The next financial disruption is here (yes, that involves crypto)

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You may have noticed a crackle in the air in recent months. A gradual, but still seismic change is taking place in the financial sector, the money business.

This change is called disintermediation.

We know that seven syllables is a lot to swallow, but don’t worry, it’s kind of like a Judd Apatow movie that is much more dramatic than it looks at first glance.

Finance 1.0: the banks between you and the money

Let’s start with a fundamental question: what is a bank?

A slightly less basic answer: since Antiquity, the function of a bank has been to serve as an intermediary between people and capital.

You put your money in the bank. The bank lends your money to others at a higher interest rate than it pays you on your deposit. Banks make money, you make money, other people get loans, everyone wins.

Over time, this function has extended to brokerage operations. You know, when different organizations run different shutdowns, an asset moves from investor to investor, from ordering to risk mitigation.

It all takes time; up to two days for a single transaction.

Version 2.0: Nothing between you and money

This is the normal way to describe our topic of disintermediation, or when financial institutions are removed from trading like the videos from last Thursday’s karaoke night from your phone.

This cleansing is made possible by the subject that you keep repeating yourself about, but never really find the motivation for: cryptocurrency.

When people trade on the blockchain, there are no middlemen on sight, no broker places orders, no one approves the transaction in sight. Just buyers and sellers buying and selling as the Lord intended.

A small step for trading, a big step for the future of finance

Well, it’s not that simple. When people transact on the blockchain, they are registered on that very chain, fulfilling a role typically handled by other people in mainstream finance.

There is more going on there, but on a technical level, that means it’s a lot faster and cheaper to trade assets.

At a revolutionary level, it has the potential to fuel a broad democratization of the whole concept of value storage. The crypto markets are now at a combined value of $ 1.6 trillion, which is 1.6 trillion pieces of evidence that it is no longer an obsession with techies, but a mainstay of the modern finance.

But there is a big asterisk

* Eliminating intermediates may increase the risk. You might have a friend who lost half their fortune in dogecoins on a certain Saturday night; this is because crypto trading does not adhere to regular hours like the NYSE or the Nasdaq. Bitcoin, the largest crypto, is notoriously volatile, and most crypto exchanges don’t have circuit breakers that automatically shut down exchanges when things get too bubbly.

Conclusion: Disintermediation means finance in the internet age. You’re (probably) already working, dating, shopping, and finding entertainment online. What we were talking about is the financial version of these pivotal sectors but applied to Wall Street.

And anyone who’s been on a dating app lately will tell you that the new world isn’t without its flaws, but it’s definitely a good thing to know.

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