There’s an inside joke in finance that I first heard in the 1990s: “We take your money and our experience and make it our money and your experience.”
A popular fintech trope today is all about democratizing capital markets and helping little people to access the opportunities that insiders do. Nothing could be further from the truth. The farce of it might be comical if it weren’t so harmful in the end.
Ponzi schemes are all about attracting new capital in order to fund flows to earlier entrants; maintaining the illusion of legitimacy for as long as possible. That’s what the vast majority of retail ‘innovations’ and offerings are really all about. Cryptocurrencies are just one of the latest ways to abuse, see more in The Brutal Truth about Bitcoin. Here’s the important bottom line:
Ironically, rather than truly democratizing finance, some of these innovations may exacerbate inequality. Unequal financial literacy and digital access might result in sophisticated investors garnering the benefits while the less well off, dazzled by new technologies, take on risks they do not fully comprehend. Computer algorithms could worsen entrenched racial and other biases in credit scoring and financial decisions, rather than reducing them. The ubiquity of digital payments could also destroy any remaining vestiges of privacy in our day-to-day lives.
While Bitcoin’s roller-coaster prices garner attention, of far more consequence is the revolution in money and finance it has set off that will ultimately affect every one of us, for better and worse.
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