Despite the early struggle phase, bitcoin has been posing banks a threat since its inception as there is now an alternative, irrespective of how immature it currently is. So do banks need to be afraid of bitcoin? Answering this question, co-founder of The Cybermiles Foundation, Dr. Michael Yuan stated:
It has not succeeded as a payment system. For banks, however, an e-payment system in step with Bitcoin’s decentralization philosophy represents an opportunity to reduce online payment costs.
It has been over a decade since the world’s leading cryptocurrency, bitcoin, came to the global financial scene and offered the world an alternate payment system, free of the interference from banks. Bitcoin came forward as a revolutionary financial framework that tackled various problems associated with centuries-old debt-based banking system such as inflation. With over 10 years of stride-making, bitcoin has still not been able to become a trusted global payment system yet.
The crypto emerged as an internet-based decentralized cash system but 10 years later, mostly used by investors to gain profits off bitcoin price fluctuations. Since there is a lack of physical backing, extreme price fluctuations on a daily, weekly or monthly basis is a norm in the bitcoin world.
Price uncertainty is one of the many reasons why bitcoin has not been able to consolidate its position as a global payment instrument. As pointed out by Michael, bitcoin has oriented itself more as digital gold rather than a reserve currency that can be used as a means of payment.
Considering the original Bitcoin white paper, which was titled “a peer-to-peer electronic cash system.” 10 years later, Bitcoin is primarily a store of value (i.e. digital gold) that remains out of reach of most of the world’s poor. Michael stated
The general public and poor community have largely been cut off from this space. Besides, the media hype associated with bitcoin is more negative than positive owing to the lack of regulatory frameworks and usage in illegal activities such as money laundering.
For a technological innovation that is just a decade old, replacing the centuries-old monetary system of banking is a long shot. Still, bitcoin has made pretty big strides towards making progress in both technological and legislative domains. It is often termed as the digital gold because of its usage as a store of value but it still has deviated from its goal of becoming a global currency that can be used on the ground by the general public, especially the poor.
Due to the lack of regulatory clarity and lack of opportunities on the ground for bitcoin spending, the general public is largely skeptic of this asset overall. For now, banks apparently have no reason to be afraid of bitcoin. It still has not been able to succeed as a payment system. If bitcoin is to rival banking in its full glory, the need for it is to integrate itself into the financial system till the deepest level. As Michael said:
The key measure of success is whether Bitcoin or other cryptocurrency can help the poor and unbanked integrate into the world’s financial system.
Although bitcoin itself might just be too immature to replace the banking system or physical gold, it sure has highlighted the revolutionary technology of decentralization lying underneath it, blockchain. Blockchain has been getting serious attention from the investor community lately as it promises to be the next big thing in the tech arena.
The basic underlying prospects that blockchain brings to the table are decentralization, trustlessness, immutability and transparency. All of these features are of utmost importance in the finance industry. Whether bitcoin succeeds or not in the long-run, blockchain is set to make its mark in the finance sector moving forward.
Major banks are already acknowledging the game-changing aspects that blockchain brings. JP Morgan has already created a digital coin based on this exact technology. Facebook being a major corporation is also trying to become a global leader in the finance sector through its blockchain-based currency Libra. For banks, blockchain carries an opportunity for future growth.
While bitcoin is struggling to become a leader in the payment arena, banks can adopt blockchain and launch their own crypto wrapped in official regulation to cancel out the threat that bitcoin and other cryptos pose. As per Michael:
While there’s still a fair amount of confusion and fundamental misunderstanding about how blockchain technology can facilitate and improve banking globally (case in point: a fear of money-laundering), blockchain networks today are used to facilitate international money transfers between banks. So a case can be made for some measure of symbiosis.