David Alderman: Reducing The Cost Of Trust
David Alderman, Research Analyst at Franklin Templeton Digital Assets will be speaking at the upcoming Benzinga Future Of Digital Assets. Mark Nov. 14 on your calendar for the must-attend gathering in the industry!
In today's world, many have perceived crypto as having limited fundamental value and often being driven purely by speculation. While the speculative nature of crypto is undeniable, that speculation is built on a foundation of technology that is a significant leap forward in innovation. The innovation of crypto is best summed up as crypto reduces the cost of trust. In the traditional financial system, any transaction between two parties involves many trusted intermediaries; however, using crypto rails, there are significantly less parties involved in processing a transaction.
Source: Bank of America Global Research, Beyond Crypto: Tokenization (page 54)
The key to eliminating these trusted intermediaries involves sharing a ledger that can be trusted by all parties involved. Enter decentralization. Shared ledgers among different parties are not capable of being fully trusted without sufficient decentralization.
As intermediaries are eliminated from economic activity, substantial economic savings are realized for all remaining participants involved in the process. Less middlemen means less mouths to feed, and improved cost efficiencies. Additionally, the fewer involved parties inherently result in decreased counterparty risks.
In stark contrast, centralized systems, by their very definition, bear inherent weaknesses, such as single points of failure and centralized control. This makes them susceptible to various issues, including corruption, inefficiencies, and mismanagement. It's important to acknowledge these vulnerabilities when contrasting centralized systems with decentralized blockchain technology.
“The safest and most efficient intermediary is the one you don’t need.”
Omid Malekan, author of Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms
There are tangible examples in the real world where cryptocurrencies have found practical use. For instance, Bitcoin, often called "digital gold" because it acts as a sovereign bearer asset, eliminates the frictions of transacting across borders and reduces obstacles in the traditional financial system. Additionally, stablecoins, cryptocurrencies whose value are pegged to the price of other assets, have garnered attention as they have gained more and more adoption, with current total value locked (TVL) at ~US$120bn.
In a recent research report titled “The Relentless Rise of Stablecoins: An onchain analysis of USD-backed stablecoin activity” written by ...
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