The Future Of Personal Finance: Banking Without The Banks


For many people today, particularly those in younger generations, the financial future seems bleak. They work hard, earn a salary, deposit to the bank and struggle as they use that cash on expenses, all the while being dependent on their bank. Furthermore, in an attempt to protect low- and middle-income consumers, regulators inadvertently created an askew system where wealthy accredited investors have tools at their disposal that are inaccessible to the rest.

Capitalism can do better. We should allow those who work hard and save responsibly to have more control over their financial progress. This is a difficult problem of an entrenched and complex system. However, there is a silver lining.

The invention of bitcoin in 2008 introduced an alternate financial system, based on decentralization and digital currency — a system that, in effect, does not rely on banks to provide banking. The current version of decentralized finances, or DeFi, allows people to either use providers that offer specialized cryptocurrency-based services, or use trustless systems where funds are sent to software called “smart contracts” that run on the blockchain. Both have drawbacks and are far from enabling the non-savvy. Current solutions are still raw, immature, and difficult to explain and onboard for anyone who is not a techie with an “early adopter” mindset. For one, ownership of a cryptocurrency wallet means being responsible for a private key, which can be stolen or lost, rendering all funds inaccessible.

The Next Step: Multiparty Computation

An emerging subfield of cryptography called multiparty computation, or MPC, may hold the answer. MPC is a clever mathematical way to split the private-key ownership between several entities in a way that no single owner can control the wallet, but a quorum — for example, two out of three — can assemble the key to allow wallet transactions. This opens a compromise solution between solo key responsibility and complete third-party dependency. Think of MPC as a layer on top of the blockchain infrastructure.

New companies, coming mostly out of Israel, are introducing a variety of MPC-based innovation. The coming MPC technologies can help move funds management from the exclusive domain of private financial institutions to the people who earn them. Soon the smartphone will become a safe custodian of our digital assets, operating financial instruments that work on our behalf. Imagine performing banking functions such as interest income, loans and payments from your mobile wallet, without the use of a bank. I call this new breed of personal finances “MeFi.”

How Would MeFi Look And Act For The User?

First, wallet setup should be as easy as getting a new smartphone and setting up an app. The user would be able to open a private account and delegate some control to loved ones, communities or trusted third parties. This control delegation would allow more security and a recovery path in case keys were lost. It could also allow joint accounts, which are currently not possible. Second, with MeFi, the earner may receive income, converted to digital currency, directly into their personal wallet. Third, any income held in the personal wallet would be managed by a “smart personal assistant” that could maximize yield, manage risk and negotiate payment transactions. Assets would be managed quietly and work for the exclusive benefit of their owner.

MeFi Versus Traditional Bank Accounts

For everyday folks, banks basically offer the following: safe custody of funds, gains on assets via interest and investments, payment system through cards or cash, and a source for loans. All of these have already been proven to work in crypto; interest gains are being offered via several providers and DeFi solutions. Payment systems are also starting to emerge; for example, Visa recently gave Coinbase the ability to issue bitcoin debit cards. Loans are also gaining traction as current DeFi and centralized providers locked billions in collateral for fiat and dollar-pegged stablecoins. Eventually these products will converge into the owners’ wallets becoming seamless and automated, acting as a money-making engine for the user. Once banking services on MeFi are cheaper and easier and provide better yield, the choice will be easy.

When Will All This Happen?

There are many pieces to this puzzle, and all are already laid out. Technology and market sentiment are aligned, but the powers working against this change are enormous. Governments and banks will undoubtedly try to keep the status quo, but progress and civilian discontent, as well as adoption by smaller economies, may force regulators to embrace MeFi as a positive disruption. Regulators and tax authorities would also need to adapt as people shifted to MeFi. However, we’re already seeing a push by some major tech companies, such as Facebook with its Libra project and Square researching a bitcoin-based payment system with its LDK program. If enough pressure from citizens and industry materializes, it will surely motivate democratic governments to act faster in accepting and supporting the next generation of financial freedom.