What are your thoughts? Wall of text incoming. Had to write a paper with a annotated sources.
In recent years research suggests that the current iteration of banking is stuck in history, it is unsanitary, and perhaps unwilling to evolve and is slowing the modernization of our world. Banking as we know it will either need to adapt or others will take its place because, in today’s society, we need the ability to access our funds at any time, be able to complete transactions within minutes and not days, and to make global transfers within minutes and not weeks while ensuring the exchange is hygienically plague free.
With recent worldwide events, we have found that the banks are not able to fully service their customer because of governmental and environmental sanctions from the Corona Virus and other contaminations that may come about. We look to the future for solutions on how to hold and spend currencies without the requirement of the proximity of fiat changing hands, or third-party establishments providing a service while taking unnecessary cuts from our wallets. Banks let archaic computer systems run our financial communities with very little effort in maintaining the business, almost making a passive income. Some believe the solution is already here, though still in its infancy, blockchain will free us of many of these third-party providers.
To understand what blockchain is, you must first define it. Blockchain is still a relatively new technology and being innovated at a rapid pace. According to Steven Norton from the wall street journal “a blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger securely without the need for a central authority.” (Norton, 2016)
A ledger of transactions that is open for the world to see, yet one of the most secure networks in the world with a singular chain known as Bitcoin using a top of 146 million tera-hashes at the current time this paper was written. This is one of a hundred underlying platforms that are available to the world through blockchain.
This is important because of how it is used for business. From the book Blockchain for Business“Blockchain matters because no business operates in isolation. By implementing business processes that leverage the collective knowledge of the group, processes can be orders of magnitude more cost-efficient.” ( (ARUN, 2019))
To simplify what was said this means that no longer will a core group of individuals control how you bank, what your business can or cannot access. It will open doors that were closed to you because of simple choices that were made in the past and over complex regulations and rules.
For example, with the legalization of marijuana in some states, while federally it is still against the law. This provides complexities to banks, do they serve the customer, and the customers cash, or do they serve the federal government that holds the chains and regulations. At this time majority of the Banks still serve the slow to adopt federal government.
For example, according to CNBC, in 2014, SinglePoint, a mobile app payment company, had placed Point of Sale or POS terminals in legal Medical Marijuana dispensaries. Which then the consumer could pay with their credit cards.
“Everything was going great,” the store owner Ralston said. Then the bank decided to shut them down, with no warning, no latitude, or space for business adaptation. The reason the bank cited for such a drastic and uncompromising decision. “They didn’t want to risk it.” (Criteo, 2017)
With the examples of how and why the Banks are losing faith with people of the world this is where Blockchain will come in. It will step in and provide where the current Banking system refuses to.
According to Banking Dive, with Covid-19, our population is currently getting comfortable with doing everything remotely, digitally, with no requirement of the bank branches. "I think everything that's happened over (since February) or so is probably accelerating a trend that’s already happening, which is the reliance on traditional bank branches will continue to go away," Chime CEO Chris Britt (Criteo, 2020)
The Balance lists off many benefits to cryptocurrency that could change or replace banks, such as immutability. For example, if you are selling your used car, you want to get paid before handing over the car. The real current options are cash, wire transfers, or a cashier’s check. However, cash is dangerous and dirty, Wire transfers are labor-intensive, and cashier’s checks can be faked and can cost money to get. Instead, we could wait for a few block verifications to verify the sender and at that point there is no way for them to recall that transaction. (Pritchard, 2020)
A list of other options that the blockchain excels at while banking is slow and expensive is Money Transfers, Swipe Fees, Title Details, Smart Contracts, Reduced Fraud, and the possibility of Public Ledgers that anyone can look at and verify if they have your wallet address.
Banking is a well-defined tradition of being slow to adapt to technology due to many different reasons. Such as: non-agile systems, the mindset of their leaders, as well as regulatory concerns. With the rapid development of technology, they have leaps and bounds to catch up. If they do not they will be left in the dust with many old “unstoppable” industries such as movie rentals, like Blockbuster.
