Cryptocurrency and blockchain versus banks: the global battle has just begun




Bankers have been very comfortable for many decades. They created their own virtual economy, which is largely self-contained and meets the interests of its creators very well. Therefore, bankers are conservative by default: they do not need to set up risky experiments and change what already, in their opinion, works well. But a significant part of the rest of the world’s population has a different opinion and wants change. And cryptocurrency with blockchain can be used as a very powerful weapon in the upcoming redistribution of the world!

The world banking system has been forming for several centuries and, to date, it looks like this: Each country has a certain number of banks (both state and private), which provide various types of banking services to the population and companies. These banks are managed and controlled by central banks, and central banks are managed by international central banks (such as the International Monetary Fund (IMF) and the World Bank (WB)). In turn, the IMF and the World Bank are subordinate to the Bank for International Settlements, which stands at the top of the banking pyramid and has supreme power over the current banking system.

Almost every country has its own currency and its own payment system, which is managed and controlled by that country’s central bank. But there are also reserve currencies (such as US dollars, euros, etc.) that are in circulation all over the world, although they still circulate within the payment systems of their issuing countries. And this whole huge structure with a large number of regulatory bodies and intermediaries looks less and less effective and expedient.

Until recently, no one questioned its effectiveness and feasibility for lack of an alternative. But, with the advent of cryptocurrency and blockchain, on the basis of which the cryptocurrency functions, many asked the question: “How necessary are all these numerous intermediaries and overseers, who, in the end, are“ freeloaders ”and are quite expensive, drawing off significant financial resources that could be used for the economic development of many regions of the planet and improving the lives of a large number of people? ” The question is, in fact, very difficult, but once posed, it can no longer be removed from the agenda until an intelligible answer is found.

And the search for this answer was engaged in a variety of organizations, including the “Supreme Commander-in-Chief” of the banking system of the Bank for International Settlements. This bank issued a 24-page document in November 2015, which contains a fairly detailed study of the impact of digital currencies on the global banking system. The authors of this study acknowledge that, although digital currencies have not yet reached their maturity, the principles on which they function (freedom of movement of unlimited finance, absence of intermediaries, impossibility of fraud and counterfeiting, low cost and high speed of transactions, etc.) ), and especially the technology of the distributed ledger (blockchain) in the coming years may call into question the need for the continued existence of central banks and banks in general! Of course,The only question is whether banks will be able to regroup and find themselves (i.e. survive) in the new realities!

Some of the central banks (for example, the Central Bank of Barbados) are already seriously considering the possibility of including digital currencies in their gold and foreign exchange reserves, realizing the growing value and absolute liquidity of this asset. The main point that does not yet allow this decision to be made is the extremely high volatility (rate fluctuations) of this asset to traditional currencies.

If a cryptocurrency appears in the world that has a stable exchange rate, then there is a high probability that after some observation of it, the central banks of many states will begin to include it in their reserves, thereby reducing their dependence on the state of the economies of the states issuing generally recognized reserve currencies.

So let’s take a look at where cryptocurrency and blockchain will hit banks the most:

1. Cryptocurrency is ideal for international payments

In banking practice, a huge number of national payment systems still operate, which function quite effectively when you need to transfer money within one specific country. Problems begin when the payment crosses the borders of a state or several states. The fact is that there are still many problems in the interaction of individual payment systems with each other. Cryptocurrencies do not recognize any boundaries at all: their concept is initially global, i.e. no matter where the sender and the recipient are geographically located, the transfer will be carried out almost instantly. The main current problem here is the subsequent conversion of the cryptocurrency to the local national currency. But in the near future this problem, I am sure, will be solved.

With a high degree of probability, I can argue that, in the end, banks will lose their entire payment business, and companies like Western Union will simply cease to exist. No one in their right mind and sober memory would want to pay crazy fees for a money transfer service, which, moreover, can travel from sender to recipient for several days! With the help of cryptocurrency, payments will become almost free and almost instant.

The cryptocurrency will cover a huge market of people (over 2 billion) who are currently deprived of banking services, because banks are simply not interested in them. This huge mass of users will strengthen the credibility of the cryptocurrency so much that banks are fully aware of their inferiority and archaism.

2. Cryptocurrency as a high-tech alternative to the US dollar

Much of the banking system is built on the hegemony of the US dollar. The United States has been issuing its own currency for over 100 years (since 1913, when the Federal Reserve was created) and receiving huge revenues, primarily from the unlimited export of this commodity. After 1971, when the gold and foreign exchange standard was canceled and all countries agreed to quote their national currencies against the US dollar, the real golden age of the dollar began.

But nothing lasts forever. Cryptocurrency has come to squeeze out this global asset, which has been in a monopoly position for too long and uncontrollably. He will have to make room, and it is not yet clear how this will affect the banking system. But it is already obvious that a serious breakdown in the dollar economy may begin. Many countries have large reserves of the American currency in their gold and foreign exchange reserves, but they are not very happy with this and intend to further diversify their assets. The near future will show how deep these processes will be.

3. Blockchain will allow to raise peer-to-peer lending to new heights

This newly emerged tool allows for person-to-person financing, bypassing banks. So far, this system is relatively small and not very well developed in terms of financial risk control, but in the next couple of years, and not without the help of blockchain technologies, everything will definitely change radically. And banks need to watch this very carefully so as not to lose their credit business.

4. Blockchain is able to create an effective alternative to SWIFT

This is another area where cryptocurrencies can undermine banks. Here it is necessary to tell what SWIFT is. SWIFT is the global interbank financial telecommunications community. Introduced in the 70s of the 20th century to replace telex transfers with electronic ones, SWIFT was created by the global banking system as a network for the secure transfer of funds. SWIFT provides financial institutions with a network through which they can send and receive information about financial transactions in a clear, reliable and secure system. And most banks use it to send money. As of September 2010, more than 9,000 financial institutions in 209 countries were sending and receiving on average over 15 million messages per day, up from only 2.4 million in 1995.

Since at present this system has no alternative in the world, i.e. maintains a monopoly position for many years, the tariffs that it sets are by no means low. And as soon as a worthy alternative appears, many banks, for sure, will want to use it. And this alternative could well be created using cryptocurrency and blockchain.

Realizing the seriousness of the threat, SWIFT is currently thoroughly studying blockchain technologies, but is in no hurry to adopt them, considering that the blockchain still has too little trust, and the main advantage of the SWIFT system is precisely the trust in the network that it has built.

In addition, there is an interest in creating an alternative system of international bank payments, which is already being shown by many countries, in particular the BRICS countries, as well as Iran and Kazakhstan outside of it. Russia is also interested in such a system, and this is almost 800 banks. China has already launched its CIPS (Chinese International Payment System) international bank payment system.

In order to maintain its influence on the global financial market, it is time for SWIFT to offer its users something completely new. Probably, the time has come to reconsider your attitude to distributed ledger technology.

In any case, a global battle is envisioned in the next few years. And the cryptocurrency with the blockchain acts as an attacker in it: the banks will be dealt several extremely weighty blows.

Will the enemy stand? Will he be knocked down or will there be a complete knockout?

It is very difficult to predict now, but one thing is clear: these blows will shake the very foundations of the banking system. For too long, she acted as a fat cat, who had plenty of food and no stress. Now the rules of the game are changing rapidly. And either the banking system will begin deep and thorough work on its restructuring and optimization, or really a knockout is just around the corner!