Banking markets and cryptocurrency markets may be more symbiotic than you think

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Promise of cryptography It's about democratizing financial services that have been captured by brick-and-mortar banking and a series of products that require money to make money.Promise of blockchain What can the third generation of the Internet do? Called Web3, This allows people to read, write, and own digitally rare content and assets. Cryptocurrency proponents will argue that this is nothing less than an anti-establishment revolution that allows people to opt out of traditional political economy and opt in to technological economic self-sovereignty.as Market losses and enforcement actions As the results of the past two years have shown, the durable part of cryptocurrencies (which, like banks, is not monolithic) may be more evolving than innovative in financial services. This is good for markets and players who want to disrupt financial services with new technologies.

A long-term view of evolutionary innovation in banking shows this. For example, far from a world of always-on financial services, banks are making large-scale business model innovations that expand their reach while reducing costs, making banks a sector of the economy that enjoys the necessary public support. had to experience. Therefore, we impose conservative prudential and risk management standards. As the economy has changed over the past 100 years, consumers have demanded access to their money beyond the 9-to-5 banking hours and when there are many bank holidays in between. Perhaps the convergence of labor laws, efficiency, and cost savings associated with the transition from human tellers to automated teller machines invented in the late 1960s is an example of evolution rather than revolution.

As ATMs become more widespread, they have become a breakthrough, allowing banks to serve increasingly dynamic customers wherever they are, whether at a gas station, while traveling abroad, or at odd times of the day. Ta. The breakthrough lies in evolving the physics of banking and money while adhering to a rules-based economy. In the next expansion of this model, with the rise of e-commerce, banks will face a potential brink as the growth in internet-scale economic activity triggers a wave of fraud that metastasizes to today's malicious cybercrime. Ta. Banks and financial services companies face a stark choice: offer customers a no-frills offer and absorb the risk of fraud, or miss out on the permanent shift of the economy to an internet-based service sector and the rise of globalization. Did.

Then an evolution rather than a revolution occurred, and the number of banks in the United States began to decline from more than one. In the 1930s, there were 14,000 people, but today there are about 4,100 people. Banking didn't die, it evolved. This evolution required the creation of an always-on, more open banking environment that leverages the Internet as part of the technology infrastructure that not only fuels the economy, but also the banking business. Unwittingly, not all banks, even those that survive, will be able to keep up with the digital transformation and cybersecurity arms race, and the failure of any bank will undermine trust in banking. Masu. Today, in the banking industry, the ability to access Internet-based accounts, make transfers, move funds between accounts, check balances and request loans, and other integrated services is not only common; It is the basis of

Even though many banks are keeping pace with the evolution of Internet banking, much of the core of banking remains the same. Even at the most technologically advanced banks, performing wire transfers is still similar to the days of landlines. The longer a call travels through fixed infrastructure, the higher the cost. In banking, customers often require faster payments because the speed of today's banking systems requires personnel and overhead, which increases costs. These activities are further hampered by outdated or proprietary technology, conspiring to create a veritable walled garden in financial services. This walled garden collects the highest fees from those who can least afford it, even for basic financial services. As an example of legacy technology debt, ACH, Swift, and other interbank payment networks first emerged in his 1970s. As examples of proprietary networks, most of these networks and even public alternative networks such as FedNow, which was launched with a pilot group in July 2023, still propose closed value transfer networks.

It is no wonder that the advent of mobile-enabled digital wallets and open blockchain ledgers is seen as revolutionary and potentially anathema to the safety and soundness of banking. But as 2022 has taught us, perhaps cryptocurrencies and banks are not in a fierce battle to the death, as the internet and ATMs were in the past, and mobile banking is now. Business upgrades may be happening symbiotically, as is the case with . In fact, cryptocurrencies may need banks more than banks need cryptocurrencies. Yet responsible innovation, especially in areas where the world currently lacks banking and financial services, is being hindered from making significant progress. Pushing the boundaries of the formal economy, That would be short-sighted not only for banks and their regulators, but also for the economy as a whole.

Emerging technologies are often too scary to maintain, especially for sectors that must avoid risks by design and statutory law. The transition from owned server farms to cloud computing was also scary. But today, cloud computing and all the technical jargon that comes with it has faded into the background, making life better for banks, businesses, markets, and consumers. A similar transition is underway in blockchain-based financial services as the wave of institutional adoption accelerates. Much like the early checkerboards of the Internet and the checkerboard scorecards of Wall Street, banks and nonbanks will need to innovate, partner, and compete to normalize and manage the risks of new technologies. . In fact, if you look at the technology and vendor acquisitions that most banks in the United States are working on, the advent of open source systems is It should be welcomed.