What Draws Young People to the Blockchain

Reading and listening to all the negative news and pronouncements about crypto coming from folks like Warren Buffett, Charlie Munger, Jaime Dimon, Senator Elizabeth Warren, and others, you would think that crypto has nowhere to go but down.

However, that is just recency bias. If you zoom out and take a look at the history of most technologies like the PC, email, credit cards, even the Internet, you will realize that most new technologies have had their share of fraud and scams. Not because of the technology, but because of the humans involved in those. Eventually, though, the technology and the law try to catch up and make the barrier for fraudsters higher, but it is an ongoing cycle.

Technology adoption is not always cut and dried. Once a technology is introduced, it does not always gain adoption immediately. Before your iPhone or Android phone became commonplace, there were Palm Pilots, iPods, pagers, digital cameras, and different gadgets. The success of technology adoption is often predicated on previous high-profile failures that provided learnings for future developers and startups.

Even credit cards still have frauds and scams associated with them. Like crossing the street, we have made our peace with it and learned to manage the risks. Crypto and blockchain, at least the ones that are not simply memes and are technology-based, do solve a problem.

Take what the finance industry for example calls T+2, or trade date plus two days for clearing and final settlement. If you sell your shares through a broker-dealer in an exchange today, you'll only get your money two days later in your account. While that may be okay with Boomers and Millennials who have experienced that for most of their investing life, for Gen Z investors who have used crypto and experienced final settlement in a matter of minutes, that is not always acceptable. In fact, T+2 is one of the areas that experts feel is ripe for disruption by blockchains.

It's even worse with banking. While Fedwire has made U.S. intra-bank transfers faster, the current offshore SWIFT messaging system does not allow two banks that do not have a special arrangement to send money directly to each other. Each bank has its own database which it does not share with other banks. Instead, if a worker here wants to remit money to his loved ones abroad in another country, the U.S. bank often needs to send the instructions through an intermediary bank, often in a financial capital like New York, where it then gets relayed to the proper bank abroad.

Sometimes there are multiple hops. Each of these hops involves a certain delay and corresponding transaction fees for the banks involved. So not only is it slower, it is also more expensive.

Then of course there is checking. We all know how long it takes to deposit and clear an out-of-state check, let alone a foreign one. Fewer Gen Z and Alphas have accounts with traditional banks compared to other generations.

Then there are the fees. Each bank that handles a part of a remittance hop has its own share for transaction fees. There are different types of fees. Minimum balance fees are just one example.

With that in mind, why does the blockchain system and the subsequent services available attract younger generations? It is in the comparative simplicity. With a similar transaction in a blockchain-based system such as Bitcoin or Ethereum, all the sending bank has to do is to send that corresponding number of stablecoin tokens (pegged to the USD or some other currency) that are equivalent to the amount to be remitted and send it directly to the receiving bank abroad. So the recipient has the money in their account just a few minutes later.

One improvement for traditional finance (TradFi) that blockchains can fix is the T+2 settlement times of banks and brokerage houses. Currently when you sell a stock or want to wire some money, typically it takes two days for you to actually get your hands on the money. There are new developments like Fed Wire that speeds intra bank transactions, but it is likely that blockchain will be the tool that really speed things up.

T+2, combined with 9-5 Monday to Saturday traditional finance banking, should really be a relic of the past. Young people will expect 24/7 availability in the future and will not wait two days for their money to arrive in a bank when they can have it in minutes or seconds.

I also believe that in addition to faster settling time to finality, TradFi needs less fees. One advantage of banking over crypto though is that with banking, you have customer service departments that can help people who are encountering issues. Right now, if you make a mistake in crypto (as it is still in its infancy), that mistake (such as sending to the wrong wallet address) is often irreversible.

With due respect to the powerful men and women in their later years who grew up with analog technologies, viewing the future of banking and finance through an older lens just makes their industry less relevant to the many Gen Z and Alphas who live almost one hundred percent in the digital domain and comprise a large section of young investors, workers, and depositors.