Think cryptocurrency won’t impact your life? Think again! Several of these cryptocurrencies are on track to solve inherent problems within our banking system. And that will likely transform how we produce and consume data, much like email technology and cell phones did previously.
Cryptocurrency has been making the news recently and will likely be in the spotlight for months to come – and with good reason. According to CNBC, experts predict the cryptocurrency market could reach $1 trillion this year. But it’s the changes cryptocurrencies like Ripple are making within our banking system that promise to be the big story.
Speed and Cost: Two Barriers to Moving Money
The two main problems customers and banks face when moving money are how quickly it can reach the desired destination and how much the transaction will cost. Within the U.S. these issues aren’t as noticeable. We can easily move money around with a few clicks of a button or the swipe of a card. But try sending money overseas. You’ll be shocked by how long it will take and how much it will cost. In fact, it’s jokingly been said that the quickest way to get money from the U.S. to Europe is to withdraw cash from your bank, buy a ticket to Europe, and fly it there yourself!
Seriously though, there’s a lot of truth to that. Depending on where you are located in the U.S. it can take a day or more to electronically move money to Europe. If your goal is to move money to a place with a less developed financial system the delays and costs go up significantly.
Even in the U.S., there’s an internal cost for every transaction you make. Have you ever shopped in a store that has a sign stating the minimum amount you must buy before you can use a credit/debit card? The reason for that minimum is the costs that must be paid to all parties involved in the transaction and the costs involved in ensuring the transaction is completed without fraud. Retailers can lose money on small-dollar transactions, if they don’t stipulate a minimum purchase.
Solutions Are in the Offing
Ripple, currently the second largest cryptocurrency behind Bitcoin, is focused on finding solutions to these problems. Ripple is currently partnering with banks to use its XRP cryptocurrency system to move currency anywhere in the world instantly – and with virtually no transaction costs. That has huge implications for reshaping our banking system. But it will impact other areas of our lives as well.
Think about the impact email had. Prior to email you had to physically mail information to another person. That took time and money and probably limited the amount of mail you sent. Using email you may send and receive dozens of emails each day – quickly, with zero cost. This has reshaped how businesses work and how we communicate.
And how about photos? Not too long ago, you likely took only a handful of photos in a month or even a year. Why? You had to have a camera with you, it needed to be loaded with film, and it cost money to buy and develop the film – not to mention the inconvenience. Today you can take a limitless number of digital photos with your mobile phone at virtually no cost. This transformation led to the creation of firms such as Instagram and Snap.
If you consider the far-reaching impact email and digital photos have had, it’s not such a big leap to envision how this transaction-free payment system could reshape how we produce and consume data. We can only imagine what businesses will be created when that happens!
It’s too early to know which cryptocurrency will eventually dominate the currency space, so making an investment is pure speculation. But the ability to move money instantly and without cost is a powerful new tool that will disrupt our current banking system. And you won’t be immune to its impact. The next time you’re thinking about buying a stock ask yourself: Will this stock be hurt or will it benefit by this shift to an instant, transaction-free payment system?
Ryan Collier is the Director of Investment Management with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at bedelfinancial.com or email Ryan.