After hitting all-time highs in 2021, cryptocurrency prices haven’t found a definitive floor. And the appeal of crypto’s promise to reinvent money has also reached its limit in a very niche audience. To attract a bigger, more mainstream user base, the new technology’s advocates will have to completely overhaul how they promote it.
Enter crypto. Bitcoin was born in a white paper published on Oct. 31, 2008, just weeks after Lehman Brothers went bankrupt and the government and Federal Reserve started rescuing banks. The paper declared that digital commerce was overly dependent on trust in financial institutions. The idea was to create “an electronic payment system based on cryptographic proof instead of trust." Effectively, trustlessness. Instead of relying on the bankers who repossessed your home while paying themselves massive bonuses, people could opt into a secure, decentralized network called the blockchain. Crypto, the enthusiasts said, would rival the existing centralized financial system in due course.
How to Rebuild Crypto?
I have an idea, though. When we talk about financial transactions, we’re really talking about two different things.
There’s money, a medium of exchange that allows us to buy or sell goods and services more efficiently than bartering. But to make such a medium trustworthy, it needs to be a reliable store of value over time. Otherwise you risk exchanging your valuable good or service for a token that quickly sinks in purchasing power. Indeed, it’s the inter-temporal nature of some transactions that requires the most trust.
So when we talk about money, the second thing we’re also talking about is debt—that is, transactions that are inter-temporal from the start. At the end of the first quarter of 2022, total credit to the private nonfinancial sector was more than $37 trillion in the US.
And few types of debt are more mainstream than mortgages. Back in 1920s America, buying a house might require paying half the value up front and borrowing the other half for five years. Before the US government stepped in, lenders didn’t trust buyers enough to make a 30-year loan with only 10% or 20% upfront, as is common today. Now there are more than $10 trillion worth of residential mortgages in the US.
But real estate transactions and mortgage lending are notorious for the amount and complexity of the paperwork required. Keeping track of the necessary information and processing it efficiently can be challenging. Facilitating those types of transactions—by putting essential information about properties, owners and loans on an immutable digital ledger—could make crypto indispensable.
For the loan originators, after an upfront investment in the technology, a digital record could lead to considerable savings in time and labor. Some of those savings could be passed on to the borrowers. For the mortgage applicant, automated verification of identity, income, bank account statements and the like would speed up a stressful but unavoidable process.
Source: LiveMint
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