When you first heard of digital currency, you probably thought it was like online banking or PayPal - just another new internet-based financial service - another way to pay. Most traditional banks probably thought the same thing. Think again.
Take a bank’s entire database of transactions and make all the data internally verifiable using only cryptographic math, then openly distribute it to millions of computers and keep all the copies continuously updated (with personal identities anonymized).
Now you have a blockchain, self-verifying and accessible to anyone. Every single coin can be traced back through an ownership chain spanning its entire existence since minting, and that long chain of ownership is internally verifiable with the cryptographic math that links the whole database together.
Here’s the kicker - you don’t need the bank anymore. It took them a while, but it looks like the banks are finally catching on.
For the first time, in a stunning acknowledgement of anxiety about the future of cryptocurrency, one of the world’s largest banks listed a litany of risks that it, and, by extension all banks, will have to face as the growing crypto-economy becomes a permanent part of the traditional economy.
The Usual Suspects
Bank of America, an early adopter of blockchain which has filed more patents than any other bank for financial applications of the new technology, expressed a new and intriguing level of concern about cryptocurrency in its annual filing with the SEC.
The usual suspects were all in the report - the anonymity of cryptocurrencies present a challenge to the enforcement of anti-money-laundering laws and compliance with know-your-customer requirements for financial institiutions. Nothing new there.
Challenge To Competitive Edge
What was truly astonishing about the otherwise dry document, dense with financial minutiae, was B of A’s acknowledgement that cryptocurrency represents a real threat to the financial behemoth’s business model and may even force its hand in important future decisions in order to retain a competitive edge in the financial industry of the future.
A meticulous parsing of B of A's statements reveals a fascinating subtext of anxiety regarding tech-phobia, price competition, and the ability of the bank to match the customer’s level of risk tolerance.
“clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies.”
Uhhhh... yeah they may!
B of A recently barred its customers from purchasing crypto with credit cards - and the bank seems to be saying that burying your head in the sand may not be the best strategy. The bank goes on to say:
"We might not be successful in developing or introducing new products and services… [and] reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.”
Telling It Like It Is
Instead of an eye-rolling “sheesh! these kids today….”, it is refreshing to hear a staid old institution (founded in 1904) telling it like it is.
Just like a recent Senate hearing with the SEC and CFTC chairmen that saw legislators and regulators for the first time allowing crypto to emerge from the shadowy corners of the dark web and acknowledging that it’s here to stay, so the banking behemoth B of A is now taking crypto seriously as an integral component of the future of finance.
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