Many new companies are ready to take their place, according to a paper at CNN, "We believe that Bitcoin has the potential to be a more ubiquitous currency in the future," Square's Chief Financial Officer, Amrita Ahuja, said in a statement. "As it grows in adoption, we intend to learn and participate in a disciplined way." (Effron, 2020)
Many companies are buying up this blockchain as a store of currency instead of leaving it in a bank for rainy days. For example, Square invested in almost 1 percent of the company’s assets in the second quarter of 2020. Which at that time went by 4,709 Bitcoins, or a price of 50 million dollars. At that time Bitcoin was worth around 8 Thousand dollars each. Today it is worth 27 Thousand Dollars per coin, tripling that bet if they have not bought anymore.
Not only wanting to hold Bitcoin, in 2018 Square expanded its Cash App to support the top cryptocurrencies, even for users without bank accounts. After the success of Cash App, it launched Square Crypto to help develop the space. (Effron, 2020))
JPMorgan believes “That more will come into the space now that the dam has been broken. With Square’s Cash App facilitating $858 Million worth of Bitcoin Purchases in Q2. We believe that millennials, or the younger cohorts of the US retail investors universe, have been using the Cash App as an alternative vehicle to the Grayscale Bitcoin Trust to add to their bitcoin holdings," said JPMorgan strategists. (Khatri 2020)
Since these opening plays, a few well-known companies have heavily dived down the Bitcoin hole. Such as: GrayScale, PayPal, MicroStrategy. Others who now will accept it such as Microsoft, Overstock, Home Depot, Starbucks, Whole Foods, New Egg. (Tuwiner, 2020)Even as everyday useable credit cards from Crypto.com and Binance.
Our currencies have gone through a few changes already, from being a gold-backed standard and then leaving it on April 20, 1933. (Richardson 2013) We have gone from Cash to Checks, to Debit and Credit cards. The new iteration of financial freedom is upon us. Allowing us greater freedoms to be our money, getting paid directly to hardware and software that we own and control, and connect with people around the world. This gives us the choice. The choice of trusting third party institutions such as Square, PayPal, and GrayScale if we desire. To make available these services on a global scale, not just those that are lucky enough to live in the first world, but anyone that has a phone/computer, power, and some sort of internet, even if it is not connected immediately. This allows us the ability to send unlimited amounts of money throughout the world for a few dollars and a few minutes. Giving us more of what is the most precious asset, time.
Sources:
Norton, S. (2016, February 02). CIO Explainer: What Is Blockchain? https://blogs.wsj.com/cio/2016/02/02/cio-explainer-what-is-blockchain/
This article is a great primer on what is blockchain, how it is used, and what its future components will be used for. “A blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger securely without the need for a central authority.” With several startups and industry groups working on multiple levels of blockchain, life-changing solutions will be forthcoming. Steven was the CIO for the Wall Street Journal, a prestigious source that many uses for financial guidance. I will be using this article as a primer on what blockchain is.
Arun, J. S., Cuomo, G., Gaur, N., & Tapscott, D. (2019). Blockchain for business. Boston, Massachusetts: Addison-Wesley.
This book is about bringing blockchain and businesses closer together, whether it's for financial remittance, inventory, and supply chain tracking. It describes various real-world examples, implementation, and industry-specific as well as cross-industry cases. While bringing into clarity and magnification of opportunity that may be present in your organizations. With this source, we have Cuomo, Gaur, and Tapscott, all high ranking individuals within IBM, Gaur is currently the Director of digital research inside IBM. I will be using this source to start outlining how the business and the individual could get away with becoming their own bank.
Pritchard, J. (2020, April 23). Here's How Blockchain Will Transform Banking and Financial Services. https://www.thebalance.com/how-blockchain-is-changing-banking-and-financial-services-4174354
This paper starts to address how blockchain is specifically changing banks, being immutable, public transactions. How one can do financial transactions from money transfers across the globe with minimal financial fees and instantaneous transaction and remittance with low cost private and public ledgers. Justin Pritchard is a Certified Financial Planner and normally covers banking and loans, in his experience, he has covered the financial sector for two decades. I will be using this paper multiple times as it heads many points of my thesis whether it be direct payments, money transfers, and other thoughts
Kozyra, K. (2020, May 18). 10 Use Cases of Blockchain in Banking (1061520692 809060717 K. Shah, Ed.). https://concisesoftware.com/10-use-cases-of-blockchain-in-banking/
Another paper on the use cases of blockchain in banking, quoting faster payments, clearance and settlement systems, and a transfer of assets. It also talks about how the blockchain can help clear up erroneous errors of credit and loans while keeping your information secure. Khadija is a strategic investment and funding expert. Also a teacher for finance in top universities. I will be using this for ideas on how the banks could adapt and continue to be a service that many use.
