Most crypto fans would agree with this: cryptocurrency is a threat to banks and financial institutions. I totally see why it can be a threat. Blockchain would knock out the need for an intermediary middle-man for many financial transactions. Especially with the Smart-Contract function in Ethereum and Lending platforms like SALT, we can see how cryptocurrencies are offering benefits that tradition banks would have, but in much more faster and efficient ways.
As a devil's advocate, I see another side of this innovation for banks. I see a huge opportunity in the blockchain technology for banks and financial institutions! Of course, banks would need to do their part and incorporate blockchain into their system. But I am not just talking about all the rumors around Ripple or how they will use the technology only for remittances. I am saying is, what if blockchain is adopted by all banks and even the CENTRAL BANK!
As blockchain becomes more and more popular, the bureaucrats and bankers will get to a point where they will have three choices: Ban, Ignore, or Adapt. Most people think that banks and bureaucrats will end up banning Cryptos, or at least keep on ignoring them. If they ban it, then that would mean an end of cutting-edge innovation and future of the world that could've been created from this revolutionary technology. If they ignore it, then they are going to become the Kodak after Apple created iPhone. Too Big To Fail?? Ha! Then was Eastman Kodak Too Small To Succeed?? No.
Now here is a question, what would happen if bankers chose to do the best choice possible: to adopt the blockchain technology fully into their system? Well, here is list of what might happen if they choose to adapt to blockchain.
First, The Central Bank (The Federal Reserve, here in the USA) might create their own "Dollar Coin." Better yet, why not make it pegged to the dollar and make sure that mining capabilities are all owned/controlled through the Federal Reserve (they can create their own mining centers or give mining rights to organizations that are compliant with their regulations). This would make the "Dollar Coin" some what of centralized. This can work, think about it, since most people see value of products and services in US dollars in America. At the same time, most moms-and-pops do not want to own speculative bitcoin as a medium of exchange. Before these people change their mind on bitcoin, the Federal Reserve might choose to issue their own coin and make sure that these coins can give people the same benefit as the bitcoin/ethereum can (faster remittances, smart contract, P2P system). By the way, there is already a news that the Federal Reserve is starting to think about issuing it's own digital currency (https://blockchainbelievers.com/2017/12/federal-reserve-starting-to-think-about-its-own-digital-currency-dudley-says-cnbc/). Not sure if that article is accurate but it is interesting.
Second, since these coins are exchangeable to US Dollar and valued exactly same as dollars, retail banks can now create their own Digital Wallet Checking Accounts where coins can be deposited ('The Dollar-Coins', Bitcoins, ETC.) They can also create "Coin" CD's and "Coin" Savings accounts where it would pay interest on the amount of the account.
Third, they can guarantee FDIC Insurance to these coin accounts and with their huge capital, banks can invest into encryption and security of their Digital Wallet Accounts that increases the marketability. At the same time, create tracking system and regulation for digital wallet companies and coin exchanges to prevent people from money laundering and tax evasion.
Fourth, use the bank's lending capability, credit bureau's rating system and the blockchain smart contract system to create a faster, efficient lending process for all credit products. Credit Cards, Auto, Mortgage will all become instant.
Once these happens. These "Dollar-Coins" will dominate! It won't be a coin that people would "invest" into, if it is pegged to the Dollar at 1:1 basis. But it would become a widely used payment/transaction system. Most people in the world do not know or care to know the benefit of "decentralized ledger system" or "inflationary monetary policy of central banks." What most people care about is how fast they can send money to their relatives in Paris or if their money will be guaranteed by FDIC. Not only that once they see that they can instantly get approved for mortgage through the smart-contract system; people will totally love this system!
We will see what happens in the future! I just hope that it will be a much better, efficient and advanced world!
DISCLAIMER: Above article only reflects my creative thoughts and does not reflect the current plans or opinions of the Federal Reserve Bank in any shape or form.