How banks and blockchain will co-exist...and even benefit each other
Banks aren’t going to go away. Central banks aren’t going to go away. And…that’s okay, and it doesn’t invalidate crypto.
I know there are some in the crypto space who would very much like crypto to fully replace fiat currency and for crypto to be used as the primary means for day to day transactions. I just don’t see that happening any time soon; yet, all I seem to talk about is crypto and blockchain!
This is not a contradiction.
Fiat currency has been around for a very long time and is “Lindy.” Crypto has now been around for a bit over a decade, so Bitcoin is starting to become Lindy--but, let’s also keep in mind something that has been around for much longer, which is precious metals.
We don’t use gold or silver in everyday transactions--and that’s okay. Some would say that when the US Dollar was on the Bretton Woods gold standard that we were in fact using gold in day to day transactions, but to me, this is really starting to become a semantics game.
I envision an economic regime where crypto, fiat currency, and precious metals exist side by side. Fiat does have some advantages that we should not discount: you can store it in your pocket, there already is a robust banking system for it, and everyone uses it (positive network effects).
Banks aren’t going away
As long as fiat currency is used, there will be some kind of infrastructure to facilitate fiat transactions and the savings and lending of fiat, i.e., the banking system.
Moreover, banks do things more than just lending money. As long as large scale businesses exist, or anything that requires a significant capital expenditure (government spending, etc.), there will be a need for banks to serve as a capital markets middleman between investors and projects needing capital. Capital markets teams, M&A teams, bankruptcy restructuring teams, and private wealth managers aren’t going anywhere.
Blockchain in this case could be synergistic, not antagonistic, with banks. Blockchain technology could make the backend processes more efficient; see my previous piece on Chainlink (LINK):
There may come a time in the future where crypto is used more in day to day transactions, but I don’t see this coming at least for another 5 to 10 years, not necessarily from a technology standpoint but more from the standpoint of getting people to actually use it.
Bow Tied Bull (bowtiedbull.substack.com) made a great point that Tinder would not have been possible to launch in 2000. Keep in mind the mentality of people in the late 1990s/early 2000s with Web 1.0…you want to meet people off of the internet?! There’s crazy people out there! Even if the technology was there for Tinder, which that too wasn’t quite there, the culture just wasn’t ready for it.
It is likely that crypto and blockchain will change the financial services industry…but this, too, is nothing new. Consider that there once were prestigious financial giants like Salomon Brothers, Dean Witter, AG Edwards--and the one thing those companies have in common is that none of them exist anymore! I’m going to harp on this, but you need to see this documentary called “Floored” about the floor traders in Chicago once electronic trading came in.
Those floor trader jobs are now a fraction of what they used to be--but new jobs that weren’t even thought of at the time, like quantitative trading, came in response. We honestly have no idea yet what new finance jobs will be created because of crypto that we haven’t even thought of yet.
The one constant in financial services is change, and while crypto and blockchain will change financial services, banks and fiat currency in general aren’t going away any time soon.
-Alex
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