The banking sector hates bitcoin yet they want blockchain
And it will happen again in the near future. What if one could remove this intermediary and replace it with a digital system that was infallible; one that was not open to corruption nor greed? It was impossible before bitcoin.
When you deposit your money at a traditional bank you actually no longer own it, the bank does. Digital currency had always been open to the risk of being spent twice because it consists of a digital file that can be duplicated or falsified.
This is known as the double-spending problem. Middlemen like banks are there to establish trust — to resolve the double-spending problem.
So, for example, when I pay for something then someone else keeps track in a ledger on who spends and who is owed what. However, as mentioned earlier, banks thirstily charge excessive fees — even for just holding your money. Interesting side note, because banks are also centralized they are more uniquely susceptible to hacking efforts, which is what happened to JPMorgan, TD Bank, Citigroup, and even recently with Equifax — twice.
It is a digital storage of consensus truth, via peer-to-peer, ensuring that those who spend bitcoins really do own them — thus, solving double-counting and other fraudulent concerns, including hacking. Banks no longer worry about other banks being competitors. That, in and of itself, is revolutionary. The financial services industry is like a Rube Goldberg machine; it incessantly yearns to make something more complicated than it needs to be.
You process a transaction, it goes through various convoluted and unnecessary system machines, and in 3 business days a settlement occurs.
The more elaborate and esoteric this framework becomes the bigger their opportunity to profit from it unchallenged. In contrast, the system is dramatically simplified when dealing with cryptocurrencies — the payment and settlement is the same process. When bitcoin was introduced governments and banks simply ignored it.
In the following years they laughed and derided it: But because bitcoin is also inherently anonymous, regulating it is also difficult.
Their goal is to just prevent mass adoption by the general public. To maintain business as usual. And so this is really a story about the fear of change. Instead, maybe banks should focus their energy on fully understanding the underlying blockchain technology which fuels bitcoin, and how its impact could positively reshape their existing services to improve customer experiences.
Ironically, if bitcoin is allowed to grow to its fullest potential, without slander nor interference, banks could have access to new markets on an unparallelled scale. In the blockchain world, each bank maintains its own copy of the ledger. This is identical in each case and, because it is blockchain, it is tamper proof so everyone knows that everybody else sees what they are seeing.
And this applies as well to current, third-party virtual monopolies such as Swift. They will be superfluous and the inefficiencies characteristic of a monopoly situation will disappear. Internal back offices and the staff within them are also under direct threat as it is no longer necessary to employ teams to author, approve and monitor transactions.
Errors are reduced with blockchain because authorisations are visible not just to transacting parties, but to any related parties such as lawyers, controllers and accountants. Reduced staffing is one of the main reasons why Morgan Stanley believes it can halve costs via blockchain. Because of this, UBS, for example, sees an opportunity to greatly restructure its cost base by deploying blockchain.
Currently there is a plethora of parties involved in trade finance. Creating policies as smart contracts on a blockchain is ideal for insurance. This offers complete control, transparency and traceability for each claim, and could eventually lead to automatic pay-outs. Regulators love blockchain systems! In such a blockchain system, the regulator just becomes another node on the blockchain and then has complete visibility of every transaction.
So, there you are — a quick survey of just a few of the areas which will be disrupted as blockchain technology comes to the fore. Blockchain will have a deep disruptive effect on almost every sector of the financial industry. In the short term, many currently working in the financial sector will be greatly affected.