Cryptocurrencies Won't Destroy Banks, They Will Modernize Them | Opinion

Crypto diehards will tell you that Bitcoin will destroy the banks. Banks will say that the crypto frenzy is the latest bubble ready to burst.

Both are wrong.

They should not be warring factions, but suitable allies. The rise of cryptocurrency signals a fundamental market desire for a different kind of frictionless finance. Instead of trying to fight the crypto-tide, banks should embrace the changing landscape to modernize and be future ready.

Cryptocurrency, which is primarily based on blockchain engineers, is a unique, very innovative technology with massive potential for decentralization and creating trust in a whole new way. On the other hand, banks have the scale, infrastructure and consumer trust needed to deliver the crypto-vision to the public at large. Cryptocurrencies will not destroy banks; they will accelerate the bank modernization journey.

Banks are no longer fit for purpose. Today, we expect everything to be simpler, faster, efficient; Amazon packages arrive in 24 hours, and the entire gamut of entertainment is at everyone's fingertips, all the time. In a 10 second attention span world we live in, customers still have to wait three to five business days for funds to clear, and pay exorbitant fees for that slow service.

Ultimately, it is the consumer who suffers and pays for the inefficiencies via costly and slow transactions or more broadly being denied access to financial services completely. Even today we see that without tax returns, a permanent address or access to a brick-and-mortar branch, gaining credit or even opening a bank account remains a challenge for millions. Current stats show that and that number grows exponentially when we take a global view of developing countries.

Cryptocurrencies are still viewed as the Wild West, with new types of crypto currencies or tokens, from real one to meme ones, soaring and burning everyday, leaving a trail of amateur investors in their wake. A cryptocurrency based on the Netflix series Squid Game soared more than 310,000 percent before collapsing, while the meme-inspired Shiba Inu cryptocurrency continues to experience 750,000 percent price fluctuations.

Cryptocurrencies like Bitcoin are also a volatile asset that can be subject to huge swings in value, depending on public announcements from celebrity figures such as Elon Musk. Additionally, there's a fear about crypto wallets being easily hacked, and how cryptocurrencies have been used to facilitate crime and fund terrorism.

Yet many fears are based on a misconception. While volatility is to be expected in nascent industries, the underlying technology is actually more secure and transparent than many mainstream banking systems. The main currency, Bitcoin, for example, has never been hacked. On the other hand, banks like Capital One lost sensitive information of over 100 million Americans in a data breach.

Regardless of the blockchain's real strength, cryptocurrencies still suffer from a reputation problem. Older generations are more likely to trust household banking names and are less likely to adopt cryptos. When supported by their trusted bank, a whole new demographic can benefit from decentralized finance and the promise it holds.

Bitcoin's early adopters want banks to have no role to play in the financial systems of tomorrow. This may be more an ideological viewpoint versus what is realistic. Remember that a number of these crypto currencies grew as communities and as white papers aiming to democratize money. Ultimately, most people care about speed of transaction, ease of use, low cost of transfer and knowing that their money, digital or otherwise, is secure. A convergence of banks and cryptocurrencies can deliver that, regardless of what mechanisms operate below the hood.

Bitcoin crypto currency
A physical banknote and coin imitations of the Bitcoin crypto currency. OZAN KOSE/AFP via Getty Images

To achieve this, first and foremost banks and crypto providers need to work together, and at the moment that isn't happening. Everything to do with cryptocurrencies relies on cutting-edge technology. After years of consolidation, the technology that underlies traditional banks remains creaky and outdated.

Yet the key strength of banks is their reputation and ability to deliver financial services at scale.

By combining the two, both the consumer and the overall economy can benefit from the experience of financial institutions, as well as the innovations coming from a growing decentralized sphere.

Such a partnership has the potential to be a game-changer for the American and global economy. The most recent Afghanistan crisis displays the real need many have to be able to send money abroad, instantly and with no cost. Yet for those who don't trust cryptocurrencies themselves, or don't know how to buy or send them, this remains impossible.

The United States is the largest source of remittances in the world; in 2017 a total of $148 billion was sent from the U.S.

Regulators play a crucial role in this transition. Even crypto leaders argue for a tightening up of the market because they know that it is only through regulation that cryptocurrency can achieve validation. If we really want the value of decentralized finance to serve our populations, then having the right regulatory guardrails is key to building that bridge.

Globally we see regulators helping with bridging the gap, most recently with Thailand's Siam Commercial Bank buying a controlling stake in digital asset exchange Bitkub for $535 million. We've seen the benefits that fintech has brought to the banking industry. The model evolved from competition to collaboration benefitting the incumbent banks, startups and most important the consumer.

The difference between fintech and blockchain is that blockchain isn't just a new take on an old game. It's a generation-defining technology that won't just transform finance, but contracts, online trust and the nature of ownership. The world will embrace this technology, so banks must too.

In theory, cryptocurrencies solve many of the problems baked into the old financial system. But it is only when crypto experts build the partnership model and team up with banks that it makes it practical and real.

David Donovan is the executive vice president of Publicis Sapient, and decentralized finance expert.

The views expressed in this article are the writer's own.

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