What is Standing in the Way of Our

Financial Evolution?

This is part two, of a three part series: Engineering an Evolutionary Leap in Finance. See part 1, here

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Times have changed. The economy (and our lives) are becoming more digitized with each passing day. Yet much of our payment infrastructure seems to be frozen in time; a relic from a bygone age. 

Although it can be inconvenient at times, there are good reasons we are still using outdated financial infrastructure. It was all well and good to allow the free flow of information on the web, but we can't allow anyone to copy and paste our bank balance the same way we do with funny cat videos. Storing and transferring value requires trust. 

The Value of Trust

The traditional financial system achieves trust by way of a sprawling web of partnerships between an array of financial institutions, corporations, and regulatory bodies. In a world where verifying the ownership of assets required relying on someone’s word, this was all very necessary. 

Early bankers used to safeguard deposits for their customers by simply writing down balances on a handwritten ledger. This meant that the banker needed to be trustworthy— if they made a mistake or lost their ledger, depositors could be left with no recourse for recovering their funds. 

Centuries later, the basic premise of banking remains more or less unchanged. Ledgers are now digitized and distributed within closed, corporate networks that can span the globe, but ultimately someone still has to be trusted to maintain the accuracy of financial records.

With the advent of distributed ledger networks and blockchains, it’s now possible for people to transact with one another over the internet without the need for a trusted third party. This represents a quantum leap for finance, because it enables the creation of transparent, public ledgers free from the risk of abuse or fraud. 

To get an idea of the value of this innovation, consider that bank card fraud caused an estimated $28.65 billion USD in damages in 2020 alone. Thousands of employees around the world work full time dealing with fraud, and financial institutions take out expensive insurance policies to cover fraud losses. 

These costs are passed on to merchants in the form of fees, forcing them to raise prices. This means you pay the price for outdated financial architecture every time you make a purchase. 

This begs the question; if the technology to build a better system exists, why isn’t everyone using it? The answer is that the trust provided by traditional financial institutions is about more than just preventing fraud and theft. 

Navigating Stormy Waters

Many people think that money is exclusively printed by the government, but in reality the bulk of the money supply is created by private banks in the form of loans. This means these banks play an important role in the overall functioning of the economy.

If banks behave irresponsibly, they can cause a number of serious problems for national economies. Throughout history, the financial sector has witnessed a large number of panics and crises that have bankrupted millions of people and even caused wars.

Regulations have evolved in tandem with private financial institutions to prevent these problems. Central banks in particular play an important role in regulating the financial sector and stabilizing markets.

Currency systems are integral to the financial stability of entire nations. If factories, farms, and businesses are the engine of the economy, national currencies, government regulations, and central banks are akin to the steering wheel, brakes, and accelerator. 

Needless to say, if a car has a powerful engine but faulty brakes or steering, the results are not good. 

The headlines coming out of the cryptocurrency ecosystem illustrate this point very well. Wild price fluctuations make and break fortunes in a matter of minutes. Scams, hacks, and fraud abound, and criminals are empowered.

Of course, there are arguments in favor of unregulated cryptocurrencies. They have also helped assist activists and people living in countries with unstable currencies or repressive, authoritarian regimes. Still, most people are not willing to leave their savings at the mercy of the wild swings of unregulated markets.

Balancing Innovation and Stability

Regardless of our personal opinions about the relative advantages and disadvantages of cryptocurrencies, a new era of financial technology has arrived. This new reality comes along with risks, but also great potential. 

The question is how humanity can harness the best of both worlds. Digital assets are proliferating at a stunning rate, and they allow investors and consumers an unprecedented range of options for managing their finances.

Unlocking the potential of the technological revolution underway and bringing it to the masses while retaining a high degree of security and stability will require a network capable of seamlessly merging the traditional banking sector with the new, emerging class of digital assets.

That network is Millicent.