Since Bitcoin was introduced in January 2009, a battle began between it and the world banks. Taunted as the currency of the future, a successful implementation threatens the existance of banks and countless other intermediaries service providers. After its inception Bitcoin had a slow start, so it encountered little resistance; but after the bull run of late 2017, it faces a entrenched defense. However, due to the Blockchain’s versatility and the potential for profits in the Bitcoin markets, banks may choose to integrate with crypto currencies rather than fight them. It’s coming to the point where crypto-banks, national Central Bank Digital Currency (CBDC), and hybrid Points of Sale (POS) are in the works.
Cryptocurrencies biggest advantage over banks is cost. Banks charge obscene fees to transfer money from individuals, institutions, and worse internationally. Crypto currencies can reduce over 95% of that cost. Therefore, the banks’ fears to lose out this entire market is well founded. Their response is to implement a variety of blockchain systems of their own. From R3’s Corda to IBM’s Hyperledger, they seek a compromise system that may work in their favor. However, their numerous inefficiencies make them target of alternatives. One such alternative is the formation of a central bank of digital currency.
However, the Bank of International Settlements (BIS) opposes the concept citing cryptocurrencies can make large withdrawals, deposits, and transfers so easy that they could destabilize the funding of banks. Especially during a crisis; users would flee their bank and move their holdings to a safer, insured, central bank. Nevertheless the idea seems inevitable as Bitcoin and it’s related derivatives gain more ground everyday.
The People’s Bank of China and now the US Congress are discussing the idea of incorporating crypto elements into their operations or a CBDC. Congressman Andy Barr stated today during a congressional session that crtptocurrencies will “continue to have a greater and greater impact on our financial system”
Litecoin Debit Card
After banks decided to cancel the use of credit cards to buy Cryptocurrencies, the Litecoin foundation began to look for banking alternatives. For starters, they partnered up with TokenPay, a crypto payment processing start up. TokenPay has a 9.9% stake in Germany’s WEG Bank AG, which they made available to the Litecoin coin foundation to set up potential crypto services. Among these, a Litecoin debit card backed by the Bank, as well as gateway into fiat transactions. Furthermore, TokenPay is seeking to purchase up to 80% of WEG bank; in essence, they will broker a deal to secure a future hybrid cryptocurrency bank.
Seeing the writing on the wall, MasterCard is trying to stay one step ahead of the competition. They just won a trademark to manage a reserve of frictionless crypto currencies. In basic terms, the company plans to have a ready concept to incorporate Cryptocurrencies into their transactions using point of sales and payment channels similar to the Lightning Network. Currently credit cards have the advantage of speed; Visa can conduct approximately 6,500 transactions per second (tps). In comparison, Bitcoin can only do 5 to 7 tps. However, MasterCard probably realizes that the gap is closing and wants to have a response to crypto in order to survive.
As the negative rhetoric subsides, Bitcoin’s popularity grows and with it new projects and opportunities. The expansion of Bitcoins’ markets, investments, and projects convinced the banks that crypto currencies offer opportunity as much as challenges. And a better strategy is to integrate and profit from its demand. This can be seen as JP Morgan’s used its Circle investments to acquire the crypto exchange Poloniex.
At the end neither camp may emerge victorious; instead a stalemate is a more likely outcome. A Hybrid financial system where money is moved using cryptocurrencies.