad actors that are currently taking advantage of the high thirst for Bitcoin as Luno a leading African-based Crypto exchange in an email sent to Nairametrics sheds more light on the cost bitcoin buyers in Nigeria must bear;
“Pushing people underground also makes it easier for scammers to exploit Nigerians, and we are already seeing Bitcoin trade at huge premiums in the country as a result of the ban.
“Other companies have made the choice to find workarounds that are less visible for regulators – for example, Peer-2-Peer (P2P) trading. Our view is that P2P trading would go against the spirit of the CBN’s directive.
“We believe that the focus should instead be on demonstrating to the CBN that exchanges such as Luno have the necessary controls in place to address the concerns it has in relation to cryptocurrencies.”
What you should know
- Recall, the Central Bank of Nigeria had recently notified Deposit Money Banks, Non-Financial Institutions, other financial institutions against doing business in Crypto and other digital assets.
- In a circular dated 5th February 2021 and distributed to regulated financial firms, the apex bank of Africa’s largest economy warned and reminded local financial institutions against having any transactions in crypto or facilitating payments for crypto exchanges.
- Nigerian Apex bank further warned Nigerian financial stakeholders that any breach of this directive will attract serious regulatory sanctions.
Luno also spoke on the effect the CBN crypto ban will have on Nigerians in the long term, stating,
“Any attempt to restrict access to cryptocurrency does not protect Nigerians. It holds them back and leaves them vulnerable. It prevents honest Nigerians from taking advantage of all that cryptocurrency has to offer them.”
Bottom line: The rate of purchasing the most widely used Crypto asset in Nigeria is currently trading at a premium amid the Central Bank’s directive, suggesting it is getting much harder for Africa’s most important crypto market in getting Bitcoin at a fair value.
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