Effron, O. (2020, October 08). Square just bought $50 million in bitcoin. https://www.cnn.com/2020/10/08/business/square-bitcoin-crypto-investment/index.html
This paper outlines the growing adoption of cryptocurrency. Proving that it is no longer taboo and used for people to purchase things that they would rather stay private. That the blockchain is a great hedge against the current inflation of the dollar. CNN is a place where many people get their daily consumption of news. I will be using this to prove that many other financial services and sectors are willing to take on the bank's role in life. This is the first mover to take on this responsibility.
Khatri, Y. (2020, October 14). JPMorgan believes more payment companies will enable bitcoin purchases similar to Square's Cash App. https://www.theblockcrypto.com/post/80838/jpmorgan-payment-companies-bitcoin-square-cash-app
This paper outlines how JPMorgan believes that now bigger businesses will welcome bitcoin as a treasury and remittance that square started the ball rolling, that PayPal Venmo, grayscale, and quite a few other large companies are putting a small percentage of their cash into Cryptocurrencies and blockchains, removing them from the banks and other standard places of securing money. Yagita is a financial writer with experience in the financial sector, including the Economic Times, Reuters, New York Times, CNBC, and MIT. I will be using this to quote JPMorgans expectation for this space to fill quickly, and that the banks must start moving to stay relevant.
McWhinney, J. (2020, September 16). Can Bitcoin Kill Central Banks? https://www.investopedia.com/articles/investing/050715/can-bitcoin-kill-central-banks.asp
This paper directly addresses the thought of what I want to write about, is it possible that Cryptocurrency replace central banking and what hurdles would need to be overcame to make this a viable option. McWhinney writes on many Financial items for a few different websites. This paper directly supports and helps outline what I want my paper to be about.
Richardson, G. (2013, November 22). Roosevelt's Gold Program. https://www.federalreservehistory.org/essays/roosevelts-gold-program
This paper talks about a huge paradigm shift, when we went from the gold backed dollar to a financial institution with nothing backing the dollar except peoples words. Following the transition and laying the possible groundwork of what can come. This website is currently hosted on Federal Reserve History, documenting the progression and path of our economy.
Criteo, D. (2017, December 15). Bitcoin offers the cannabis industry an alternative to banks. Retrieved December 30, 2020, from https://www.cnbc.com/2017/12/15/bitcoin-offers-the-cannabis-industry-an-alternative-to-banks.html
This article talks about how a blurred line between state legislation and federal legislation is making it difficult for
This article talks about how a blurred line between state legislation and federal legislation is making it difficult for legal companies to complete business transactions through current banking infrastructure. How business can turn to cryptocurrencies to hold their cash in a safe manor. CNBC is often a trusted and respected source of information.
Tuwiner, J. (2020). Who Accepts Bitcoin? 11 Major Companies. Retrieved December 30, 2020, from https://www.buybitcoinworldwide.com/who-accepts-bitcoin/
This list is a quick list of many companies that is currently accepting cryptocurrency, Bitcoin, as legal tender. Direct from user to company or a third-party administrator if that infrastructure is not built yet. Buy Bitcoin World Wide is a moderate source of information that focuses on the cryptocurrency world.
Criteo, D. (2020, November 30). How COVID-19 is driving consumers and banks to embrace digital technology. Retrieved December 30, 2020, from https://www.bankingdive.com/spons/how-covid-19-is-driving-consumers-and-banks-to-embrace-digital-technology/589447/
This article focuses on how with the current pandemic, people are getting use to never seeing their money, or interacting with banking personal. In essence giving the bank their money, with out using a majority of the services offered by the bank, leading us to the next evolution. The writer writes on many financial and cryptocurrency events in the States.
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