The Blockchain vs. The Banks
With the Mayweather vs McGregor fight fast approaching it made me think of another battle brewing.
In this corner we have the challenger, the up and coming young Blockchain. And in this corner we have the legendary “Too Big to Fail” Banks! The following fight is scheduled for 12 rounds and is sanctioned by the…
Well, that might be part of the problem, there isn’t anyone sanctioning this fight. The battle over transactions, particularly financial ones is heating up. Battles like these are nothing new.
Disruptive technology can be painful for some, but in the end it always wins because it produces better products and services at a lower cost.
In the 1990s, Nicholas Negroponte was quickly dismissed when he predicted that most of us would soon be reading our news online rather than from a newspaper.
Then it was cable companies fighting satellite companies. Now it’s both of them fighting against streaming TV services such as Sling TV and Playstation Vue. Of course, there’s Uber vs. the taxi drivers too. I could go on and on.
And now we have blockchain technology and cryptocurrency which sits on it versus the banks. Banks are starting to pay attention to what used to be just a fly on the wall. That fly has morphed into something much bigger than that.
On one hand, the banks would stand much to gain by embracing blockchain technology. Using it they could move money around the world in seconds and for a fraction of the costs. Ripple is a popular cryptocurrency trying to get banks to embrace this as they claim they can save the average bank around $600,000 each year on expenses directly related to moving money around. Everything on the chain is completely decentralized and therefore doesn’t require a bank president approving each transaction from the bank sending money. The same holds true for the approvals on the receiving banks’ end. This is because each bank has their own ledger and combining ledgers among the banks would be nearly impossible.
The same idea can be applied to stock trading as it typically takes a couple of days to settle each transaction. There are many parties involved including clearinghouses. This forces the system to require multiple approvals and audits which are time consuming and costly.
Knowing all of this the banks have taken this disruption as a threat to their very existence. If they continue on this path that may come to fruition as their profits are always being strained from the increased cost of doing business.
European banks seems to be embracing it faster than US banks are. Many have already invested in the new technology. They also respect digital currency more. In the US, banks are very rigid and slow to change because they employ traditional, non forward thinking strategies. This is why their ledgers and systems are slow and outdated compared to blockchain technology. It takes a major overhaul and change in strategic thinking to move onto the blockchain.
Banks realize that for every dollar that moves away from them into digital currency is a dollar that probably won’t be returning to them. They view this as a serious threat.
So how do they combat that? For starters they have completely blacklisted any business from using cryptocurrency. This means that if a company does business in the crypto space they will not allow you to open a business account with them. The same goes for anyone trying to get a loan.
When a country or organization places stringent rules around the movement of currency it always results in making things worse. Venezuela is a great example of that as tight monetary controls and restrictions against the people have contributed to the dollar being 7,500 times stronger than the Bolivar. That has resulted in Venezuela having the highest inflation and unemployment in the world.
Every time banks go against cryptocurrency, people lose more trust in banks and invest more in cryptocurrency. Some banks are doing a good job of embracing the change, but many banks need to wake up and embrace it soon or they will be replaced by disrupters who are more than happy to fill the void.