It’s been nine years since a cryptocurrency first appeared, and it was never more obvious that the world of banking is taking notice of it. From Warren Buffet denouncing crypto like an old man yelling at clouds to Rockfeller silently instructing his venture capital companies to invest into various cryptocurrency startups, it seems like the days of traditional banking are coming closer to an end. More and more individuals and businesses are accepting crypto as payment, looking to avoid the outdated, third party based, expensive bank transactions. A reddit user MeezyMeek recently posted this on the mentioned website:
I work for a medium sized bank. I recently had a conversation with one of our higher up bosses regarding crypto. He was glad I was excited about it, but he admitted he is actually kind of scared of how crypto currency will impact the traditional banking space. I asked him why we had to be afraid of Crypto. Why can’t we implement it somehow early on and be ahead of the curve, ready for the big boom of Crypto normalization? His response? “I’m old, all of my bosses are old, we don’t know anything about it. We know it’s the future, but we don’t know exactly why.”
The simple fact of the matter is that cryptocurrencies look like the future if economy as they enable simpler, faster and cheaper transfer of value. As a direct result banking establishments are beginning to suffer. We saw this life cycle unfold in many industries before:
- A new, better product is created
- Makers of the old product are reluctant to accept change as that would cost them a lot of money and market share
- The market itself realizes the new product is better and switches to it
- Once the old product makers have no one willing to buy their product, their business venture goes under.
Every fiat currency out there depends heavily on financial intermediaries which handle and control it. A currency like the dollar is a commodity, a form of higher good that is only valuable as long as the infrastructure that was set up to use it is willing to do so. The main issue here is that said infrastructure is expensive, outdated and too centralized. This heavy centralization means that banks are barely connected, as different organizations tend to use different ways of storing and handling your money.
Meanwhile, cryptocurrencies are dependent on blockchains which are envisioned to work in decentralized, open source environments, controlled only by their code and cryptography. It’s impossible for any central entity to delete, add or affect said blockchain in any way. Using cryptocurrency infrastructure is also relatively easy to learn, can be done through your computer or phone and is much cheaper and less time consuming than traditional banking. People no longer have to go to a bank if they need financing. Cryptocurrency-based peer-to-peer networks are becoming more common and those who might be turned away by traditional banks now have another way around financing. A crypto wallet is all that is required to own and trade a cryptocurrency; those are becoming smaller, safer and easier to use with each passing day.
What Will Happen To All Those Banking Jobs?
In the first quarter of 2018, global banking giant Deutsche Bank posted net profits of $146M. The bank has 97,000 employees, meaning each one was on average responsible for $1,505 of revenue. In the same quarter, Binance posted profits of around $200M, with an estimated 200 employees. That’s easy math – $1M each, again on average.
Clearly, a shift in balance has already happened, with one Binance employee earning a thousand times more than a regular bank employee. One could argue that these two jobs require different skill-sets, and they wouldn’t be that far off. Average Binance employee is probably a better coder than the average bank employee. Still, a discrepancy this big implies a heavy shift in focus from the traditional banking towards crypto which isn’t showing any signs of slowing down.
And the banks are starting to respond. Initially dismissive and critical of crypto, citing money laundering or terrorism finance because of the inherent anonymity of the assets as massive issues, they are being forced by the market to warm up to it more and more. French banking giant, BNP Paribas released a report which concluded that the technology behind cryptocurrency could definitely lead to making the traditional banks redundant. A UK Banking Report concludes that cryptocurrencies definitely represent a threat to traditional banks. They noticed how establishment tends to ignore new consumer behaviors and preferences when it comes to how they transact and transfer money.
The report states:
“Bitcoin users can handle many of their daily payments needs themselves, without the need for interaction with banks, and avoiding the need to incur bank fees. In the same way, value stored in PayPal accounts moves outside of the bank’s payment systems, depriving banks of valuable payments revenue.”
In response, banking business models are being adjusted to accept the blockchain technology. JP Morgan has founded a blockchain dedicated research unit just months after Jamie Dimon, chief executive of JPMorgan Chase, claimed that anyone caught trading bitcoin at the US bank would be fired. Deutsche Bank and HSBC are looking into crypto through IBM’s HyperLedger Fabric division and Barclays and Credit Suisse are considering a Utility Settlement Coin. A handful of smaller European banks are breaking ranks with the rest of the sector by going even further; these banks are becoming fully supportive of cryptocurrency trading and are even offering advisory services on initial coin offerings, despite an intensifying effort by regulators to clamp down on the area.
All of this implies that the existing infrastructure isn’t going to stick around for much longer. As banking business begins to wither, banking establishment will need to start cutting down on departments and employees. Bank-employed people dealing with disputes, failures of transactions, risk analysts, bank tellers will become obsolete, as blockchain based networks will be able to handle all of these jobs and more. The risk of fraud and human mistake will be minimized, as coding and software will monitor your funds without any hiccups. Some other related jobs like vault manufacturing, cash ATM’s, anti-theft dye manufacture etc. could also go extinct as a result of blockchain revolution.
In the end, it’s just the way it works. Every new innovation brings amazing advancements into lives of many people. At the same time, it puts a lot of people out of jobs. Shoe makers, blacksmiths, weavers were very popular jobs just 100 years ago and now they are considered novelty trades whose products people buy as mantelpiece decorations. Cryptocurrencies are doing the same, reshaping our economy and the way we think about money and banking. It remains to be seen how long will it take for this revolution to take place. Still, banks are already adjusting, so banking staff should probably already start considering how to expand their current skill-sets.
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