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When Lamont Black talks to credit union audiences about cryptocurrency, he asks them to first frame the conversation around technology rather than the risk and volatility associated with the trading of digital assets.
Black believes the blockchain technology underlying cryptocurrency has created crypto’s staying power in the payments ecosystem and will determine its ultimate path not only within financial services but in reshaping the internet.
Blockchain is a database that allows digital information to be distributed but not copied. That means each piece of data can only have one owner.
“What makes blockchain unique and special is it’s a decentralized platform, not a centralized platform,” Black says.
Because of blockchain’s decentralized nature, the database is not governed by a single entity such as a regulator or government. That makes it attractive for trading cryptocurrency.
Cryptocurrency can be traced back to the original bitcoin whitepaper authored by someone known as Satoshi Nakamoto. The paper explains how transactions work and why security and privacy are essential to cryptocurrency owners.
“That white paper introduced a paradigm shift in the way we think about money, the way we think about sharing information online, and the way we think about the ownership of digital assets,” says Black.
Black, an economist by training, further explains that the U.S. government abandoned the remnants of the gold standard in the 1970s and the world primarily operates on a sovereign fiat system.
“But even that is changing as it relates to methods of payment because we've gone from a world of paper-based currency to electronic payments,” he says. “Even though we've moved even faster into electronic, contactless payments, we still live in a world that’s heavily intermediated. Most of our payments today are card based and connected to Visa and MasterCard. We are moving toward a cashless society.”
Crypto, he says, offers a disintermediated alternative and provides a peer-to-peer alternative powered by technology.
Why should credit unions care about crypto?
“First of all, many members care about it,” Black says. “A lot of credit unions are seeing outflows from members sending funds to crypto exchanges. So many credit union members have been buying crypto already. Those numbers have come down this year with the sell off, but the numbers are still there.”
As for that summer selloff, in which some cryptocurrencies lost more than 50% of their value, crypto reflects this year’s overall market, especially technology stocks, with which it is closely affiliated, he says.
“In a downward part of the business cycle, tech stocks and risk assets sell off the most,” Black says. “Crypto is now the tech frontier. It is kind of the ultimate risk asset. When we’re in a risk-off investment environment, it's going to get crushed, and that's exactly what happened.”
He also notes that crypto also levels the playing field somewhat for some savers and investors. It’s often an entry point for 20- and 30-somethings into the world of speculative investments.
Some underserved communities have also shown interest in crypto as a savings tool, in part because they don’t trust traditional financial institutions, Black says. “That brings up another issue: How do we reach people who don't trust financial institutions but trust crypto?”
Black says credit union leaders should take a strategic look at cryptocurrency because of the potential that blockchain technology holds.
“We can take those technologies and apply them to basic credit union services, like lending,” he says. “Blockchain creates an alternative way of sharing information and building applications. Whether it’s auto lending, real estate lending, even nonfungible tokens, these are all different applications that can be applied to blockchain.
“Credit unions should also explore how they want to build their tech infrastructure going forward with some of these new technologies.”
From an even bigger-picture perspective, blockchain will almost certainly have an impact on the future of the internet and the shaping of the metaverse, Black says.
“Many people want to live in a digital world that is not owned by big corporations or government, but by the people who live in that world,” Black says. “It will be a decentralized world based on blockchain and other applications. It’s important to prepare to thrive in this type of digital economy.”
Black will address the 2022 CUNA Operations & Member Experience Council and CUNA Technology Council Conference in Las Vegas.