Recently, a New York-based bank informed me of the amount of time it would take to clear an out-of-state check in the amount of $7,000: 10 calendar days.
Using a virtual currency, this transaction would take less than one hour: sometimes as little as a few seconds with newer digital currencies. In addition to being much faster, these transactions cost much less and are more secure.
Perhaps this is why the Federal Reserve recently released a plan to offer a more coordinated U.S. payment system that is more efficient, cost-effective and safe for fund transfers among consumers, financial institutions, credit card companies, online businesses, central bank clearinghouses, and virtual currency firms.
This type of system will foster greater flow of funds and economic growth, according to Federal Reserve Governor Jerome Powell
, who will be co-chairman of the Fed committee overseeing this initiative. Former U.S. Treasury Secretary Lawrence Summers
suggests the extraordinary inefficiencies of our outdated financial system make it a prime target for disruptive technologies, such as digital currencies.
For 500 years, we entrusted banks with the responsibility of managing credit risk between unknown counterparties. However, recent events, such as massive bank failures and tax-payer financed bailouts, have inspired a new technological solution of trust: the virtual currency, which is faster, less expensive and more secure for value transfers.
These value transfers go beyond items purchased at the corner grocery store or through an online retailer. Value exchanges in the future will probably include the real estate closings, intellectual property transfers, and electronic voting.
Why is a virtual system faster?
The miners operating the system are much more efficient than the multi-layered infrastructure that exists today, which includes the consumer’s bank, credit card company and billing processor; the supplier’s bank and payment processor; and the Federal Reserve Bank clearinghouse operation. The miners' processing time of several seconds to an hour is many magnitudes greater than the two to three days it takes under the current system.
Why is a virtual system cheaper?
For the same reason above: less infrastructural layers permit the transaction cost to approach zero, while typical fees of the current system range from 2 percent to 3 percent, and as much as 10 percent for international money transfers.
These costs are typically embedded in higher prices, and not visible to the consumer as an additional line item on the receipt at the point of sale.
Why is a virtual system safer?
Each transaction is transmitted to thousands of independent, decentralized miners to verify the reconciliation of the transfer process. This minimizes the opportunity for external or internal manipulation of centralized databases that currently exist at financial institutions, credit card companies, billing and payment processors, and Federal Reserve central clearinghouses. In addition, the transaction provides anonymity to the purchaser by not disclosing personal information.
Moreover, this system will enable the nearly 2.5 billion non-bank associated individuals across the globe access to an effective, affordable and safe value transfer mechanism. The internet has begun to disrupt and decentralize the global economy. Digital currencies will intensify this process, creating greater global economic access, opportunity and growth and furthering political democratization.
In my view, the price of virtual currencies, in the long term, will reflect and promote sustainable and strong purchasing power over geographic areas and time, while minimizing short-term financial speculation and arbitrage.
Thus far, hundreds of millions of dollars have been invested in this technology by venture capitalists in recent years. U.S. exchanges for virtual currencies are now being considered by regulators in many states, and the New York State Department of Financial Services has been developing a BitLicense program
to regulate the bitcoin businesses, with nation-wide applications.
The time is now to reinvent the financial system.
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