Banks, as an institution, are the antithesis of the blockchain space and everything it represents because their very existence depends on a centralized authority. On the opposite side, blockchain is a decentralized distributed-ledger technology that promises to decentralize everything.
“Banks need to be the final arbiter of what the ledger says. Because if they weren’t they wouldn’t exist and they wouldn’t have value. That is something that I think that is forgotten in the debate about value in blockchain and how should that work. Up until now and in all human history, all money has been needed to be protected by force or the threat of force,” said Todd Kandaris Stepwyze.
Blockchain has allowed a mechanism or medium that literally protects itself making the need for force or its threat an obsolete idea. Any organization which claims that they are the central authority and they protect that authority by force has made themselves obsolete, Kandaris said.
If banks have a vision and want to be a part of this emerging decentralized world, then they should not try to force the old model because it would inevitably fail, he added.
Blockchain to Disrupt Banking System
Financial experts predict that blockchain would disrupt and revolutionize the banking system because of two primary reasons: cost and speed.
Between $150 and $300 trillion are exchanged for payment across national borders each year. Banks earn an average of 10 percent in transactions fees, with money transfer taking around two to five business days.
However, using the blockchain platform, entire layers of overhead are removed as identification is performed by everyone on the network or note. The consensus process eliminates the need for intermediaries who might otherwise charge fees for every transaction.
Blockchain also speeds up the process of money transfer by reducing the number of paper works. As an example, the first international blockchain payment was sent from Alberta, Canada to Canada to RaiseBank in Germany as an experiment by SAP, ATB Financial, and Ripple. However, using traditional banking processes, such a transaction will be completed within two and six b usiness days. But with blockchain: Only 10 seconds!
Banks Resisting Blockchain
Understandably, the banking institution is not taking things sitting down and is trying to protect its own.
Investment banking giant Goldman Sachs did not hide its disappointment over the decision of the Commodity Futures Trading Commission to allow the CME Group and Cboe Global Markets Inc. to roll out Bitcoin futures in contracts in December.
The Chinese central bank said it would require local governments to regulate Bitcoin mining and limit its production by cutting down power consumption. While the Bank of Indonesia declared all virtual currencies, including Bitcoin, are not recognized as legal instruments of payments.
The South Korean government went as far as requiring cryptocurrency exchanges to share their user data with the banks.
Like a ‘Finger Puzzle’
The more banks resist blockchain, the less they become relevant. He likened the banks’ resistance to the Chinese finger puzzle wherein the more a person applies force, the more the grip tightens, making it impossible to remove the finger from the ‘trap.’
Kandaris added, “The more they (banks) try to push things to the old ways, the less relevant they become. And that is the same thing with things like Facebook. They are doing the same thing. What they need to understand is you have to allow things [to happen] gently. It goes against the very nature of what they are.”