What Does Blockchain’s Acceleration Mean for Banking?
“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments”. ~ Leon Louw, Nobel Peace Prize Nominee
The acceleration of the pace of digital currency is remarkable.
Not a week goes by in which I am not involved in some meeting regarding decentralized finance (DeFi), blockchain, cryptocurrency, stablecoin, non-fungible tokens (NFTs) or some combination. And, keep in mind, all of those items are in essence digital currency, and they are all built on blockchain. A few years ago, I would have confidently stated that blockchain will revolutionize the way we do business in the next 20 years. I am moving that target up by a decade.
Why are we seeing this acceleration in blockchain? There are a multitude of reasons, but I will boil it down to the following few:
- Demographic Acceptance: I tell bankers all the time to talk to their under 40-year-old clients. Hint: they aren’t in your lobby. Ask them if they hold crypto. Ask them if they can conceive of a way of interacting business on a blockchain. Then ask them if you can Venmo them $20 for their time.
- Global crisis: Covid accelerated all things virtual: meetings, commerce, social interaction, eating (well ordering food). Cash is also inherently dirty as it changes hands and is a great way to spread germs. Add to that, it is a way to conduct commerce in regions in which the financial system is impaired (i.e. Ukraine and Russia).
- Politics: The far right and the far left both mistrust the centralized banking system and the power of the money center banks. Situations like when Canada blocks the bank accounts of protesting truckers adds fuel to the fire. Gens Y and Z saw their parents and families struggle through a massive financial crisis, which was caused by excessive risk taking from large institutions, which the government bailed out. Putting aside crypto or transparent blockchain, there are large segments of the U.S. population that are looking for an alternative to financially interact.
So, what does that mean for the U.S. Banking system?
Well, it is not going away any time soon. In fact, inevitably we are going to see greater regulation in the U.S. surrounding cryptocurrency. The immediate challenge for the banking system will be how to embrace, if not drive, blockchain initiatives while complying with U.S. banking regulation and laws-both those that exist now and those that will be written in the coming months. Clearly, a completely cryptic blockchain can’t be integrated into the banking system or broadly into the money supply as it violates Anti-Money Laundering and Bank Secrecy Act regulations.
We believe there will be a balance struck that requires institutions to understand the direct source of funds on the chain before those funds can be domesticated into the system. More importantly, institutions that drive their own chain or tokens will have a decided advantage over the next decade as we experience a wholesale economic and political transfer of power to Generations Y and Z.
“Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly”. ~ Vitalik Buterin, Co-Founder of Ethereum
If you would like to learn more about HDCompliance’s proven higher-risk compliance solutions, visit our website or contact Andy directly at a.montgomery@hdcompliance.com.
Founder & CEO | HDCS, Inc.
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