New Financial Technologies, Cryptocurrencies, Blockchain, and Challenges

New Financial Technologies, Cryptocurrencies, Blockchain, and Challenges

Burcu Sakiz
DOI: 10.4018/978-1-7998-1196-1.ch006
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As technological innovation transforms our economies, companies and start-ups all over the world are performing developments on financial technologies called “FinTech/fintech” for a chance to thrive. It even sparked the invention of blockchain and the inception of cryptocurrencies (digital/virtual money) such as Bitcoin. The blockchain technology provides Bitcoin's public ledger, an ordered and timestamped record of transactions. Blockchain is one of a kind decentralized technology mainly used by fintechs and it is a distributed as well as decentralized ledger that presents a radical, new, modern, and disruptive way of conducting all manner of transactions over the internet. Blockchain-based applications provide many opportunities to create a more sustainable world. With this research agenda, this chapter contributes to the discussion on future avenues for sustainability and information systems research on fintechs, especially cryptocurrencies and blockchain-based platforms and services.
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Since the global economy is interconnected, the events that took place in the USA also affected the world, bringing the world’s economy to a standstill. During the first decade of the 21st century the world has witnessed corporate scandals like Enron Corporation collapse in USA and Parmalat S.p.A’s financial fraud and money laundering in Italy, global economic crises –the financial crises of 2007-2008- and rising environmental concerns. Unfortunately the global financial crisis brought out the inherent shortcomings of banks and other financial institutions. The financial crisis also brought out the problems associated with having to store your money with a central authority. After the crisis, people were demanding a currency that would not be controlled by a central authority and there was a wish for a new system of money that would not have the shortcomings of regular currencies that leads use of blockchain technology and bitcoin.

Actually financial industry evolution was sparked by the 2008 financial crisis which lead birth of cryptocurrencies. The root cause of what happened during the subprime mortgage bubble in USA and then carried over to the whole global banking system was, in fact, society’s unquestioning faith in financial institutions and the integrity of record-keeping systems in accounting and practices. The recent financial crisis has revealed the inadequencies of some of big institutions and has energized a loose coalition of entrepreneurs and information technology companies and start-ups try to reform and reinvent the current financial system (Olleros & Zhegu, 2016).

Digitization and Internet and Communication Technologies (ICTs) has a strong impact on the financial services industry. FinTech has become a popular term that describes novel technologies adopted by the financial service institutions. Many fintech, insurtech (insurance technologies) and banking start-ups have already adopted blockchain’s brand-new development environment. The key technological enablers for implementing modern ledger systems are distributed database technologies and blockchain. These technologies offer new community-run, open source based opportunities for developing new types of services and digital platforms (Lindman, Rossi, & Tuunainen, 2017). The most popular example Bitcoin, for example, is a purely open-source project with no formal governance structures, developed, directed and managed by a more or less organized group of developers who themselves are often volunteers.

The blockchain, the ledger that underlies the famous cryptocurrency named Bitcoin, has huge implications for many industries especially on finance. The advent of cryptocurrencies and the blockchain technology has brought dramatic changes. Cryptocurrency (digital/virtual money/cash) is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. They leverage blockchain technology to gain decentralization, transparency, consistency and immutability. The de-centralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference and eliminates need for mediation (Rosic, 2016). Also blockchain technology is kind a financial tool that can potentially play an important role in the sustainable development of the global economy.

After literature review, the rest of this chapter is organized as follows. Section 2 introduces fintech history and evolution. Then next subsection explains cryptocurrencies especially bitcoin and recent developments on that area. Another subsection covers blockchain architecture. Section 3 presents several typical blockchain applications in terms of sustainability. Section 4 discusses some possible future directions and technical challenges. Section 5 concludes the paper.

Key Terms in this Chapter

Digitization: The conversion of text, pictures, or sound into a digital form that can be processed by a computer. It is the process of converting information into a digital (i.e. computer-readable) format. Digitization essentially refers to taking analog information and encoding it into zeroes and ones so that computers can store, process, and transmit such information.

Distributed ledger: A database that is consensually shared and synchronized across multiple sites, institutions or geographies. A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is a consensus of replicated, shared, and synchronized digital data and documents geographically spread across multiple sites, countries, or institutions.

Decentralization: The transfer of authority from central to local government. Decentralization is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group.

Fintech: Computer programs and other technology used to support or enable banking and financial services. Fintech is the term used to refer to innovations in the financial and technology crossover space, and typically refers to companies or services that use technology to provide financial services to businesses or consumers.

Bitcoin: A decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Digital Money: Any means of payment that exists purely in electronic form. Digital money is not tangible like a dollar bill or a coin. Digital money, also known as digital currency or crypto currency, is a new and upcoming way of storing value. Unlike traditional currency which can be transferred to paper money from a bank account, digital money is entirely digital with only a number as an indication of value. The currency is often used by utilizing a digital wallet that can be accessed from devices such as computers, smartphones, and tablets.

Sustainability: The ability to be maintained at a certain rate or level and avoidance of the depletion of natural resources in order to maintain an ecological balance. Sustainability is a broad discipline, giving students and graduates insights into most aspects of the human world from business to technology to environment and the social sciences. Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs.

Blockchain: Technology: It is a decentralized, distributed and public digital ledger technology that is used to record transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks.

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