Cryptos and banks have been seen as bitter enemies, which is understandable. The anti-banks sentiment has prevailed ever since the inception of bitcoin, with cryptos posing threat as a substitute for fiats. However, Ripple CEO Brad Garlinghouse, introduced a new concept that opposes all the current dynamics of the space. In his recent interview, Garlinghouse suggested that biggest banks need to embrace cryptos along with their underlying technology, blockchain.
Garlinghouse was very straightforward in praising banks for playing an important role and offering financial services to society. While conveying his idea that banks and governments weren’t going down in the future, he proposed that new technologies should be adopted by banks in order to grow their businesses. He said:
I don’t think banks… governments will go away. Banks are applying a very important regulatory framework that I actually think is important for society. I personally believe that banks will continue to serve that role, they’re good at it… I think this is a new set of technologies that they can benefit from to grow their business.
It was quite surprising to hear Garlinghouse discuss the importance of banks. While putting forward his thoughts about the idea of anonymous transactions, Garlinghouse demonstrated that the idea wouldn’t be prevailing given the regulatory concerns such as money laundering and terrorism financing. In other words, he suggested that bitcoin and other blockchain transactions that avoided government and other authorities are not likely to succeed in the future.
Garlinghosue clarified that Ripple never aimed to replace the regulators or governments. Instead, he mentioned his willingness to work with the system, run by governmental bodies, and not against it. He even identified banks to be helpful in tackling resistance that existed at the intersection of the crypto sphere and traditional finance.
Moreover, Garlinghouse elaborated that Ripple focuses on providing cost-efficient means of transferring payments across the borders. After admitting the presence of several other cross-border payments services, Garlinghouse stated that along with the deployment of crypto and blockchain in the solution, they were trying to rewire the entire global financial infrastructure. He also told that Ripple had collaborated with several banks to reduce remittance costs for cross-border value transfer.
At the moment, RippleNet, Ripple’s global payments network, is utilized by more than 200 financial institutes such as Euro Exim Bank, American Express, ConnectPay, Standard Chartered and Ahli Bank of Kuwait. In addition to the low remittance costs, Ripple allows as much as 1,500 transactions per second. Compared to other cross-border payments such as Paypal that charges 3% on entire electronic payment, only 0.0009 XRP is charged as the transaction fee. Cost efficient, scalable, secure and fast platform provided by RippleNet tends to help people while using blockchain technology.
However, apart from easing cross-border procedures, blockchain and cryptocurrencies are capable of helping banks in several ways. For example, in trade finance, that requires lots of paperwork, such as bills of lading, invoices and letters of credit, blockchain can innovate the trade finance sector by eliminating the need for recording data. Similar to a public document, DLT (distributed ledger technology) can note down all the necessary information that can later be accessed by all concerned members.
With the signature trait of decentralization, blockchain and cryptocurrencies can allow banks to skip several intermediate stages and allow secure peer to peer transactions. Again, DLT also eliminates the need for banks to record transaction information such as the user’s name, amount sent, receiver’s name, by saving all relevant information on the blockchain. Furthermore, as the data would be saved in a secured decentralized chain, single point of failures, that may be encountered by banks that mostly use centralized databases to store data, will be strictly prevented.
While there’s plenty of mutual ground for banks and cryptocurrencies, ignoring the rivalry of blockchain and financial institutes means shutting one’s eye to the actual reality. The world was moved by bitcoin and other cryptocurrencies because they provided a much better alternative to the widely accepted fiat that keeps losing its value due to inflation.
Moreover, the world has witnessed the manipulation of the financial institutions to control the fiat currencies while claiming to regulate it. An example in this regard is the denial of the Bank of England to Venezuela to withdraw gold worth $1.2 billion.
Garlinghouse raised an important point during the interview — banks might eventually bow down to the technological innovation brought by cryptocurrencies and blockchain, it is easier said than done. The crypto enthusiasts, however, need a lot more convincing to give up their view that crypto and blockchain are meant to correct the injustices of banking systems rather than working in unison with them.