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Hedera Op-Ed: Banking and Crypto – A Tale of Two Intermediaries
Since the invention of Bitcoin, banking and cryptocurrency sagas have been intertwined. The founding idea of Bitcoin was that it would be the antithesis of the banks, and thus be a much better store of value over time. Where banks are centralized cryptocurrency is decentralized. Besides essentially being money, the two could not have been more opposite. Banks and cryptocurrency have just about nothing in common besides being a store of value. Naturally, the banks were repulsed by this idea and proceed to dismiss it out of hand for the next eight years. Although the idea of cryptocurrency was conceived much earlier than the first blockchain is where the story begins.
For several years Bitcoin and the whole of cryptocurrency was decidedly counterculture, it was largely created and promoted by libertarian hackers who wanted nothing to do with institutional banks in the wake of the 2008 global financial crisis. In its early days, cryptocurrency was notorious for becoming the means of payments for darknet websites soliciting illegal goods and services. Ripple, founded three years after the launch of Bitcoin, set out to change that. Rather than a bid to obliterate the financial system, Ripple wanted its cryptocurrency, XRP to improve efficiencies within the payments industry. Ripple was clear in its intention to assist banks and not harm them, and banks have since rewarded them. As a result, since the project has begun Ripple has signed up 12 banks to work with them.
It is impossible to tell the story of Bitcoin and banks without talking about Jamie Dimon. In 2014 the rivalry between JP Morgan Chase’s Jamie Dimon and the Bitcoin movement began when the Wall Street CEO called the cryptocurrency “a fraud”, the rest, as they say, is in the twitter replies. Dimon showed an odd propensity for the topic since his initial remarks, stating that “It’ll eventually blow up. It’s a fraud, OK?” This comment was made near the height of the crypto bubble, and the community was less than supportive of his views at the time. Facing criticism, Dimon vowed to stop talking about the topic. He did not and soon after that told reporters on an earnings call, “If you're stupid enough to buy it, you’ll pay the price for it one day.” Although not exactly a Ponzi scheme, the crypto bubble did burst in December of 2018, plunging the market capitalization of all cryptocurrencies. A couple of months later JP Morgan Chase announced that it would create its own cryptocurrency, JPM Coin. Recently on Capitol Hill Jamie Dimon clarified JPM Coin to congress explain that the coin will not be a replacement for FIAT currency, like many popular cryptocurrencies, but will be entirely backed up by JPM assets. Say what you will about him, but Jamie Dimon is an impressively mixed bag.
During the crypto bull run, banks realized something important; the value of the crypto market was not in the currency but the technology. Blockchain architecture now seemed like a tool to them instead of a toy. This is because finally distributed ledger technology (DLT) has been around long enough to prove it's value. And due to the recent crypto winter, many of those best equipped to build with DLTs are out of work. Since the crash, the shouting has stopped. Although most still view crypto as careless investments, there is no more arguing about the immense value that blockchain architecture will offer industry. Most of the derogatory comments about cryptocurrencies made by banks comes not from a place of ignorance, but of fear. The people making these comments are incredibly intelligent, they are captains of industry, and thus when they speak, they receive a megaphone and have to be careful about their choices of words. Setting aside the expectation that DLTs will likely disintermediate the financial industry, these people are terrified of being wrong. If these CEOs say that cryptocurrencies have value and the crypto market takes a downturn, then shareholders and short sellers will return to those comments and likely make the CEO pay in the form of a price downgrade for his company.
So, what will the future of banks end up looking like? Here are the three likely scenarios.
1: New startups that completely replace our financial system with crypto and big banks fade away with the boomer generation.
2: Institutional giants will augment themselves with crypto and provide us a seamless digital experience to customers.
3: Incumbent tech companies will impose their crypto wallets on the greater population, for better or for worse.
I have no idea what will happen. I just hope that one day a JPM Jamie Dimon Blockchain Hall goes up in NYC.