Crypto-Powered: Build on Legacy Finance, Prepare To Die

The success of today’s high-flying fintech unicorns will be short-lived as long as they’re building on legacy financial infrastructure.

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Hightop

8 min readJul 7, 2020

This is the first post of our Crypto-Powered series where we look at what it means for Genesis Block to be a digital bank that’s powered by crypto, blockchain, and decentralized protocols.

Today we start a new series called Crypto-Powered. This will be similar to our last series, Spreading Crypto, but now we’re exploring a new theme. At Genesis Block, we’re building a digital bank that’s powered by crypto, blockchain technology, and decentralized protocols. Yes, lots of buzzwords.

What does any of it mean? How does it give us an unfair advantage? What superpowers are unlocked? What are the benefits for users?

In this series, we’ll answer all of these questions. Grab some popcorn. Sit down. Put your feet up. Make yourself comfortable. Let us take you on a journey. Let us be your tour guide down the crypto rabbit hole…

But hold on! Pump those brakes. Before we dive into the crypto rabbit hole, we need to establish some context. We can’t talk about the future of money unless we first understand the problems of money today. We need to understand what’s broken with legacy finance. So let’s do a quick primer on the current state of finance. That will set the stage for the rest of the series. Alright, let’s go.

Fintech & Unbundling

Over the last decade, legacy financial institutions (banks in particular) haven’t been meeting the needs of younger, more digital generations. As a result, fintech startups have emerged and effectively unbundled the consumer banking stack. Whether it was Robinhood for investing, TransferWise for cross-border payments, SoFi for student loans, Wealthfront for wealth management, or Digit for saving… these innovative upstarts all focused on a single use-case and nailed it.

While great for a period, this led to a lot of fragmentation. Users needed to split their finances across many different services and keep track of what money was where. The cognitive load for many users became overwhelming.

Re-bundling of Finance

As we’ve seen in other industries (eg. media/entertainment), the pendulum swings back to bundled services (Cable TV → Individual Digital Channel Subscriptions → YoutubeTV/Hulu/Disney+), but in a better, more valuable, digital experience for end-users.

In the last few years, we’ve started to see a re-bundling of consumer finance. But instead of users going back to traditional banks, the rising generation is choosing to bank directly with these innovative, digital fintech companies.

Each of the startups mentioned above is now offering a more bundled experience with checkings accounts, debit cards, and other financial services. In Europe, we’ve seen the enormous rise of neo/challenger banks like Revolut, Monzo, N26 — all-in-one solutions for modern, consumer finance. That trend is starting to grow in North America with apps like Chime (the original was Simple)

We believe this bundled approach is here to stay — especially for the younger, more mobile, digital generation. They prefer convenient, easy-to-use, all-in-one solutions that require little effort & minimum commitment.

Building on Legacy Finance

While many of these high-flying fintech unicorns have seen incredible success, I believe it will be short-lived as long as they’re building on legacy financial infrastructure. It’s a realization I’ve come to only recently.

In years past, whenever I met a fintech entrepreneur, they’d always suggest that they’d never do a startup in traditional finance again. Too complex. Too expensive. Too slow. I always shrugged it off. Wimps. How hard can it be?

I really didn’t believe or understand that pain until we started Genesis Block. And it wasn’t until we began integrating with some of our partners (Evolve Bank & Trust, I2C, Visa, etc) that I really started to understand.

The rumors are true. Those fintech entrepreneurs were all right. The pain is real.

Trying to innovate in legacy finance is like running on a hamster wheel blindfolded while powerful, evil rats randomly throw explosives inside.

It feels like you are never making any progress and at any moment you can be destroyed. Luckily at Genesis Block, we’re only integrating with legacy finance at the edges — the onramps and offramps (money in, money out). We’ve worked with great partners and so far have been able to navigate the treacherous terrain.

Legacy Finance is Broken

You must be wondering why and how is it so bad. It’s all the things you’d expect…

The antiquated tech stack of financial institutions. The frustrating process of working with big, bureaucratic, slow-moving organizations. The prehistoric payment systems that haven’t improved in decades (for example, ACH payments and their strange batch processing practices). The countless unnecessary middle-men on every card swipe (merchant, acquiring bank, processor, card network, issuing bank). The slow settlement times. Systems rife with fraud. An industry oozing with predatory practices and unethical behavior. The moth-eaten laws & regulations that are NOT innovator-friendly (mostly due to powerful Wall Street incumbents who control politicians).

