Finance has always relied heavily on mathematics and statistics, but its practitioners must also adapt quickly to an ever-evolving business environment.
This development is driving the transformation of finance function practices, necessitating finance teams to serve more as true business partners – an area whose exploration has only just begun.
The Industrial Revolution
Following WWII, global leaders assembled to form institutions designed to avert future economic crises. These included the International Monetary Fund and World Bank; institutions which recognize that finance is an international affair and collaborative solutions are vitally important to prosperity.
At the same time, academics in finance began to recognize that real-world financial events often did not align with conventional theories and that emotion played an influential role in markets.
These observations led to the birth of behavioral finance, which explores how individuals’ heuristics and biases influence their investment decisions. Since its establishment, behavioral finance has flourished into an expansive field encompassing extensive price and action data as well as textual material from business publications and social media sources – not forgetting modeling the spread of investor traits over time.
The 20th Century
In the 20th century, technological innovations like faster communications and transportation changed our world more drastically than ever. Horses were replaced with automobiles while sail-powered vessels gave way to space travel via rockets.
Cryptocurrency is a digital asset used as a medium of exchange, similar to cash or credit cards. However, unlike these traditional forms of currency it typically cannot be physically touched or seen, and is usually not required as legal tender.
Proponents of cryptocurrency believe it can democratize money creation away from Wall Street and central banks, giving ordinary people more control. Critics, however, voice concerns that cryptocurrencies can be used for illicit activities, can experience severe price volatility, and consume excessive electricity to operate. Regulators are working on rules that balance these risks against potential benefits of the new system.
The 21st Century
Finance has changed in response to society’s ever-evolving needs, technologies, and philosophies over time. From crude bartering systems to modern digital transactions – its journey reflects global business landscape transformations.
After the financial crisis, public distrust of banks resulted in an explosion in alternative payment methods – ushering in a new era of fintech innovation.
Bitcoin’s rise in popularity is unstoppable. These digital tokens, unsupported by any company or government, can be used for purchasing goods or investing – some even tie to assets like gold and dollars while others work around sanctions.
Crypto prices can be affected by many different variables, including demand to buy or sell them and perceived future utility. It remains uncertain whether they will eventually be recognized as securities–which would limit their uses and lead to greater regulatory oversight–but if that ever comes to pass it would likely have significant ramifications on the sector as a whole.
The Future
The crypto revolution has opened up debate on the nature and role of money and central banks. Furthermore, its momentum appears unstoppable: finance leaders today prioritizing new efficiency opportunities by spending 19 percent more of their bandwidth on value-add activities compared with ten years ago (Exhibit 2).
Cryptocurrencies rely on a digital ledger which is untamperable and transparent for transactions, eliminating single points of failure such as transfer agents and thus decreasing fraud or hacking risks.
Not only can cryptocurrency technology reduce transaction costs, it makes sending electronic remittances easier for the over 1.7 billion unbanked adults worldwide – as well as enable criminal groups and terrorist organizations – easier; yet critics argue it empowers criminal groups and terrorist organizations, is volatile, consumes massive amounts of energy, empowers criminal groups/terrorist organizations and is energy intensive. How regulators react will ultimately determine its future; for instance the SEC decision on whether crypto assets should be classified as securities could have major ramifications on its future development.
