Crypto Disrupting Banks? Not Really…

The word “disruption” is bravely used all around the cryptoworld nowadays. Almost every project grounds its existence on trying to disrupt something. It is a classic marketing, sales and political strategy to gain traction by standing up against something, and the revolutionaries of the crypto community are definitely not afraid of standing up.

The world of blockchain and cryptocurrencies often designate traditional banks as their biggest enemies. If there is something the crypto activists really want to disrupt then it is banking. Naturally this is a bidirectional relationship, banks also refrain from actively cooperating with enterpreneurs of the crypto community. Want to open a current account for your crypto business? Good luck, allocate reasonable time and effort and you will see.

In general I do not accept total disruption as a way of doing business. Our society and our business culture have been developed during thousands of years, and almost every new result found its roots in something that had already existed. Yes, there have been some jumps in technology and inventions, but if you only want to disrupt, you give yourself only a slight chance to succeed.

I am a crypto and blockchain enthusiast, and as such I duly believe that we will experience revolutionary changes during the next decade. Blockchain and crypto will alter many aspects of our lives. Still, I do not believe that blockchain or cryptocurrencies will disrupt banking. They will simply not. Reason for that is simple: banking is a complex business, part of it may be altered by crypto but other parts will not be affected.

Roughly 4000 years ago, the business of banking has started in the region of Babylonia with bartering deals. Later, during the ancient Greek and Roman Empire times “bankers” started to lend, exchange currencies and accept deposits. Somewhere around the 8th century around the Silk Road hawala banking was developed for moving value without moving currencies in reality. It was a remittance business based on trust and honour of the agents. The banking industry was then greatly improved in the Renaissance era. The first banknotes were issued in 1695 by the Bank of England, and by the beginning of the 19th century international clearing house for bank transactions was setup in London.

As we can see, the term banking is construed of multiple core activities, and has developed organically. Core activities may be defined basically as currency exchange, deposits and lending. And all these core activities have been gradually developed into more sophisticated services. This is where my doubts on disruption start.

I tend to agree that basic banking practices need to be changed immediately. Remittance methods of banks are just ancient. 3–5 days transaction times, weekend and bank holidays, high commissions: these will have to go, these have already been technologically disrupted. In the age of blockchain nobody can reasonably explain why a bank transfer is not performed immediately, even on a holiday. Where are the funds for 5 days? Traveling? Funny and sad to see these remittance practices in 2018 on planet Earth. I am here taking side with crypto revolutionaries, banks not acting immediately on this will make them look like ancient fools very very soon.

More complex banking practices however will not be disrupted by any blockchain invention. Practices that still require human sense and rationale. In the field of corporate finance, no smart contract will ever be smart enough to decide whether the credit facility or investment is properly managed or granted. Banks clearly have their place in capitalism, and they will preserve their position. Banks will always stand in the crossroads of capital, this has been their business for thousands of years. No smart contract will ever have the sophisticated knowledge that operates the biggest banking conglomerates on the globe.

But banks will need to change. First of all, they need to immediately disrupt their own international remittance methods. SWIFT today is a bad joke. Banks also have to acknowledge that capital will flow in crypto, and banks have to align. They have to stand by crypto businesses, support them as partners. Banks are also the core financial partners of the everyday people, hence it is their obligation to educate people about cryptocurrencies. Nothing could push crypto adoption more agressively, than banks offering crypto custody and wallet services integrated in their mobile applications…

If my standpoint is true, than crypto will not disrupt banking. This should not be the goal. Crypto should disrupt some ancient practices as 5-day money transfer, but crypto should not disrupt the financial industry. Banks and crypto companies together should drive adoption and make good use of the underlying technology revolution.