It very much looks like crypto banks are going to kill off the traditional high street bank, the ones that only deal in fiat currencies anyway. Mark Binns, writing for Cointelegraph, predicts that in less than three years, “a younger generation of banking customers won’t do business with a traditional fiat bank unless it offers access to crypto.”
Kraken, the San Francisco-based exchange, has already managed to acquire a bank charter, which means it is now able to offer its existing customers a range of banking products in addition to its cryptocurrency exchange. It is working with Silvergate Bank in the USA, to offer SWIFT and FedWire funding options, and as Binns says, we are likely to see more partnerships like this in the future, because they are offering what a new swathe of customers are asking for.
Binns points out that Silvergate appears to be ahead of the curve with this. It has 880 digital asset companies on its client list, and they have deposited in excess of $1.5 billion. Although this is small change in the banking world, it is a strong start in meeting a market that is dynamic and developing.
Binna says: “Consumers will soon define a “full service” bank as one that offers financial services in both crypto and fiat. The time to start acquiring the necessary tools of the crypto banking trade is right now. Banks need to start adapting or get left behind. Make no mistake about it.”
Making the change
If the existing banks are going to compete with crypto banks they will need some new tools to do this?
First off, they need blockchain forensics tools. There has for some time been the suspicion that a blockchain can conceal secrets. In fact, it is much easier to investigate activity on a blockchain than it is fiat currencies. It is certainly possible to uncover the origins of transactions. To do this, a bank will need “blockchain explorers and risk scoring tools.” These already exist, and enable “investigators to follow digital paper trails across addresses, wallets, transactions, blockchains and other digital entities, using techniques like clustering and heuristics.” As Binns remarks, fiat currency is still the currency type of choice for money laundering. Contrary to popular belief, it is more difficult to launder money via a blockchain.
Offering DeFi products is another area for traditional banks to consider. As Binns says, “decentralized finance sector of cryptocurrency holds virtually endless promise.” However, these are unlikely to attract the average ban customer for some time yet, although crypto enthusiasts are pretty excited about the potential of the DeFi market.
Banks need to speed up their response to cryptocurrencies or find they have to close. It isn’t a case of wait and see any more, and they should be taking action immediately, before the likes of Kraken and the other promising projects offering multicurrency accounts that combine crypto and fiat currencies overtake them. Furthermore, with Christine Lagarde, president of the European Central Bank, announcing that she expected a decision on issuing a digital Euro to come in early 2021, it is clear that digital currencies are here to stay. Those who thought crypto was a fad that would disappear are going to be very disappointed.