FinTech gleamings

 

Profiting from the traditional August business slowdown, I participated in a two-hour webinar presented by Silvana Debonis entitled “Securitization to Tokenization: What FinTech Translators Need to Know” under the auspices of the American Translation Association (ATA). Although I am a financial translator, I found myself completely ignorant of FinTech partially because it did not exist when I studied for my MBA several decades ago. Thus, I had the opportunity to remedy, at least partially, my ignorance. I wish to share a few of my understandings gained through this webinar with anybody that is also bewildered by this alien terminology. My take was that traditional financial concepts and processes have met Buck Rogers in the 21^st century and were not only renamed but also reshaped. I have to admit that some of the actual and potential applications do excite me.

The key concept in FinTech and the initial challenge is the term blockchain. In practice, it is an old procedure given a new nomenclature and method. To explain, in the 19^th century, if a person bought a piece of land or any tangible asset, the sale became official once an official made a ledger entry in an official book. The 21^st-century equivalent, the blockchain, represents the same process but takes advantage of digital technology. The ledger entry has now become a block, a digital record. However, today, any recognized source, a node, can simultaneously upload the block to millions of computers, a chain, making it impossible to erase and rendering that information immediately accessible to any interested party. Blockchain is a bit like title keeping on steroids.

To sell the asset, tokenization is necessary. To explain that term, imagine the world before governments stopped maintaining a “gold standard”. Before the mid-19^th century, money was a weight of precious metal, e.g., a pound, a lira, a piece of eight. During the American Civil War in the 1860’s, it was necessary to produce more money than metal reserves allowed. As a result, the U.S. government produced dollar bills, greenbacks, which theoretically could be exchanged for the equivalent of gold or silver, i.e., tokens for the actual metal. Eventually, these tokens became valuable in themselves as the US government no longer maintained a gold standard. In the stock market, stock certificates are the token for ownership of a share of a company and are as valuable as the asset the paper represents. In the 20^th century, banks and other financial institutions bunched assets and created large asset pools, e.g., mortgages and loans, which they sold to an external organization, referred to as a Special Purpose Vehicle (SPV). The latter marketed these assets in a traditional way, i.e., through brokers of all types. Today, tokenization of assets is a digital block containing both a verbal prospectus for humans to understand and programming for computers to process, almost without intermediaries. It is no longer necessary to have physical tokens.

The current and potential uses of blockchain technology are quite exciting. Bitcoin and cryptocurrencies are the chicken and egg of FinTech as neither would exist without each other. However, many people will never trade in these assets. Of great potential in the future for the average person is Smart Contracts, which are digitalized conditional agreements. For example, if a person has hurricane insurance and an insurance event occurs, it is currently necessary to contact an agent, provide proof and wait for compensation. With Smart Contracts, the insurance automatically goes into effect once a recognized source, an oracle, such as the national weather service, reports the landing of a hurricane in a given area. The insurance policy holder could, in theory, receive the funds within hours of the incident. Smart Contracts eliminate human intermediaries.

Therefore, FinTech is not shark-tagging technology and far less frightening than that animal. All knowledge is useful if not always as a translator but always in the never-ending struggle to understand this world. I strongly recommend taking advantage of ATA webinars, available to both members and non-members, that provide fill that need and expand the mind. Those that attended the session came out more knowledgeable from whatever they gleamed from the webinar.

All images via Pixabay