Since the introduction of Bitcoin into the world, many have predicted that this is the new currency that the whole world will be using. No longer will we need to go to banks, as we become our own bank, holding Bitcoin in our wallets. As time went by, various Cryptocurrencies started to emerge, staking their claim to overtake Bitcoin as the “new world currency”.
However, the recent news of JP Morgan creating their own JPM coin has prompted the question of whether banks and Cryptocurrencies can coexist. While Bitcoin was initially born out of an ideology, the underlying Blockchain technology brings tangible benefits to the financial sector. This has led to many banks exploring the utility of Blockchain technology in bringing about increased efficiency in their operations.
Can there be a relationship between the two and if so how will that look like? We explore this topic in the article. Read on for more insights.
Centralization vs Decentralization
Firstly, the main conflict between banks and Cryptocurrency comes from the different ideology they represent, namely centralization and decentralization. Following the introduction of fiat currency into society, banks started to emerge as a place where citizens can deposit and withdraw their currency from.
This centralization gave banks and governments a strong amount of control over the finances of countries through monetary policy. Furthermore, banks started to introduce financial products to retail investors. Mistakes and corruption from top management have led to a number of financial crisis, most notably the 2008 global recession.
It is this issue with centralization that led to the creation of Bitcoin and the main reason many supporters pushed for the adoption of Bitcoin. Instead of trusting top management, we place our trust in technology instead. Users hold their own funds and can transact on a peer to peer basis- All without a central authority. However, there are still new issues and limitations that this new system brings.
Technology, A Place Of Convergence
Where banks, governments and technology meets
Despite the differences in ideology, banks and Cryptocurrencies converge at the implementation of Blockchain technology. Immediate applications of Blockchain technology can be found in the financial sector, such as financial settlements. The most recent example would be the creation of JPM coin, the new token introduced by JPMorgan.
The slated use cases of JPM Coin are mainly to replace international wire transfers and increasing the efficiency in financial settlements amongst their corporate client, according to Umar Farooq, JPMorgan’s Blockchain lead. While many would not classify JPM Coin as a Cryptocurrency, there is the utilization of the underlying Blockchain technology.
While this is but one example, other banks and governments are looking into applying Blockchain technology to their operations. So what does this mean for the future?
Resistance To Change, A Part Of Human Nature
With this being the current landscape, where does this lead to? While there will always be both staunch supporters from both sides, it is the masses in between that will determine the future. And this is dependent on the sentiment towards central banks and the reliability of Cryptocurrencies as an alternative.
Financial events such as a recession or an economic boom as well as the pace at which Blockchain projects improve in usability are significant in the adoption of either. These are events that will lead hasten mass adoption of Blockchain technology and Cryptocurrencies.
At the end of the day, it is part of human nature to be resistant to change in general. This is at the core of the fight between Cryptocurrencies and Central Banks- How easily can users adapt to the changes and how fast can an organization change with the users. Unless there is an ideological change from either the Crypto community or Central Banks, this will be the crux of the relationship between the two.
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Disclaimer: The following content is the view of one writer and is not representative of the views of ABCC Exchange. The content in this article is in no way an endorsement of any project or financial advice of any form. Users are reminded to carry out their own due diligence and execute trades based on their research and risk tolerance.