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    Posted by Celsius Network 7 Jun 2019

    How Blockchain Can Give the Financial World a Drastic Makeover

    The phrase “blockchain technology” has become a buzzword and many have heaped praise on its many “disruptive” applications. However, the hysteria has given rise to many inaccurate and vague descriptions of the technology and the term is used interchangeably with other similar ones associated with it.

    In fact, it is more accurate to assume that the blockchain fuss is centred around the open-consensus design of many blockchain-based-platforms such as Bitcoin and Ethereum (although Ethereum will soon be shifting to a hybrid proof-of-work meets proof-of-stake system).

    The open-consensus mechanism of popular cryptocurrencies enables decentralized computing networks to rival the antiquated systems with centralized network designs - and, therein lies the disruptive potential of blockchain. This disruptive force can be called in to derail many centralized systems, even one of the most antiquated ones in the world: the financial sector.

    Why does the current financial system need to change?

    Financial institutions came into existence primarily to facilitate trade by extending credit and acting as a trusted intermediary between parties. In an ideal world, there would have been no need for such intermediaries or marketplaces because goods and services would be exchanged seamlessly between any two parties and loans would be made available on a peer-to-peer network. That is, however, not the case in today’s world due to the possibilities of human error and deceit.

    Instead, trust is placed in so-called “trustworthy corporations” such as banks, marketplaces and legislative bodies, but time and time again, these institutions have caused more harm than good.

    In a previous post, we outlined why millennials need to embrace cryptocurrencies and align against traditional banks. Other than causing a credit-crunch problem for the youth, there are many other reasons why the financial sector is mired in mediocrity at the moment.

    • Perpetrators of Devastating Economic Crises

    This is a time when the public distrust of financial institutions is at an all-time high. Every five years or so, there seems to be a major global economic crisis that spreads across all industries because of the complex nature of financial institutions’ books of business.

    In order to understand the magnitude of the Great Recession of 2008, it can be labelled as the single-biggest economic disaster after the Great Depression, the after-effects of which still continue to permeate our systems. Housing prices declined by 31.8 percent, unemployment teetered close to double digits for years, and the US government incurred massive costs to bail out many banking bigwigs. Despite the government intervention, many institutions belly flopped out of existence wiping out enormous amounts of wealth.

    • Exorbitant Transaction Fees

    Last year when Wells Fargo admitted to business malpractices such as opening new client accounts without their clients’ knowledge, the banks’ infamous history of inexplicable bank charges and fees came to light once again. The shoddy sales targets that banks make their low-level, client-facing employees meet is another well-documented phenomenon, yet there have been few (if any) corrective measures to rectify these sales-oriented operating tactics.

    • Lack of Transparency

    The subprime mortgage crisis was caused by shady dealings by the banks that were inscrutable to the general public. Banks for the most part are given free reign to engage in business activities without a mandate to properly disclose the full extent of their activities. They are able to shroud their activities with unethical and outright incorrect reporting, such was the case with many banks mired in the LIBOR corruption case.

    • Fraudulent Players

    In the past few months, the financial sector’s major scandal has been the unravelling of the illegitimacy of the LIBOR. All 12 banks and their high-level personnel that were in charge of LIBOR made headlines as it became evident that they had “submitted false daily data in order to portray a false picture of their health.” The total fine shared by the guilty banks has been estimated to be around $9B, with the bulk of the blame heaped on Barclays.

    • High Executive Fees

    Bank executives and Wall Street hedge fund managers regularly top the list of the richest executives in the world. Many have been known to take a significant chunk of their institution’s profit margins despite financial ruin caused by said firms, further inciting the ire of all stakeholders involved. Banks and their players seem more enamoured of filling their own pockets than acting on their clients’ or investors’ best interests.

    Thus, the banking system is broken and is in dire need of a drastic overhaul.

    The Hybrid Solution: The Celsius Network

    The trust-less nature of open-blockchains can seem like a drastic overhaul from the current “structured trust system.” Taking a leaf out of the sharing economy model, it appears that the right balance of a “pseudo structured trust system” has the ability to lure in users.

    When it comes to wealth management, it is human tendency to be more cautious in general, thus, a public blockchain-based banking system might not enjoy widespread acceptance.

    The solution to that problem lies with “smart contracts” in the blockchain.

    A “smart contract” is a computer protocol that is managed by the decentralized blockchain system and can act as a “virtual enforcer;” it allows for a set of rules to be executed and recorded on the blockchain in a safe, open, and accessible way. Due to their incorruptible nature, smart contracts can perform sophisticated financial transactions in an automated, low cost way.

    At Celsius, we are building the critical elements necessary to enable such platforms to transact and deliver value to the Ethereum community.

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