Looking Beyond the Moon: Blockchain as Financial Infrastructure

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3 years ago

Satoshi Nakamoto's ground breaking white paper introduced the world to blockchain technology with the dream of a decentralized peer-to-peer cash system. However, it has become entirely evident that if you give an engineer a spy-glass, they'll build an observatory. The future of blockchain technology is no longer looking to create peer-to-peer cash systems, but blockchain development seems to have shifted its gaze to much higher heights, looking to move the whole financial world (and more) on-chain.

Crypto is going beyond creating asset classes like cryptocurrencies and NFTs and is beginning to start importing tradFi (traditional finance) asset classes like forex, stocks, commodities, and now even properties like art and real estate to the blockchain. Simply, we are going through this "tokenization craze" because its just a better way of doing finance. No longer does someone have to buy a house to get exposure to the housing market when a property can be tokenized into an NFT, put in a basket with dozens, if not hundreds, of other NFTs then fractionalized into a fungible token to be bought and sold trustlessly around the world on dexs (decentralized exchange). Soon, we may even see mortgages and debt tokens be up for trade on Uniswap too, or even patents and other intellectual properties! Not to mention any list of market derivatives like leverage, options or anything else tradFi can offer and more as crypto markets are arbitrarily programmable.

These future assets I listed, however, have still a while to go before fruition as the base layer still needs to be scaled, backend logic needed to be created, and frontends need to be designed. But those are simple development tasks, as the real challenge is interfacing the blockchain with real life. What authority would regulate a house deed as an NFT? How could under-collateralized debt be enforced if the debtor is anonymous? Linking real people to a crypto address or enforcing a contract with part of it on-chain is an open question in the crypto sphere and seems to be one of the greatest barriers to bleeding edge DeFi (Decentralized Finance) development currently. The solution is most likely going to have to be addressed by the government and other regulatory bodies. However, it woun't be simple as the KYC question is massive on a technical, governmental, economic and philosophical level. Should exchanges black-list addresses of known criminals? What about blacklisting any non-KYC customer? or any address that has used non-KYC services? Would the crypto markets end-up back to something similar to the current elitist financial system? Would KYC'd address be exposed to chain analysis? These questions will need be explored by developers, regulator, and users as our KYC heavy reality is approaching fast.

Ideally, KYC regulations will be non-restrictive enough to leave the questions up to the users. If I only want to trade simple coins on dexs, that doesn't require KYC and I shouldn't be beholden to the same KYC standards as someone who, say, wants to mortgage their house on-chain.

Overall, the crypto world of finance is ever expanding and has the potential to completely replace and upgrade the traditional world of finance. Crypto goes beyond simple cash systems and fun trading tokens, but absolutely has the power to intergrade complex markets and have even more complex derivatives. However, this is only possible with heavy handed implementation of KYC. Hopefully, the crypto space will be decentralized enough to offer any array of KCY options and the law of least private/knowledge will be upheld. Anyways, it is inevitable that engieers and computer-scientist will continue their decentralized crusade and tradFi will eventually be phased out.

Sincerely,

-Phased0x

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