5 Reasons Banks should be Afraid of Blockchain & Cryptocurrencies

In September 2017, JPMorgan Chase CEO Jamie Dimon criticised Bitcoin by saying: “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”

Lloyd Blankfein, head of Goldman Sachs expressed similar views, saying, “Something that moves 20% [overnight] does not feel like a currency. It is a vehicle to perpetrate fraud.”

However, at the same time, according to a survey by The International Securities Association, 55% of companies polled are monitoring, researching, or developing solutions on top of blockchain.

So with the previous and current public backlash against (blockchain technology and) cryptocurrencies from banks, this does then beg the question: What do banks have to be afraid of? The short answer is “a lot”.

Figure 1: Major Banks’ Blockchain Initiatives

Blockchain technology provides a cryptographically secure way of sending digital assets, without the need for trusted third parties — such as banks.

Further, tools such as smart contracts promise to automate many of the tedious processes within the banking industry, from compliance and claims processing, to distributing the contents of a will.

Global banking is currently a $134 trillion industry. Banks help intermediate payments, make loans, and provide credit. The promise of blockchain as a trust-less, dis-intermediated technology is to disrupt all of that.

Here are 5 reasons (areas where) the banks are afraid of blockchain either stealing their market share or replacing them entirely:

1. Payments: Blockchain technology could facilitate faster payments at lower fees than banks by eliminating the need to rely on intermediaries to approve transactions between consumers.
2. Clearance and Settlement Systems: Blockchain technology and distributed ledgers can reduce operational costs and bring us closer to real-time transactions between financial institutions.
3. Fundraising: By providing blockchain companies with immediate access to liquidity through initial coin offerings (ICOs), the blockchain is creating a new, crypto economic model of funding that unbundles access to capital from traditional financial services.
4. Securities: By tokenising traditional securities such as stocks, bonds, and alternative assets, the blockchain is upending the structure of capital markets.
5. Loans and Credit: By removing the need for gatekeepers in the loan and credit industry, the blockchain can make it more secure to borrow money and provide lower interest rates.

In the following weeks, I shall try and address each of the use cases above for blockchain and how it will turn the traditional banking industry upside down while enabling new business models through technology.

Originally published via CryptoKnowledge on February 11, 2018.

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Meedah Group and its employees are not a licensed financial advisor. The information presented in this article is an opinion, and is not purported to be fact. Bitcoin and cryptocurrencies are volatile instruments and can move quickly in any direction. Meedah Group and its employees are not responsible for any trading loss incurred by following this advice.
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