CryptoVantage is committed to simplifying the world of cryptocurrency

CryptoVantage is committed to simplifying crypto

BeginnerIntermediateAdvanced
  • Home
  • >News
  • >How Cryptocurrencies Restore Trust

How Cryptocurrencies Restore Trust

There’s a saying that gets thrown around a lot – “Trust is a precious commodity.” So much that it could as well now be a meaningless platitude. While this saying might be worn out – the premise behind it is evergreen: trust is a crucial and indispensable part of humans’ co-existence.

But if you care to admit, trust is one eroding element in everyday life. This is particularly true in finance. As it is, people everywhere are yet to see any reason to trust how their money is handled – whether by banks, tax hawks, or even charities they give to. The finance system is broken, and it just doesn’t inspire trust. Could cryptocurrencies change this? Could their revolutionary features help bridge the trust chasm between people and finance?

Is it possible that cryptocurrencies could restore people's trust in the financial system?

Today's Finance System: A Trust Deficit

There’s no love (trust) lost between the average person and the financial system, and that’s putting it mildly. Inflection points in the financial system’s history, like the 2008 global crisis – where the ordinary person bore the biggest brunt – only worsened the distrust. Many other financial scandals by big banks over the years have done no favors to it either.

Polls around the world continue to reveal a distrust of big money. A study by YouGov showed just 55% of Brits trusted banks, with 43% in Germany, 39% in France, and only 35% in Italy. In Canada, customers trusted their toothpaste and retail chains more than they did banks. In Australia, a mind-blowing 94% of people did not trust banks. In Kenya, a survey found that lack of trust was one reason 35% of citizens did not save money in banks. This trend was replicated across other countries, including the United States, India, and South Africa. Bank of England’s Chief Economist Andrew Haldane revealed in a speech that consumers around the country described financial services as “corrupt”, “manipulated”, “self-serving”, “destructive”, and “greedy”.

What’s the root of this level of distrust in the finance system? In all the surveys, people disclosed the following, and more, as the reasons behind their waning confidence in banks:

  • Hidden fees
  • A feeling that customers were treated as numbers and not people
  • Suspicion about banks’ motives
  • Unfair bank fees
  • Lack of transparency in bank products, rates, and financial reports
  • Products that customers did not need or were inappropriate

Why Does Financial Trust Matter?

When people’s trust in financial services diminishes, a lot is at stake. First off, it takes a toll on the economy. “…there is now a great body of evidence…that lack of trust jeopardizes one of finance’s key societal functions – higher growth”, said Haldane in the speech. When that happens, it’s not the high-tower, glass-walled bank buildings’ owners that suffer from the fallout. It’s the ordinary people.

Another impact of the lack of trust in financial systems is exclusion. Here’s the thing: when people distrust their local bank, they will disassociate. Worse, already unbanked people will stay that way. To be underbanked/unbanked is a risky proposition: people can’t access services like loans, wealth-growing accounts, and insurance to protect themselves. That sort of thing has a negative ripple effect on the entire economy.

How Cryptocurrencies Restore Trust

How can cryptocurrencies help turn around this state of affairs? Before we get started on that, let’s do a refresher on the unique qualities of crypto.

Thanks to the genius of Bitcoin inventor Satoshi Nakamoto, whose pioneer cryptocurrency spawned an entire industry, crypto is not beholden to the whims of big banks and governments. Key inherent qualities of the currency are ‘decentralized’, ‘immutable’, and ‘trustless’. Here’s a look at each one individually:

Decentralization

Decentralization means cryptocurrencies are not owned, controlled, or regulated by anyone. Crypto networks are run by thousands of computers, referred to as nodes, distributed across the globe. These nodes maintain and secure the network. In short, power rests with the people. Isn’t that refreshing? After millennia of governments and regulators dictating every last detail about money, we finally have a system where the regular person can play.

Immutability

Immutability means that once records go on the blockchain – crypto’s underlying technology – those records are permanent. This is revolutionary – because that idea alone effectively roots out corruption or fraud. The power of immutability is reinforced by its decentralized nature – any records that go on the blockchain do so only after consensus is reached by validators.

Trustless

What about ‘trustless’? Admittedly, it does sound counterintuitive. Folks in computing will tell you that if a system is trustless, it means the show will go on whether the parties involved trust one another or not.

Strip off the buzzwords, and you discover how cryptocurrencies can inspire trust just by being. Forget the existing financial system where the value of money is manipulated by governments. Cryptocurrencies respond purely to the forces of supply and demand.  People can trust such a currency because it’s not being bent to the caprices of the powers that be.

Thanks to their decentralized nature, cryptocurrencies can only undergo changes when the majority of the community approves. Unlike with banks, every card is on the table. When was the last time your government or bank consulted you on a single monetary policy?

It’s Hard to Trust Fiat

At the same time, whether it’s insider trading, ambiguous tax policies favoring the rich, etc., we have a finance system that discriminates against millions of people. When US President Barack Obama once described the beneficiaries of this flawed system as ‘fat cats of Wall Street’ he captured the frustration of entire populations disenfranchised by a gamed financial system. With cryptocurrencies, no one is pulling the levers in the back door. There are many more examples of absurdities of the traditional finance system that make people turn away and which cryptocurrency could effortlessly get rid of.

That said, it would be neglectfully remiss to leave out cryptocurrency’s non-inflationary nature that enables it to restore trust in money. Look, you don’t need complicated data analyses to understand the extremely inflation-prone nature of fiat money. Think about what a US dollar bill could buy five years ago and whether it can buy the same value today. It’s hard to trust fiat money as a reliable store of wealth when you can’t expect it to deliver the same value as before. By contrast, cryptocurrency is immune to the forces behind inflation, such as money printing. Citizens of hyperinflation-hit countries like Zimbabwe, Venezuela, and Iran have had, many times over, their faith restored in the financial system after Bitcoin and other cryptocurrencies offered them value in the face of worthless national currencies. Even big-time billionaires and entire institutions are turning to Bitcoin to shield themselves against Fiat’s inevitable inflation.

Finally, crypto is being used to restore trust in an area forever fraught with suspicion: charities. Last year, Give.org’s report showed just 19% of respondents trusted charities. This can prove crippling for such organizations that rely on the public’s goodwill to do good for society’s vulnerable. Which is probably why they’re now turning to cryptocurrency to promote transparency and get back into the public’s good books.

Final Thoughts on Trust

The element of trust is long-gone in the world we live in – particularly in finance. That’s dispiriting since finance is a crucial part of survival itself. Luckily, cryptocurrencies are helping to restore it. As big money and governments control the financial system and play it like a harp – eroding people’s faith – cryptocurrencies are moving to their own beat and rebuilding it. Perhaps not as quickly as we’d like, but progress is better than nothing.

Article Tags
Hope Mutie

About the Author

Hope Mutie

Hope Mutie is a professional writer and editor whose interests include fintech, cryptocurrency, and blockchain. She engages with crypto audiences by curating content that's fun-to-read, educational, and offers unmatched value. Hope is part of the brilliant team at Go Full Crypto - a podcast and service that enables your transition into crypto.