Up until the economic crisis of 2008, banks have largely stayed in a safe zone. With serious flaws in the debt-based and inflation-ridden banking system getting highlighted, post economic crisis of 2008, cryptos have developed a strong rivalry with the banks. Bitcoin rose and provided an alternative financial framework to the world and as per some staunch bulls in the space, cryptocurrencies might even supplant fiat in the future. So do banks need to be afraid of bitcoin?
Talking to BlockPublisher, well-known crypto skeptic and industry analyst, Jason Bloomberg stated:
Banks do not have to be afraid that Bitcoin will take customers away or cut into their business as Bitcoin has too many issues to be a threat to banks, from its criminal use to its consumption of electricity
Crypto proponents have largely posed the burgeoning cryptocurrency space against the centuries-old system of banking.
It has only been a decade since bitcoin rose to the global financial scene. The digital asset is a technological innovation of the century but lack of concrete regulatory frameworks has led to its widespread illegal usage. In fact, the initial use-case of bitcoin was led by its illicit usage in activities such as money laundering, drug trafficking through illegal online marketplaces such as those on the dark web and much more.
Criminal usage has built a negative aura around the asset due to which the general public and big financial institutions hold back from adopting the asset. Besides, official acceptance has also been relatively on the lower side for bitcoin as the asset is even banned in many countries.
Additionally, issues have been associated with bitcoin on the technological front as well. The mining algorithm proof-of-work (PoW) lying at the core of bitcoin is somewhat “not right” when it comes to the energy consumption of the network. Mining bitcoin and maintaining the network requires special hardware capabilities and huge amounts of electricity.
Since a huge chunk of electricity is produced through coal and gas across the globe, the entire bitcoin network is indirectly contributing to global warming. It has been reported that the bitcoin network uses around the same electricity as the country of Ireland.
Adding on to his statements, Jason also said:
The only reason a bank might have to fear Bitcoin is if that bank is foolish enough to invest in it.
Since bitcoin is purely speculation-based, its price is often seen going through erratic behaviors both bullish and bearish. The uncertainty in the bitcoin price is huge. As suggested by Jason, it would be unwise for the banks to invest in bitcoin as of yet. Besides, it has only been over a decade since bitcoin came to the scene, there are still a lot of problems that need fixing on both legislative and technological ends.
Issues such as price volatility, price manipulation, scalability, custody etc. still plague the bitcoin world. Apparently, banks do not need to fear a technological innovation when it is pretty much still in its infancy, for now at least.
On the other hand, we have been seeing prominent banks adopt blockchain, the same technology that lies underneath bitcoin. Although bitcoin might just possess too many question marks but blockchain technology is hailed as revolutionary by many.
It provides a decentralized, trustless and transparent system of operation, a framework that carries extreme importance when it comes to the world of finance. Banks seemingly do admit the potential carried by blockchain as we have already seen prominent entities like JP Morgan adopt this technology and JPM Coin is the perfect example of that.
Big corporations such as Facebook is also stepping into the crypto space by adopting blockchain, keeping in mind its prospects. For banks, the need is not to be afraid but to leverage the situation in their own benefits. Bitcoin does present an alternative to banking when it comes to storing value, but it still has its shortcomings associated with it. There is no threat yet but it can surely become one if banks remain oblivious to the progress that the crypto space is making day-in and day-out with a lot of intellectual capital flowing into it.