Banker’s Blind Spots
Traditional Finance Unprepared for Decentralization?
When it comes to distinguishing between stratagems and thought-bubbles, Twitter is a difficult medium to perceive. But many were left wondering this month when Goldman Sachs’ CEO Llyod Blankfein proclaimed (in his 18th tweet):
Still thinking about #Bitcoin. No conclusion — not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.
Blankfein’s hesitative opinion followed hot on the heels of Chase Bank CEO, Jamie Dimon’s more caustic assessment of Bitcoin as a “fraud” akin to tulip mania, before subsequently threatening to fire any employee trading in it. Within hours of Dimon’s comments, the cryptoasset incurred a $1,000 drop in value, some believing this not to be a coincidence. Shortly after Bitcoin’s price drop, Chase Bank was observed making a large Bitcoin order, leading some to suspect Dimon’s motives behind his comments. Although this suspicion was later (partially) disputed.
While Bitcoin is a different proposition to the blockchain more broadly, the “too big to fail” — kingpins of the global economy– are letting the world know their thoughts on both. The obvious question is whether their proclamations are strategic or observational, and if they are observational, does that reflect complacency.
“They [banking institutions] are at no point scared of blockchain technology,” European Decentralized Stock Exchange (EDSE) CEO Juan David Mendieta observes, “they see it as an useful tool, but are not fully convinced its profound ability.”
Mendieta is fresh returned from the World Blockchain Forum and is reflecting on recent conversations with traditional financial strategists. While many financial institutions are moving quickly to adopt blockchain technologies, the big players fundamentally see it solely as a cost-cutting measure, and not as something that will reshape the landscape of their business.
“The way that they are adopting it seems to be at odds with the principles of the community who created it,” Mendieta explains. “They don’t see the blockchain fully as a decentralization system, they see it as a very good accounting system that will reduce a lot of cost and provide security.”
The past century has seen decentralized technologies challenge (and even destroy in some cases) the business models of some of the largest companies in the world. In four years, Airbnb overtook the globe’s largest hotel chains by number of rooms available without owning a single hotel. Meanwhile Uber, the world’s largest taxi company, doesn’t own a fleet of vehicles. Washington University’s Olin School of Business has predicted that 40% of Fortune 500 companies will no longer exist in 10 years, and are backed in this prediction by the fact that 88% vanished between 1955 and 2014.
For the inherent middleman role that so many contemporary financial institutions play, a decentralized blockchain represents an existential threat by the fact that it inherently cuts them out from transactions. The EDSE is one such excision point: “We are interested in decentralizing asset holding, which means you don’t need a third party to move or hold an asset.” Mendieta explains. “Right now if you’re a company that wants to issue a security you go to one of these exchanges — like Nasdaq –and they charge you a lot of money — usually around 5–10% of the IPO. So if you make an IPO of €800M there might be €80M that gets completely burnt. So with a decentralized system like ours a company can connect straight to the ledger.”
In a blockchain-based system, individuals can hold the asset themselves, avoiding the risks involved with middlemen — such as was amply demonstrated in 2008. This risk avoidance ability made possible by the blockchain, represents a truly disruptive opportunity.
According renowned strategist, the General Clausewitz, “The deceiver by stratagem leaves it to the person…he is deceiving to commit the errors”. The question still in need of answering is who is being deceived, and whether traditional financial players are using cunning tactics to progress with the rapid changes of the 21st century, or whether they’re failing to recognize the sort of existential blind spot that has led to the demise of other industry leaders, such with the cases of Kodak and Blockbuster.