From Vaults To Wallets: The Ultimate Crypto Transformation In Banking

There was a time when banks have expressed complete opposition to bitcoin and crypto innovations. They even have taken active steps in creating obstacles for crypto enthusiasts use their services while transferring funds to and from crypto exchanges. From commercial banks to investment banks, from international banks to central banks, they all have engaged in criticizing bitcoin and crypto and misinforming the public for many years now. While these same banks were side-eyeing crypto technologies, they were googling blockchain for dummies at the same time. Things are changing now, especially after a very successful year for bitcoin spot ETFs.

This week has been flooded with continues news in the world of economics, finance, crypto, and politics. Things have been busy. Trump and his administration has been busy issuing executing orders, many of which have to do with economy and finance. At the same time world economics forum is happening in Davos, Switzerland where many global leaders in banking, finance, and business have gathered. I was following some of the interviews and news, and there are many interesting ones. One of the interesting ones was what Bank of America's CEO Brian Moynihan said about crypto. Moynihan says that financial industry, and Bank of America specifically is ready for crypto payments if regulators allow it.

I wasn't surprised to hear this, as it seemed last year banks were becoming more interested in getting involved in crypto. That became more obvious after the bitcoin and ethereum spot ETF launches. Now that crypto technology is becoming globally recognized and financial instruments, banks too wouldn't want to miss out on the potential opportunities. After all, their business model is offering financial services and making money from money. Resisting crypto would only leave them out of the potential profits that others would gain and keep banks irrelevant in this space. However, only having interest in getting involved in crypto for banks is not enough. They need regulatory green light and clear frameworks to do so. New crypto friendly US president, cabinet, and congress there is a new found optimism in crypto for all.

As the US government's position regarding crypto is changing quickly, and already actions are being done to make crypto industry attractive for investors, businesses, and individuals, banks too see opportunities. This was going to happen at some point. It seems banks getting involved in crypto may happen in very near future. According to Bank of America's CEO Brian Moynihan banks are ready to embrace crypto, especially crypto payments. For some this may seem like a good news, for other it is a bad news. On one hand crypto revolution's purpose is to replace banks, on the other hand banks are still a necessity as a bridge between physical and digital worlds. But also decentralized crypto networks do not discriminate, and welcome banks to participate as well.

What I think is that banks getting involved in crypto is a necessary step in transforming banks into something completely new and ultimately making crypto finance without a need of banks a norm. The dreamer in my would say, no there is no need to banks in crypto world. Bitcoin and crypto have their path set and will reach the destination without any need for traditional financial systems. But my realist self recognizes the challenges of achieving this dream without banks are great and would only prolong the journey. Let me explain.

Banks provide benefits of convenience. Commercial banks provide services and accounts that make daily financial transactions effortless, investment banks provide instruments for investors, and central banks provide funds for governments. There are many negatives about the same banks. Banks for individuals have ridiculously high fees and interests, they create money out thin air, don't have the funds to cover everybody, can go bankrupt in no time, and keeping wealth in the banks may not be that safe, etc. Visa, MasterCard, Discover, and other cards have transaction fees that add costs of doing business both for consumers and merchants. Swift system is expensive and slow. And in general, banks don't care about people and business. The main goal is to accumulate as much money as possible.

Bitcoin and crypto offer solutions for all the negatives of the banks. Self-custody of funds is revolutionary. There is no need for banks or other entities. People and businesses can have full control of their money and can engage with anybody in transaction in peer to peer manner. Bitcion's protocol removes need to rely on centralized entities whose game is setup to extract wealth from many for the benefit of the few. Decentralization and immutability of these blockchain networks makes it impossible for malicious player to rig the system and engage in corrupt behavior. These crypto technologies offer feeless or low fee transactions compared to banks. These technologies offer super fast transactions and finality.

That said people are not ready to go full crypto. We still need banks as bridges between the digital and physical worlds. The existence of crypto exchanges alone shows the demand for traditional systems for crypto. One service centralized exchanges offer is trading. Another one is the ability for people and businesses to convert crypto to fiat and vice versa.

Here on Hive we love the network and its assets. For me Hive has the best wallet in crypto. It is super easy to use, funds are secure, full custody for owners, free and fast transactions. Amazing! Yet, we still would want Hive to be listed in as many exchanges as possible. Because not only they offer exposure and help the network grow, but also these exchanges give up freed to buy more Hive or sell what we have if there is a need to do so. Same as exchanges are playing an important role today for crypto, banks will also have an important role to play in the next phase of crypto adoption.

Banks want to be in crypto to gain more profits. I have no doubt about that. However, they may not realize that as soon as they start engaging in crypto payments and custody, the transformation of banks into something completely different will begin. I am sure there are many benefits of utilizing crypto technologies for banks beside making profits in payments and custody services. Crypto tech will renew the existing infrastructure of banks. They will no longer need swift. Crypto does it better. They will eventually lose the ability to collect insane transaction fees for using their cards. Crypto makes transactions cheap or free. They will not be able create more money, because will be required to have one to one backing. Otherwise they will collapse fast. FDIC will not do any good for them. FDIC can only back fiat, because they know they can create fiat with ease.

While initial tendencies for banks would be to implement centralized blockchain systems, I doubt they will last. With proper competition decentralized systems will take over because they offer better security. They may see some success in initial efforts of utilizing centralized blockchain, but gradually the shift will have to be made into decentralized ones to remain relevant in the world of finance. This would leave to massive global adoption and crypto will become the norm. At this point, there won't be any need for banks regardless what blockchains they use.

For now I believe we should welcome enthusiasm of banks towards crypto and encourage them to participate as well. Irony of the chain of events that about to happen is that even embracing bitcoin and crypto will not help banks to survive the transformation in global financial systems.