Last update: 17.09.2024 08:34
Smart contracts form the basis for cryptocurrencies and P2P (peer-to-peer) or person-to-person direct transactions between sellers and buyers – without intermediary financial institutions. The financial market is under pressure because the blockchain offers countless alternatives – and investors are looking for guidance. We explain the financial market of tomorrow.
The multitude of new forms of investment and offers does not necessarily make it any easier. Here is a coin, a digital currency designed to make the exchange of value more transparent. Then there’s a credit solution or insurance for everyone without a bank or insurance company. Let’s take a closer look at the special features of blockchain solutions.
Cryptocurrencies: Bitcoins and other non-cash coins
Since last year at the latest, when the price of Bitcoin, the most prominent cryptocurrency, went through the roof, almost everyone has heard the buzzwords such as coin, crypto or ICO. And perhaps even considered whether they should get involved… But how, where and what exactly? Cryptocurrencies are possible thanks to the Blockchain technology that stores contracts directly with the contracting parties – without anyone in between. Blockchain wants to revolutionize the market and eliminate intermediaries. In concrete terms, this means that thanks to blockchain, we no longer need banks to process financial transactions, but trade directly via our computers. As information about transactions is stored in several places and no longer centrally, no one can make changes on their own, the system notices this and makes fraud practically impossible. The system is unhackable – until now.
Bitcoin, Ethereum, Ripple and other digital currencies consist of a code
This code cannot be cracked – at least not yet. A virtual currency is also limited by natural resources: They require a lot of computing power. What’s more, cryptocurrencies are currently virtually unregulated. Nobody knows what restrictions are still to come and how this will affect the value. Some say it will become established; after all, you can already pay with it in some places – in other words, it’s very real. Others speak of a hype, a bubble that will burst the day after tomorrow at 09:20 – or at some point soon. In any case, there are more and more trading platforms for it and there are already ETFs invested in cryptocurrencies. Investors as well as banks and insurance companies will not be able to avoid further involvement with digital currencies.
Peer-to-peer: from person to person without a central intermediary
Crowdlending, crowdfunding, crowdinvesting, peer lending or similar are the names of offers where you can “lend” or invest your money directly and receive interest or benefits in return. Whether for insurance or loans. The money flows directly between depositors and recipients, the contract is in the blockchain and no longer with the credit or insurance institution. The possible applications are endless: whether for local SMEs that do not (want to) obtain a loan from a bank, for projects or new products.
Wherever money flows, a smart contract can bring the contracting parties together. The special feature is the elimination of traditional intermediaries (such as a bank or insurance company). Nevertheless, a blockchain solution is needed, usually a technology company that offers the service. Here too, transaction fees are usually charged. However, they are generally lower, more transparent and more directly linked to performance.
Risk hedging also takes place via the blockchain participants. This is because the SME receiving the money can go bankrupt and the project or new product simply does not work. In most cases, the money is then completely gone. The Swiss crowdfunding scene is being monitored at Lucerne University of Applied Sciences and Arts – regardless of whether it is based on sophisticated blockchain technology or a simple platform. There has been a boom here in recent years. It is also noticeable that many platforms emphasize a social idea. The money “promotes” creativity. The risk remains or must be assessed by the investor on a case-by-case basis, which is why you need to take a close look when investing in corresponding financial products and also be able to cope with a total loss.
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