Italy is in the midst of both a political and economic crisis. This is a major concern not only for surrounding countries, but for the global economy as well. While so far, the damage to markets outside of Italy is mostly limited to a sell-off in global stock markets, there is no telling what the long-term damage could be. Just as the United States’ economic collapse centered on the sub-prime mortgage crisis triggered downturns in Greece and across Europe, the United States and outside markets could reap major effects from this current crisis.
In an effort to limit the effects stemming from its financial crisis, Italy decided to implement blockchain technology. A decision that many may see as controversial, however, it is far from that. In fact, I believe that the Italian government’s decision to embrace blockchain technology is a significant move forward, both economically, as well as politically and socially. Not only for the Italian markets, but the global economy as well.
Benefits of decentralized banking systems
By definition, decentralization is the process of redistributing or dispersing functions, powers, people or things away from a central location or authority. In this case, we look at moving power away from a central bank or financial institution.
The first and most important benefit of decentralized banking is not having to rely on the central power to stay afloat. In Italy’s case, as well as almost every other economic crisis, the root of the problem falls on the country’s government or centralized banking system’s shoulders. Every economic decision is made by this sole entity. In a decentralized banking system however, blockchain allows for everyone to be the bank and participate in the process. Italy has suffered many setbacks owing to its poor economic state and is in growing debt due to poor banking decisions, but by implementing blockchain, it is taking a step in the right direction for a more stable and healthy economy.
Secondly, decentralized banking systems move away from traditional paper money, high costs and inflation. A problem with fiat currency is that it is only issued by governmental agencies and stored in traditional, centralized banks. These banks often issue loans to consumers without much regard for their ability to pay them back on time, and that leads to inflation. High interest rates are often put in place with the goal of deterring consumers from borrowing money they can’t pay back in a timely manner, but that has proven to be largely ineffective.
Today, the only way to pay off old debts is to borrow more money. With decentralized banking systems, this is not the case. Instead, through blockchain technology, a digital exchange system is created to facilitate exchanges while having lower and almost insignificant transaction costs. Debts can be paid off faster and more securely due to the immutable nature of the blockchain and the elimination of a ‘middle man.’ Everything is done over the blockchain, and is automatically recorded, noting each and every payment made. Therefore, the banks, government, and citizens are all included in the process.
And finally, as more and more centralized banks fail, more citizens are seeking alternative and decentralized banking options. The first and foremost being cryptocurrency. Cryptocurrency is used for payments in many industries, so why not in traditional banking?
The Rise of Bitcoin and cryptocurrency
It should come as no surprise that once Italy announced its plans for widespread blockchain adoption, Bitcoin and cryptocurrency prices began to increase. Why? When you see an economic crisis of this scale impacting a country with the clout of Italy, it clearly points to the need for decentralized banking systems and alternative currencies.
Since the U.S. financial crisis of 2008, consumers have been hesitant and distrustful of financial institutions of all sizes. Consumers do not want their own financial futures to hinge on the health of their country’s economy, which is why there is a consistent desire for alternative economies. When we see financial crises and economic downturns, it is only natural that cryptocurrency prices rise. Each economic downturn is a point in favor of cryptocurrency.
Bitcoin and cryptocurrency provide consumers with flourishing optimism that should boost the economy, while the blockchain network itself, with its immutable nature, provides transparency that can help reduce corruption in the public sector and help restore people’s faith in the government and its financial processes.
Although specific details on how the Italian government will leverage blockchain technology are a bit hazy, it will certainly enable citizens to contribute to the development of the nation’s economic and societal future. While it may take some time to unroll, the benefits can be seen in other systems that attempt to integrate digital currency with real-world infrastructure.
There are systems today, such as Blue Chip Vision’s BASLx™ that allow the cryptocurrency currently parked in people’s digital wallets to be invested in real-world projects, bridging the gap between centralized and decentralized systems. It is a smart, mutually-beneficial start to creating a sustainable decentralized system. Access to a cryptocurrency liquidity pool benefits manufacturing and construction, while the presence of real-world infrastructure provides a tangibility to those that are new to crypto and increases their confidence in investing.
Italy’s current economic crisis isn’t the first of this nature, and certainly will not be the last. I believe that these crises are fueling both the desire and need for a decentralized banking system across the globe. Embracing cryptocurrency and blockchain technology is the first step in transforming the global market, and as Bitcoin and other digital currency’s prices continue to rise, we will see decentralized banking systems implemented in no time.