Introduction To The Course
We have all probably come across terms like cryptocurrencies, Bitcoin, crypto exchanges, wallets, etc. If you’re here, chances are you also have heard about these terms and want to know more.
The world of cryptocurrencies seems intimidating and scary to most of us. I’ve been there too. But that shouldn’t stop us from knowing and understanding what the future of finance and the economy could be.
So, here’s a course with a series of lessons about cryptocurrency that aim to make this world a little less intimidating and much simpler to understand. It may even enable you to start making money.
But before we discuss the future of finance, it’s essential to get an idea about the current/traditional financial systems, and this lesson is precisely about that.
What Is the Traditional Financial System?
Finance is a general term used for almost any function that involves money. For instance, your banks come under a financial system since they help you deposit money, get loans, earn interest, etc. The stock exchanges come under a financial system since they allow you to invest your earnings in the company’s shares you prefer and help you make a profit.
Like this, there are so many institutions that fall under the financial system. The traditional financial system has a few fundamental traits.
- Here, the systems are controlled by multinational companies or the government, i.e., a central authority.
- Any currency such as Kenyan Shillings or South African Rand is unlimited.
- Any transaction with money that occurs has to go through the banks or other such systems, and it will be recorded on a centralized data storage called a server.
- Moreover, many middlemen are involved in a transaction, such as a bank, the merchant, the payment gateway, etc.
- The systems are primarily human-run systems that involve little usage of technology.
But these traits of the current financial system pose several challenges that prevent an efficient way of operating things.
Shortcomings Of The Traditional Financial System
- Since all transactions are recorded on a centralized data storage called a server, the data becomes less secure. Even the most minor cyber attacks can cause a lot of damage to what may be essential and confidential information.
- Furthermore, all processes in the system are slow because they’re predominantly human-run. For instance, taking a loan takes at least 3 to 5 weeks.
- Since a central authority controls the banks and makes all decisions, there is a lack of democracy within the system.
- Due to the existence of middlemen, the fees of transactions are pretty high.
These shortcomings can be solved with the help of something called cryptocurrency and blockchain technology. In our next lesson, we will talk about these and understand how these will form the base of a new-age financial system.