Cryptocurrencies are not going to leave the market. Banks were waiting for this to happen. But now, they are forced to think about the integration of the blockchain into the structure of their activities.
Why is the blockchain necessary for banks?
The whole essence of the traditional financial system and its institutions is to develop the ability to safely track, store, transfer values. Badly or poorly, banks coped with this task, having spent on the development of infrastructure for its service for several centuries. Suddenly, blockchain was created, a decentralized platform, which showed that the storage and transfer of values can be reliable, secure and without cumbersome banking structures.
All sorts of government agencies ensure people’s deposits in banks. This applies to traditional currencies. In the situation with the blockchain, there is no such need: there is no single point of convergence of financial flows, there is no bank, and no organization can go bankrupt.
Many banking functions still seem vulnerable, and unreliable. It is about the transparency of calculations. There are many violations in traditional financial institutions, they are ubiquitous and exist in every bank. It is worth noting that the blockchains that fix transactions, in their current form and functionality, are not yet capable of completely replacing bank transactions. This technology has yet to go its own path of development until it manages to implement it.
Blockchain spawned a new universe of virtual currencies, smart contracts, decentralized applications, initial coin offers (ICO). Banks, investment and other funds must be able to accept the blockchain, otherwise, they will not remain competitive in the market.
What will the blockchain technology bring?
Based on the blockchain, banks can improve their business efficiency, optimize back office functions, and reduce risks. Smart contracts add momentum to the market because they increase the security of transactions in the blockchain by checking additional data. Blockchain, in general, reduces the risks of working with unknown counterparties, increases the liquidity of funds, and unites people around the world.
Cryptocurrencies created on the basis of smart contracts and blockchain have already become an independent financial product that encroaches on the territory of the banking sector. They can be stored, used, redistributed, without relying on any institutions. Risk insurance is made by the network itself. No one should vouch for the safety of funds. However, there are no barriers to international transfers and payments. Perhaps it is this type of operation that will be replaced first by the postings on the blockchain. Moreover, any company can carry out such transfers. It doesn’t necessarily have to be banks. They will have to use blockchain technology in their work.
Cryptocurrency can be sent from anywhere in the world to any country, it is enough to have access to the Internet. Traditional international bank transfers require weeks or days for implementation and they are expensive.
At the conceptual level, a cryptocurrency simply marks the fact of cost storage, fixes the process of its transfer from face to face. All this can be carried out in an environment with zero trusts between the parties. No intermediaries for operations are required. Tokens, symbolizing a certain value, mark the process of storage or transfer, bitcoins and its alternatives can be transferred, redeemed, and spent. All these processes are secure and confidential. Banks can still benefit from the adoption of cryptocurrencies, but they need to be flexible, learn to act quickly.
ICO or Venture financing
Another vivid example of how virtual currency conquers the world is the ICO (Initial Coin Offering) process. Perhaps the moment will come when the banks will accept this type of operation. At the moment, they are an alternative to startup venture capital.
In September 2017, about $2.3 billion was invested in ICO. Tokens in such projects can be anything you want: from options for contracts to coupons for products. They are often analogous to securities. They give the right to their owner to special privileges in using the service, and technology. Sometimes, they are a measure of the share in the company that issues them, that is, they become a type of stock.
The process of tokenization of securities of banks should be taken under control; they should not spare time and other resources for this. Tokenization of shares is a digital version of the papers. In fact, these are “smart”, intellectual assets. They are more flexible, transparent than ordinary paper.
The advantages over existing funding processes are obvious:
- There is a single pool of information. It is standardized, and not necessary to collect data from different, numerous sources. In such a situation, the dissemination of information at different stages of the project’s existence becomes simpler than before. This reduces costs and temporary losses.
- The cost of tokens is adequate to the market. It more accurately reflects the price of each coin. Manipulation of the price with the help of capital is difficult here. A speculative markup is missing or minimized.
- The impossibility of falsification is another important property. Entries in the blockchain cannot be faked. Anyone can conduct an audit of the company in real time. The cost of an audit is significantly reduced. The increased market transparency makes it difficult for fraudsters to act. It also interferes with manipulators who are used to controlling the market with inaccurate credit ratings and other falsified information.
Working with tokens also benefits from the lack of intermediaries, as does direct cryptocurrency trading. Speed and safety of operations increase and the costs are effectively reduced.
Tokenization of securities allows increasing the volume of investments in them, optimizing management efficiency, liquidating of assets in the process of their storage or transfer. This will forever change the face of the financial world. Soon, the traditional banks as we know them will go down in history. Any bank that wants to be relevant in the nearest future must start incorporating the applications of blockchain in its daily activities.