Moving away from the consistent novelty and price speculation surrounding cryptocurrencies, a new trend is emerging towards a more open and accessible financial system. The expanding infrastructure and the increasing regulations will facilitate the transition towards open financial tools. Today, the blockchain community has witnessed the emergence of the standardized identity protocols for KYC/AML (short form for know your customer/anti-money laundering). The compliance is a big pointer to where the digital asset market is headed.
For entrepreneurs, the modular, open source tools provide an open avenue for innovation and investment. The idea of monetary sovereignty that cryptocurrencies created has coincided with broader trends in this field. We are moving towards more accessible financial tools for the unbanked population and data privacy. More importantly, open decentralized finance offers a huge potential for entrepreneurs. In fact, it is currently one of the most convincing areas of attraction for investors.
The shift towards open financial tools
Decentralized or open finance refers to an interoperable financial system. It focuses on increased accessibility, standardization, financial inclusion, and transparency. The aspect of wider access to financial tools is especially important to the financial sector. Statistics from World Bank’s Global Findex indicate that more than 2.5 billion people across the world do not have access to bank accounts. Fortunately, cryptocurrencies came in and lowered the barrier. Today, the global masses can access value storage and transfer of funds without going through intermediaries. In other words, cryptos created a new class of assets outside the mainstream financial system.
Cryptocurrencies like Bitcoin have had a positive impact on the financial world. But, the assurance of open and censorship-resistant access is still weak and fragile. A parallel approach seeks to emphasize on open financial tools. These tools can be embedded directly on blockchains as open protocols or created as hybrid systems for digital assets. In fact, the latter approach could be taken by commercial entities and backed with legacy systems.
Examples of open financial tools projects
Open financial tools like Compound Finance, MakerDAO, and Dharma Protocol are just a few examples of open financial tools. They showcase the compelling developments happening in the digital financial sector. These projects are open protocols that run on the blockchain and offer secured lending services. Currently, secured lending takes the lead in the open finance sector. However, other areas like decentralized prediction markets and security tokens are gaining traction.
Despite the impressive potential of open protocols, a complete transition to open financial instruments on blockchain may not be possible. A more prudent approach would be to have a hybrid ecosystem that combines traditional financial services with digital assets and open protocols.
If at all the world will see a wholesome open financial system, proper infrastructure and innovations in the same sphere must be in place. The US regulatory bodies and financial institutions are already warming up to the concept of digital assets. However, they are still holding on for the right market maturity and infrastructure development before diving in.
A standardized, open financial ecosystem
In the future, it would be exciting to see how the landscape of open financial systems on open protocols will integrate with hybrid financial systems. For entrepreneurs, this will rapidly expand the investment market. Organizations will build in a cutting-edge industry that looks to reshape an outdated financial model.
Increasing regulation and identity standardization
As institutions improve regulatory oversight, issues about data privacy and security arise. Users naturally want to duplicate personal data across multiple industries and markets in order to comply with KYC/AML processes. In an open financial system, users have to comply with regulatory structures. However, the good news for entrepreneurs is that there are initiatives in the pipeline to make the process seamless through standardized data security.
Data sovereignty coincides with the cryptocurrency’s idea of monetary independence. Blockpass is a popular distributed KYC platform that is currently pushing the transition to self-sovereign digital identities. Their project provides some critical implications to the open financial systems.
On an open financial system, the identity of users is not private to them. Often, your personal identification consists of sensitive information that relates to you. If corporations are allowed to control such information, it would expose users to privacy risks. This is something that should be left in the hands of the user to control.
Cybercriminals could execute high profile hacks if multiple companies or industries were allowed to duplicate identification data across their platforms. Financial institutions and tech firms could also use the data inappropriately.
Standardized identity protocols allow users to store their identification data locally on their devices. Platforms such as Blockpass have demonstrated how it’s possible to maintain data privacy while still complying with KYC/AML processes. You can enact this across industries by authenticating users’ identities without revealing sensitive personal information. The model is very useful for financial service companies operating in the digital asset sector. Again, crypto exchanges can use their identity verification portal in this manner. Similarly, new generation STOs and ICOs are today targeting regulatory compliant launches.
Startups shifting focus to open financial tools
Over the recent years, many blockchain startups have focused on altcoins and stable coins. However, with the myriad of opportunities in blockchain open financial tool, the focus is shifting gradually. As an entrepreneur, you could reap huge returns by investing in a startup that looks to create a valuable blockchain open financial solution.
When looking to invest in blockchain, focus on startups that are centered on the transparent and efficient blockchain platform. One of the areas that seem lucrative is the transfer of value through cross-border payments. Blockchain’s open financial tools could make the process quick and affordable. Other areas to consider include smart contracts, stock trading, and identity management. Moreover, when identity management is moved to a blockchain, users take more control. They have the liberty to choose how to identify themselves and who else should access their information. So, there is no doubt blockchain technology provides numerous investment opportunities.
Blockchain technology is rapidly moving from geek tech to mainstream adoption. It has found use cases in banking, insurance, data storage, healthcare, music, and other industries. With more than 84 percent of companies dabbling in blockchain technology, entrepreneurs have huge opportunities to explore and reap huge returns.
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