Bitcoin vs. Banks: 10 years later
Denys Andrushchenko, WTFBit Media
When you can buy weed with crypto, it’s convenient. When you can pay any worker with any level of expertise from anywhere across the planet — smooooth. You see, when we cut the clutter and dive into the premise of the free money — what crypto is really about — it’s hard to resist. Banks watched it succeed and now crave for the same style.
What your banker dreams about
As most readers of this article do, I skim through Cointelegraph’s news from time to time to “be informed” what’s going on. Not if I have any influence on the collective hallucination, but it does shape my reality a bit. All those jpmorgans and citis first ignored Bitcoin, then got scared enough to pay close attention to the Bitcoin’s underlying tech.
As a result, over 300 corporations are exploring, testing, and incorporating blockchain into own business verticals. It all sounds promising but is far-handed. How did crypto affect your local bank where you opened an account and deposited your savings? In the midst of Ukraine, I was invited to a banking conference to answer this exact question.
“Development of world banking systems under conditions of globalization of financial markets,” was the name of this practical conference, and I tried to put myself in the (branded) shoes of the banking system for several hours.
What are the anticipations about the blockchain revolution?
Have we — financial institutions — paid attention to it?
Do we really need to collaborate with cryptocurrencies?
The meeting began with a presentation of trends in banking services and global financial markets in general (yawning). The present audience — local bankers as well as those from the capital of Ukraine and abroad — discussed investments in mobile banking and the relative popularity of cryptocurrencies. I saw an excitement before the emerging technologies, including distributed ledger tech, artificial intelligence (AI), chatbots and other types of automation. However, I sensed skepticism too.
Banks: what is our role?
It makes sense that with the growing popularity of Bitcoin as a mean of payment the question of the banking institutions’ relevance has risen. Basically, your Bitcoin wallet is a bank. If that’s not enough, fintech companies began to contribute to the financial evolution by eliminating brick and mortar offices and paying their customers (something called a “cashback”).
Yet, the banks will not disappear. Moreover, their substantial stock of assets and liabilities accompanied with reforms, rebranding, and partnership with fintech will help to re-establish a dominant position.
Those fast-adjusting financial institutions will help us to:
● Improve services through machine-advisors and AI
● Manage our crypto assets and loans
● Keep our Ledger Nano with a million on it in a safe lockbox
Just to comment on the last point: nobody wants to be in a position when everyone knows that everyone keeps cash at home under the mattress. Be it even a virtual cash on USB, this would cause the madness observed in Argentina not so long ago.
Major banks have started to invest heavily in blockchain projects to facilitate the growing demand for cryptocurrencies and blockchain technology. Federated Investors VP Steve Chiavarone stated:
“A lot of investors went into bitcoin first because it was the first way to access blockchain. Big banks are investing in this heavily. Bank of America boasted at Davos that they’re investing the most.”
Blockchain startups like Bluzelle are already offering trusted blockchain networks for such giants as KPMG, HSBC, Microsoft, and MUFG, which also continue to leverage blockchain networks like Ripple and Ethereum through several blockchain consortia.
The Basis for Crypto Adoption. Do we need it at all?
Stableсoins
There are many issues that are currently holding cryptocurrencies back from integrating into the mainstream. Stablecoins might be a solution. These are cryptocurrencies that are increasingly gaining traction and are way more fixed than common cryptocurrencies due to their values being linked to other assets, such as the US dollar or gold. Therefore, stablecoins benefit from being a cryptocurrency (security, privacy, transparency, etc.) without the extreme volatility that is integral to digital coins.
Consortium blockchain
The idea behind consortium blockchain is to ensure trust between parties that do not trust each other by nature. Blockchain implementation aims to solve this lack of credibility with a distributed database that contains “the universal truth” that all involved parties can agree on.
For instance, banking international blockchain consortium R3 consists of Morgan Stanley, Merrill Lynch, Goldman Sacks, BBVA, ING, Nordea, Alfa Bank, and other financial institutions. Besides, R3 wants to use blockchain technology to demonstrate new ambitions beyond the financial sector.
