- 21st June 2018
- Posted by: Manolis
- Category: Blockchain
For several years banks have eyed the crypto movement with fear and distrust. Crypto’s ability to undermine much of their business model should no doubt be concerning to them, but at the same time cryptocurrency opens doors to new possibilities. The simple fact that decentralized blockchain assets are now a permanent part of the financial landscape should be reason enough for banks to embrace the technology, and now many are beginning to do so.
Although crypto advocates have long asserted that blockchain assets will enable the public to break free from the banking industry, the truth is far more complex. Banks have the capacity to offer many necessary financial services that, at least for the time being, can be very beneficial for crypto users. Cryptocurrency businesses, for example, still need banks for issues such as payroll, fiat conversion, and loans. Many individuals also link bank accounts to crypto exchanges for purchasing.
Although most large banks are reluctant to work with cryptocurrencies, a number of smaller community banks have become more receptive. San Diego-based Silvergate Bank, for example, provides services for more than two hundred-fifty cryptocurrency companies, including some of the largest exchanges. Other small banks that have embraced crypto include Metropolitan Bank in New York, and Cross River Bank, in New Jersey. These institutions understand the risks associated with the crypto space, but believe that such moves give them an advantage over their much larger competitors.
It is worth noting that these banks still only work with fiat currencies, and banks have yet to begin managing crypto directly. It is nonetheless reasonable to assume that as crypto adoption grows, banks could begin to do so. They are fully aware of the substantial profits being made by fiat-to-crypto exchanges, and they are in a perfect position to offer similar services. It is highly unlikely that they will sit idly by while such an industry develops.
There is also the very real likelihood of crypto exchanges offering more traditional banking services. Coinbase, for example, has already begun to explore the option of obtaining a bank charter. Such a move would enable it, and other exchanges, to offer many more services, such as federally insured fiat accounts.
There are, of course legal and regulatory issues to overcome, and central banks have not embraced the idea of banks becoming involved in crypto. In fact, in some countries central banks have attempted to ban banks altogether from dealing with it. Nevertheless, it is folly to assume that banks can be prevented from participating in such a revolutionary industry, especially now that even the staunchest critics of cryptocurrency have come to respect the technology.
It is also reasonable to argue that bank involvement will be a positive step in bringing cryptocurrency into the mainstream. By both supporting crypto businesses and directly offering crypto investment, established banks will add legitimacy to crypto in the eyes of the public. Also, although the ability to manage one’s own wealth is a key benefit of cryptocurrency, many people are certain to be more comfortable with their coins in a bank sponsored wallet, held and secured by professionals.
Given the significance of the cryptocurrency revolution, banks are all but certain to become involved in blockchain assets. The few steps that have been taken are but a glimpse of what is to come. The means by which banks will shape cryptocurrencies, and of course adapt to them, remains to be seen.