The list goes on and on. Maybe someday we can dedicate an entire series to it. It’ll be a good bedtime story.

The more familiar I become with how legacy finance works, the more convinced I am that the future of money cannot be built on that foundation.

The fintech darlings of Silicon Valley are all building on extremely shaky ground that is ripe for massive disruption.

They will spend so much time looking backward (integration, compatibility, regulation) that they will have very little time to look forward (innovation, progress, disruption). They will be tangled in the quagmire of archaic tech and the tentacles of outdated regulation.

I don’t believe the ultimate winners in consumer finance will come from the current cohort of fintech unicorns. And that’s because these companies are all building on the pipes of legacy finance.

The Future of Money

The future of money will be built on a foundation that is digital, open-source, permissionless, and decentralized. The future of money will have no borders or middle-men. The future of money will have no institutions or governments controlling or censoring it.

The future of money will be built on blockchain technology. The future of money will be built on “crypto rails.” The future of money is crypto. It’s the missing piece of the internet age — and quite frankly, long overdue.

This is an entirely new paradigm. New infrastructure. New pipes.

While blockchain technology provides a strong base, this tech alone won’t be sufficient. As discussed in our last series (Spreading Crypto), these powerful protocols need killer applications to reach broader adoption. The apps need to be simple, convenient, and require no blockchain education. They need to fit nicely within existing workflows and behaviors. A digital bank like Genesis Block is a perfect app to propel crypto to the masses.

At Genesis Block, that’s the foundation we’re building on — a powerful combination of the underlying technology and our unique approach in how it’s delivered.

The future of consumer finance belongs to those who build with blockchain technology & decentralized protocols at its core, and know how to best take it to the billions of people around the world.

That’s our thesis at Genesis Block. Our last series went deep on how the tech reaches and touches end-users. This new series is all about what’s under the hood — crypto & blockchain — and how that gives us an unfair advantage in the world of consumer finance.

Clone Wars

While some fintech products are giving users the ability to buy & hold crypto (Robinhood, Revolut, Cash App), they aren’t leveraging the technology beyond that. And they most certainly aren’t building their infrastructure around it.

So let’s ask the dumb VC question that some of you are thinking: what if these fintech companies or big banks just copy what we’re doing at Genesis Block? What if they add blockchain and crypto?

Sorry, you can’t just “add crypto” as if a pizza topping in a Doordash order. That’s not how it works. I mean, you can say you are doing that, but it’s not real. That’s just Innovation Theater.

The systems behind banks and fintech are deeply integrated with legacy financial rails. Trying to retroactively add blockchain in any meaningful way would be like trying to make a 2020 Lambo with a 1910 Ford Model T engine. No matter how talented their engineers are, it just ain’t gonna happen. Not unless they burn it all down and start over. Massive risks. A classic case of Innovator’s Dilemma. Will anyone have the courage? I don’t know. I think they are much more likely to acquire someone like Genesis Block than gamble their entire business on it. But we aren’t cheap.

These new, decentralized protocols are complex, fast-moving, and full of snags. Our team has been in this space for many years — we understand the security tradeoffs, the protocol nuances (we spent a lot of time actually building them), and enough self-awareness to know what we don’t know.

Our team at Genesis Block can run circles around traditional banks and fintech companies. Certainly, they have large audiences and strong balance sheets — which can’t be underestimated. But when it comes to unlocking the enormous, new value to users, as long as the incumbents are building on legacy financial infrastructure, they simply cannot compete with us.

Crypto-Powered

The empires created in the 21st-century world of finance will be crypto-native companies that deeply understand decentralized tech and know how best to leverage it. It will be the teams who build on “crypto rails” first, with bridges back to legacy finance second.

That’s our thesis at Genesis Block. In this series, we intend to lay out a convincing argument for why that’s true.

So now that the stage is set and we’ve introduced the series, I think you’re ready to start learning why blockchain technology is our superpower, our unfair advantage.

You are ready to dive into that crypto rabbit hole.

But first, a word of caution. Once you go in, you may never want to come out. It’s what happened to me and so many others.

Once you see the potential & promise of this incredible technology, you won’t be able to ignore it. You won’t stop thinking about it. It’ll capture your imagination like few other things can.

Don’t be afraid of it. Let it take you.