Another global blockchain consortia, Hyperledger and the Enterprise Ethereum Alliance (EEA), have announced a partnership with the aim of creating uniform standards for corporate distributed networks developed by the participants of these two organizations. Such cross-platform collaboration will most likely accelerate the mass adoption of blockchain technologies in the business environment.
Legal framework
Lawyer Anatoly Chernyavsky shared his thoughts after a long study of both global and national practices. Here are some of the points he made:
● The experience of other countries is not international but national
● Mining can be different, that is why it is hard to develop an appropriate regulation
● Cryptocurrency exchanges can pretend to be a “charitable organization” to avoid taxation
The lawyer gave an example of KUNA currency exchange: the domain of the organization is in the .ua domain zone, but stock trading is in the .io domain zone which belongs to the British Indian Ocean Territory. Chernyavsky explained:
“When we talk about the currency exchange, especially when there is a controversial situation, there is always an arbitration or a stock exchange commission dealing with these issues (private center of regulation). However, there is a possibility of a dispute with the stock exchange itself. In this case, it is necessary to apply to the court of the state where this exchange is registered.”
In the .io domain zone, there are no civilians, civil courts, or civil procedural law, which means you cannot file a lawsuit for stock exchange activities. There is only the US Navy Tribunal which makes decisions uniquely about US Navy servicemen. Therefore, in essence, the user cannot enter into any legal relationship with KUNA as it requires a legal regulator.
Therefore, each of your contributions to (any) exchange is charitable. Notably, Kuna itself warns the users that it is not a good idea to keep your assets on the site. It is a general recommendation for all crypto enthusiasts, since hackers never sleep.
Legal status of cryptoassets
Cryptoassets are determined by their status which, unsurprisingly, varies from country to country. There are the following definitions of crypto:
● Forbidden or not determined
● Cryptocurrency = product
● Cryptocurrency = money
We do need a some kind of authority that will help to determine this status internationally. Therefore, both crypto enthusiasts and politicians urge for the legal framework to fit the modern economy. If the status of money is determined, crypto becomes a subject to free trade and should be secured. If the status of product is determined, it will be considered as not a free operation. The cryptoasset’s VAT will have to be paid and customs cleared.
Anatoliy Chernyavskyi concluded that the IMF could be an example of such authority. However, it would engage in the regulation of cryptocurrency only for the purpose of preventing unofficial money transfer (covered by AML purposes). I won’t dig deep enough for conspiracies (Debt: The First 5000 Years be your guide), but I will point out the only solution will be to remove aliasing or making a complete transaction identification.
In fact, it will make a term cryptocurrency obsolete then, according to the lawyer. Sooner or later, the IMF will ban cryptocurrencies, but nobody knows when. I’ll postpone this thought for future speculations though.
It’s all about people, dummy
Having that discussion at the University was symbolic. Several students attended the conference and had the opportunity to raise questions about the anonymity and effectiveness of cryptocurrencies.
Nevertheless, the emphasis was put on a great shortage of high-quality personnel:
● There is a significant gap between market demand and financial education
● Financial institutions need bankers who understand big data, algebra, and programming (at least Python)
● The economic theory that is taught today in the Ukrainian universities, does not correspond to reality and demands (we bet it is something to fear worldwide; read Why Minsky Matters or Antifragile)
● Fintech will be the basis for young bank employees who want to possess a competitive advantage in the labor market
The potential of cryptocurrencies is still blurry. Fintech seems to be the primary challenge for banks. I’ll talk about it in the future article but for now I leave you with this: blockchain is split into two camps. One will be adopted in startups which banks will acquire in turn. The second is the bank. Its name is Bitcoin.
WTFBit Media writes about blockchain and emerging technologies in simple way, with humor. We also work with diverse clients helping them effectively deliver the message to their audience.
Special thanks to Pantyleeva Natalia for the invitation and the Cherkasy Banking Institute for the possibility of a productive discussion on a relevant topic.
Post Cryptum
We need to start banning these misleading pictures with coins instead of code for Bitcoin. Lazy, though.
