By: Olinto Mendez – Strategic Development Manager in Solidaridad Latina

When talking about crowdfunding and cryptocurrencies, I read so much information that I get confused. However, to feel more comforted I try to go to sources that generate trust for their dedication and time invested in the subject.

There’s a lot of talk that traditional banking will soon disappear with all the new actors on stage. I must confess that I owe much of my professional experience to banking. And I have come to believe that definitely this business won’t last forever. Because of its rigidity and its slow response to changes.

Crowdfunding and cryptocurrencies

“History does not repeat itself but in the mind of those who do not know it,” said the Lebanese writer Jalil Gibran, who among many of his works gave us this little phrase that lives invisibly between us. Manifesting in all aspects of life, including in the world of technology.

Today I’ll talk about crowdfunding and cryptocurrencies. There are approaches that have seemed interesting to me and are in opposition to my beliefs.

The first approach is by Richard Swart, director of a crowdfunding research program at Berkeley University. Who in a symposium on crowdfunding, said that this isn’t a new trend or bias in the financing area. But a new financing system that has a lot to say.

He himself said that “it’s transforming entrepreneurial entrepreneurship, innovation and the first rounds of venture capital.”

What was said by this expert on collective financing tells me that the banks will harmonize their existence with these new figures in the financial world. However, the reality is that the growth of crowdfunding platforms worldwide is accelerated.

Bank Financing
Virtual financing: Average rates on consumer loans at banks are 60%, while P2P lending platforms offer rates of up to thirty percent. Source: El Economista

This gradually takes away any participation from the banks. And to that, I add peer-to-peer lending platforms such as Kubofinanciero. In which a person with money (through a platform) decides to give money to another only based on their reputation. Without going through banks as an intermediary.

This business model is derived from collaborative economy. And it belongs to virtual financing as an additional attraction that doesn’t request such a high interest rate.

Crowdfunding supported by technology

Another new actor that shows up on stage in what was once seen as bank exclusive territory, is Fintech. Which gives the power to decide what to do with money, allowing to work even with virtual wallets. Where once again, banks are excluded.

Now, in the search for the truth about the future of these children of collaborative economy, I found something very interesting. An article powerfully supported with numbers presented by BOUNGY Media, which is entitled: “Crowdfunding: A revolution in financing?”

There we see how dollars managed by continents show that this activity is progressively expanding.

Crowdfunding Cryptocurrencies
Collection of crowdfunding by continents (2016). Source: BOUNGY Media

To make matters worse, titans such as Facebook, Google, Amazon and Apple have also taken a more active role in this market. With digital wallets and mobile payment systems. I even saw Pascual De Juan, BBVA’s Global Director of Innovation, say that the banking industry of the future will have fewer banks and will be led by more global entities.

Like those already mentioned, but with a higher level of technology.

Taking this into account, I think that perhaps the only exclusive competence of banks will be the safekeeping of paper money. And this, in my opinion, is unlikely to last because the tendency is to replace the use of paper money with digital money.

Due to factors such as cost and security, this is a belief that I strengthen when I read a reportage by La Voz de Galicia whose title is: “Paper money, road to irrelevance“. And there they present this graph:

Transactions Spain Currency
Transactions in Spain: Card payment and withdrawal. Source: La Voz de Galicia

The arrival of cryptocurrencies

Almost at the end of my analysis, I have one more important issue to evaluate as well. I am referring to cryptocurrencies, they have been in the eye of the hurricane lately. However, I believe that few can understand why a cryptocurrency represents a threat to banks. And the truth is that banks are a vital part in the multiplication of money.

But now it turns out that blockchains are gradually destined to be reliable and discreet for handling transactions. So much that if we connect with this that the loans, we can now be given directly without intermediation from a bank. Only supported by a digital platform.

And if we narrow it down with the new services that I describe here, it almost seems like the money collection is unnecessary. However, I am not sure if banks are going to fight back and when I have doubts, it’s only enough to see the number of transactions confirmed only by bitcoins. And I see that the change is imminent.

Blockchain Transactions
Confirmed blockchain transactions per day. Source: EspacioBit

Finally, I situate myself temporarily in the year 1976, when the format of VHS videotapes was born. And just at that moment, in this mental journey, we approached Sony (who at that time dominated the market for that product with the Betamax format).

We will find in this colossus of technology an infinity of arguments that gave the assurance that its format was superior to the competition. What would give rise to the famous war of formats, which is parodied by the animated comedy Regular Show by J.G. Quintel.

Regular Show VHS
Source: Toonzone

In the end, the Betamax format dies and Sony in 1988 ended up manufacturing VHS. Time does not forgive anybody and the same would happen to VHS in 1990, compared to the digital discs promoted by the Pioneer Corporation. Which had then the chance to play executioner.

One could probably think that this only applies to technological products. And that it has nothing to do with the economy, finances and banks. But to tell you the truth, I think everything is connected.

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Related: Crowdfunding: Myths vs. Realities

Thank you very much for reading…

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