Will decentralized network such as Blockchain overthrow monopoly of banks?
Decentralized networks are disrupting traditional industries. With further development of Blockchain, questions arise. Will decentralized networks, such as blockchain, overthrow banks? The discussion around this subject creates several schools of thought.
The first steps
Since the launch of Bitcoin, IT world has been thinking of new ways to disrupt the processes we knew before. 2009 was the year when it all started. Now, in 2018, we have more than 1900 cryptocurrencies.
We found a new way to operate financial activities. We discovered the possibilities of Blockchain in different industries and managed to improve the crowdfunding process by ICOs and many more. The blockchain is disrupting not only the banking industry but the whole perception of operating markets.
People put their trust in Bitcoin and Blockchain. They believe that we will build the future on blockchain-based technologies. Startups are rising around the crypto world. Governments are implementing blockchain technologies and regulations. Seems like, the whole world is adapting to this astounding decentralized network.
What’s there to disrupt?
The first reason to think that Blockchain is going to disrupt the banking system is the transaction making process. Due to the high transaction fees and long intervals between money transfers, our banking system is losing efficiency.
Money transfers are not free. Every country and every bank has its’ own regulations and taxation system. Transactions that operate in country limits are simple. As for the international transactions, there’s more to know. Two most known ways of international money transfer are SWIFT and SEPA.
SWIFT is a financial messaging system, allowing banks all over the system to safely transfer the money. SWIFT sends the messages between banks. This requires human intervention, making transfers too long to process. Due to these processes, SWIFT transaction is too low. In addition to time, these transfers are costly, and the fee passes on to a customer.
The SEPA zone includes 34 countries. The only currency that SEPA supports is the Euro. SEPA is somehow similar to domestic money transfer. Banks that use SEPA system have a direct relation or intermediary banks. Both processes are slow and require human intervention. The transfer fee is about as same as for SWIFT system.
We see how Blockchain can contribute to the banking system. The discussion is around the subject, whether the banks will adopt the Blockchain technologies, or the Blockchain will completely substitute the banks.
Attempts to modify the banking system by Blockchain
Back in 2012, a new-born company named Ripple aimed to make transactions safer, faster and reliable with the help of Blockchain technologies. Ripple turned out to be attractive to many financial entities. Today, as we already mentioned, international transfers take days and are costly. Ripple’s mission states that their technology can reduce operating costs and help money move faster. This means that Ripple could completely substitute the SWIFT and SEPA systems.
Right now, several global banks are adapting to Ripple ledger. We have entered the age of battle between Ripple and Swift.
Some say that Ripple isn't quite a cryptocurrency. Cryptocurrencies act like disruptor and fiat overthrowers. Ripple is acting more like an additional help to the modern banking system. Instead of ousting banks, Ripple tries to improve the traditional system.
No one can certainly say what the next move is. After conducting tests, it’s obvious that Blockchain technologies are difficult to scale and we are still adapting to them. Our current level of adaptation is far from completely developing Blockchain infrastructure. But we can safely say that we are doing something right. We do not ignore the potential of Blockchain technologies and try to embrace the whole world to adapt to the technology of the future.