Banks are changing their opinion about cryptocurrencies
“This is a fascinating time in our industry. By now, it’s a cliché that Banks will have to embrace technology and innovation if they are to thrive in the years to come. We believe that is true and are committed to show that we can do it, and are looking for others to join. […] You care about disruption and have opinions on the future of banking, the payments system, and how to improve upon our existing financial infrastructure. You have an opinion on bitcoin and other cryptocurrencies.”
Last weekend JPMorgan Chase & Co., the largest bank in the United States, published the above job opportunity on her website. It’s a radically different attitude than a year ago. JPMorgan’s CEO Jamie Dimon started off by dismissing Bitcoin as “a terrible store of value. It could be replicated over and over. It doesn’t have the standing of a government. […] And honestly, a lot of it — what I’ve read from you guys — a lot of it is being used for illicit purposes.”
Through the Trough of Disillusionment: from evil to good
Dimon was not alone in his crusade against Bitcoin. Other giants from the financial world shared his opinion. Alan Greenspan, the former president of the Federal Reserve, was baffled by the digital currency: ‘You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.’ According to Benjamin Lawsky, superintendent of New York’s Department of Financial Services, the cryptocurrency created ‘a virtual Wild West for narco-traffickers and other criminals’. Even Nobel Prize-winning Op-Ed columnist Paul Krugman asked himself in one of his weekly columns for the New York Times if Bitcoin isn’t just ‘evil’.
Nowadays the financial world is reconsidering their opinion about Bitcoin. In the beginning of september 2014 the Bank of England published a report that describes the blockchain — the distributed ledger of Bitcoin — as a ‘significant innovation’ that has ‘far-reaching implications’. In february 2015 the Bank refined their opinion: ‘Creating such a system would entail creating a protocol for value transfer over the internet, akin to what Berners-Lee (1989) did for information.’ It all reflects the thoughts of Oliver Bussmann, group chief information officer of Swiss bank UBS. In an interview with Wall Street Journal he said: ‘I believe — and this is my personal view — that blockchain technology will not only change the way we do payments but it will change the whole trading and settlement topic.’ Bussman believes that blockchain technology has the potential to trigger ‘massive’ simplification of banking processes and cost structure. He added: ‘When somebody with a strong brand and security level establishes it as a reliable service, then the whole industry will follow. That is my personal prediction.’
A Napster moment for finance
Banks are now extremely worried that they are facing their own Napster moment. The moment that the rise of a new platform disseminates a complete industry by offering a simplified experience in a cheaper way and at a scale that makes it impossible to compete with. Just remember how Napster and it’s descendants — like Spotify and Netflix — have changed the entertainment industry in just a few years. The media industry just let it happen. Incapable of changing their own DNA and culture to adjust to these new technologies. They followed the Shirky Principle: ‘Institutions will try to preserve the problem to which they are the solution.’
All kinds of applications are now built on top of the Bitcoin blockchain. Smartphone apps that will make the underlying complexity invisible to the end users. In the near future transferring money and property will be as easy as swiping your finger from left to right. It’s beyond information on your fingertips, it’s exchanging value on steroids (without the need of a trusted party).
The exponential growth of Bitcoin
In July 2014 advisory firm Gartner added cryptocurrencies for the first time to their hype cycle of emerging technologies. In the report they positioned the digital currency between the peak of inflated expectations and the trough of disillusionement. In their view the cryptocurrency needs another 5 to 10 years before it will be accepted.
Peter Diamandis, cofounder of the Singularity University and coauthor of the books ‘Abundance’ (2013) and the recent ‘Bold’ (2015), doesn’t agree with this timeframe. In his view Bitcoin’s growth is best explained by an exponential curve and that’s why it is on a path to become disruptive over the next 1–3 years.
Bitcoin is living on Moore’s Law and hopping on the exponential curve. So appearances are deceiving. In the beginning it appears that digital technologies are following a lineair path and then quite unexpectedly they exponentially overshoot. Diamands says that Bitcoin is following his framework of the 6Ds: Digitized, Deceptive, Disruptive, Dematerializing, Demonetizing and Democratizing. The cryptocurrency is now on a path from deceptive to disruptive and it will threaten the entire financial industry as we know it. In the next stages of his model Bitcoin is eliminating (dematerializing) the use of physical money and even credit cards, then it demonetizes the cost of transactions and consequentley will eliminate the need for middlemen (banks, lawyers, exchanges), finally the last stage will be about banking the unbanked — capital and currency will become available to anyone with a connection to the internet (democratizing).
Banks haven’t changed very much since their invention, thanks to Bitcoin they’re now dragged into the 21st century. It’s Digital Darwinism: adapt or die. No wonder that JP Morgan Chase has changed their opinion. By recruiting new employees they try to finally embrace the disruptive power of cryptocurrencies.