Does Blockchain Pose a Threat to Banks?

in cryptocurrency •  last year 

Does Blockchain Pose a Threat to Banks?

‘Blockchain vs traditional banks' has been the topic of harsh debate since crypto first became big news. From the outside, the situation is typical for such issues: two irreconcilable enemies, barking at each other non-stop, without the slightest possibility that either look at things from a rational viewpoint.

But, as usual, the entities around which the whole argument revolves are actually getting along with one another pretty well. How come? The thing is that the blockchain/banks relationship is complex and cannot be treated as a matter of one replacing the other. Rather, this is a gradually evolving merger with many different aspects — some of which we consider below.

Defining your terms

There is blockchain, and there are cryptocurrencies. They are not the same thing and mean something quite different, despite being closely related. Most those who advocate the ‘blockchain-will-kill-banks’ position don’t know the difference. Cryptocurrencies are forms of tokenized money distributed via a decentralized ledger (blockchain). Blockchain won’t kill banks, because it is a technology that anyone can use and integrate into their product for their own advantage. That is just what many banks are already doing. For example, Japanese and Korean banks are testing blockchain systems for payments and transactions. Spanish bank Santander has estimated the savings of banks using blockchain at $20 billion a year.

But why are banks doing this in the first place? Like other centralized systems, banks are facing certain problems: scalability, throughput, security and speed issues. Eventually, they won’t be able to process the data correctly and on time. Blockchain is an obvious solution. We’ve already talked about how blockchain will influence business: the banks of the future will become centralized businesses, with an existing structure, that utilize co-developed/outsourced blockchain instruments. While remaining centralized in structure, they will alter their business and management schemes by implementing blockchain solutions, exclusively designed for the company’s needs.

As far as existing cryptocurrencies are concerned, there’s a competition between them and the banks, but a reasonable one. The banks realize cryptocurrencies are here to stay. Banks have no other option but to build a bridge to cryptocurrency networks, since the interests of customers will inevitably prevail. This process will go slowly (approximately 10 to 15 years) but will intensify after most of the banking world has switched to blockchain solutions. That is a good thing both for users and businesses because banks and cryptocurrencies will become more and more tied to one another through seamless connections.

You’ll be able to choose between P2P-payments and traditional banking, which already won’t be traditional since the banks are gradually adopting blockchain solutions. Again, it is important to underline that the banks are not developing cryptocurrencies and running ICOs (though some are making serious attempts in that direction). Reasonable banks are adopting a technology that is totally coinless, or with coins meant for utility use only. Banks simply seek decentralized blockchain solutions to improve their services, increase security levels and slash operational costs.

Bank-issued crypto

Yet some banks are now developing their own ‘public’ cryptocurrencies. Why? To some bankers, crypto looks attractive simply for the juicy market caps, which make them drool all over their white collars. But in the end, it is very unlikely that branded cryptocurrencies, meaning bank-issued equity tokens, will become a consideration. You have to put an enormous effort into developing a high-quality new form of digitized money on the blockchain that will truly stand out. Even now most large corporations that adopt blockchain solutions are hiring contractors for the purpose, and these solutions are more about speed and throughput than the creation of new tokenized money. Then, there’s the fundamentally different philosophy behind banks, which do not seek “financial anarchy” - and that is what cryptocurrencies represent for die-hard bankers. They find blockchain attractive for its practical applications, and they might even tolerate crypto like BTC or ETH, but they will never allow the ethics of cryptocurrencies (in their popular understanding) into their world.

Finally, the nature of banking has nothing to do with equity tokens. It's like ICO issuers who say they need a token just because they want to, even though there’s no need for one. Some say a cryptocurrency owned by a bank will attract more customers who don’t want to open an account, but that notion is false since the whole process of opening a bank account will be swift and smooth thanks to the implementation of identity authentication on the blockchain. Really smart banks do want to be up-to-date and technologically advanced, but they also don’t want to play games in which all good seats are already taken. That will simply lead to a huge waste of money and time.

Any phenomenon has its nuances, and you have to pick the features that are good for you whilst excluding those that are useless. That’s what clever bankers are doing. For instance, six large banks have teamed up to create an internal cryptocurrency — a utility settlement coin — to settle transactions between each other faster and more securely. It is fundamentally different from what CitiBank is trying to do in its attempts to create a crypto product for popular demand. Others are not inventing anything new, simply going with existing solutions, offered, for example, by Ripple. Time will tell which decision is more efficient and viable: building decentralized systems from the ground up or implementing ready-made solutions.

Blockchain and Banks Merger

What the future holds

There are obvious trends emerging now, which will intensify in the future:

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I do think the concept of blockchain has the possiblity to disrupt traditional banks but i doubt it will happen. Banks have plenty of power and even as slow and archaic a system they might be in many countires they are so engained into the system are almost too big to fail. They will probably also adopt blockchain products and provide a hybrid system that is cheaper than the current system and be able to retain customers out of lazyniess, loyalty and sheer convenience

Lets face it using crypto is a pain, its an clucky and its an inconvenience to the ordinary man on the ground. For us to completely disupt banks with crypto it will take a systematic change in thinking which will only happen over generations as we refine the tech as well as people becoming more accustom to it

Korean translate ver.
블럭체인은 은행을 위협하는 존재일까?

@wavesplatform I think you bring up a good point about ICOs issuing tokens/coins without a clear need. Like those ICOs where that is not needed, traditional finance is all about creating financial products to usher in economic prosperity for the retail buyers. In reality, it just makes the issuer massive amounts of money and leaves the "bagholders" to the whim of the markets.

I would like to think that the traditional finance sector would behave differently, but I doubt it.


I couldn't agree more with this comment. In the past tech companies would have to convince angel investors, VC's or boostrap their idea and first show a MVP before they could consider getting outside money but with these ICOs these guys dont even have a product just an idea and they're getting insane amounts of funding.

Not every idea is a great idea, not every idea has the right market conditions, not every idea is for that region or for that time and it can and most likely will fall flat. Even with millions of dollars raised, even if its a legitimate company having to scale quickly and the need for top talent means you have a high burn rate and could quickly run out of runway before you even ship a product to market which is what i feel will happen to plenty of the legitimate non scammy ICOs that thing this is a good route to go for

Great article, thanks for sharing. I've smashed the upvote button for you!

I do think they do pose a threat, but they can also adopt them and evolve with them. Just depends which path they take.

Also, if you are looking to get some tokens without investing or mining check out Crowdholding ( They are a co-creation platform were you get rewarded for giving feedback to crypto startups on the platform. You can earn Crowdholding's token as well as DeepOnion, ITT, Smartcash and many other ERC-20 tokens.

uncommon topic!I like it to read this

Excellent article! there's room for both in the future. While banks will always be a part of the establishment and no doubt their acceptance of blockchain will be needed to truly allow the technology to flourish, banks also will recognise innovation is something that cannot be stopped, and will undoubtedly embrace the revolution.

Great article, please share the love with a follow back :)

  ·  last year (edited)

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