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Old Finance in New Cryptos: The Pesky Persistence of Structure and Geography

Authors: Matthew Zook, University of Kentucky, Michael Grote*, Frankfurt School of Finance & Management
Topics: Economic Geography, Cyberinfrastructure
Keywords: Fintech, Bockchain, Bitcoin, Financial Geography
Session Type: Paper
Presentation File: No File Uploaded

Many fintechs are founded to revolutionize the world of finance. Blockchain in particular has been designed to get rid of the conventional trust-based financial intermediation. Bitcoin, the original cryptocurrency, was designed as a cyberlibertarian project that viewed digital technologies as inherently liberating forces and promoted new technological solutions over incumbent financial firms and forms as well as state involvement, which is characterized as fundamentally undesirable.
With the maturing of the fintech scene one can observe, however, that many of the new structures, practices and self-regulation resemble the very same structures and geographies that are meant to be replaced. For instance, initial coin offerings and IPOs become more similar, crypto exchanges emerge with strict regulation and quality control mechanisms, crypto retail institutions take their share from retail investors in disadvantageous ways, peer-to-peer lending networks build rating mechanisms and bundle projects to minimize risks very similar to the way banks work, etc.
We ask why a technology (blockchain) that is fundamentally designed to create decentralized practices of finance recreated many of the same structures and geographies of the off-line world. We argue that many of the incumbent structures cannot be replaced by the new technologies available today, and that fintechs very often have to converge to a structurally very similar offering mimicking real-world incumbents.

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