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Cryptocurrencies don’t stress the financial system too much because institutions aren’t too involved | Source: Pixabay

Why blockchain is more promising than cryptocurrencies

BLOCKCHAIN technology has been making headlines for a few years now. Innovative companies are finding ways to apply the solution to healthcare, real estate, and many other sectors, but it seems to be making a real dent in the banking and financial services industry – at least from the news stories in daily publications and magazines.

However, a recent report by S&P Global Ratings titled “The Future Of Banking: Cryptocurrencies Will Need Some Rules To Change The Game” feels differently.

The rating agency’s analysts classified cryptocurrencies as speculative instruments and said that they felt the collapse of these instruments would have an insignificant impact on global financial stability.

In the opinion of S&P Global’s analysts, the reason cryptocurrencies aren’t a significant risk is simple.

First, cryptocurrencies are neither an efficient mean of exchange or an effective store of value as evidenced by their lack of acceptance as a payments instrument and their volatility over the past 12 months.

Second, banks and financial services institutions have limited exposure to these instruments, and hence, in the event of a collapse. Therefore, although retail investors would feel the heat, the financial ecosystem wouldn’t be at risk.

In the future, the agency believes that cryptocurrencies might achieve the status of an asset class but will need the¬†coordinated approach of global regulators and policymakers to regulate and enhance market participants’ confidence in these instruments.

However, S&P Global Ratings feels that blockchain technology, which is the foundational building block of cryptocurrencies, has potential to disrupt the financial services industry.

Shared digital transaction ledgers could be a game changer for the various financial value-chains that exist today, says their report.

Analysts also feel that some medium-term benefit from cryptocurrencies and blockchain might accrue to the financial market infrastructure segment as a result of new income generating projects such as futures or exchanges based on cryptocurrencies, or by migrating to more efficient processes built on blockchain technology.