Banks can play a positive role in the age of blockchain

While the technology forms bitcoin’s backbone, the cryptocurrency that some think threatens global banking, blockchain itself will likely require the help of banks to truly usher in the new age of finance

understanding blockchain
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Blockchain is undeniably at the epicenter of a financial revolution. The technology will likely alter the landscape of many industries over the next decade and beyond, but it will need some help to get there. True revolutionaries understand that there is no change without compromise, and this notion is relevant for blockchain as well.

While the technology forms bitcoin’s backbone, the cryptocurrency that some think threatens global banking, blockchain itself will likely require the help of banks to truly usher in the new age of finance. These institutions were hesitant in recent years to embrace the technology, accounting for the slow pace adoption. However, the emergence of companies that can effectively show banks how blockchain is beneficial for their operations have changed the stakes.

What banks can do for crypto

Banks can solve some of the problems that blockchain’s primary product, cryptocurrency, has in spades. The main issue is liquidity. Cryptocurrency is digital money that has many of the defined properties of a physical currency like the dollar. It’s easy to store value in bitcoin (though it’s extremely volatile), prove one’s ownership of their wallet, and send it to a friend, but finding another applicable use is a difficult exercise. The idea that cryptocurrency is hard to spend will likely be an obstacle for it as it becomes more popular. However, this trend is gradually changing.

Banks can help. They already maintain the infrastructure supporting a modern financial system and adding cryptocurrency functionality is a simple matter. Banks can make it possible for retailers to accept cryptocurrency in their stores, allow bitcoin credit cards to use processing infrastructure, or offer smartphone applications alongside online portals for the immediate exchange to and from fiat. These would all increase the liquidity of cryptocurrency and provide a stable platform for its use. Startups are already pouring capital into solutions like these, and all banks need to do is absorb them and look for ways to integrate their own existing products.

Companies like Legolas — fueled by the LGO token — are spearheading the trend, by offering reliable exchanges where one can trade interchangeably between crypto and fiat. The platform is a largely unadvertised solution that looks to bring the concept to the next level. The exchange will work with regulated bank BanQix in Luxembourg to offer real bitcoin bank accounts, safe and inexpensive fiat exchange, and cross-chain transacting, making it easy and to use and store any cryptocurrency for everyday purposes. Solutions like this will make the benefits of blockchain much more accessible to the average consumer and are not possible without the help of banks.

According to a whitepaper, "Legolas Exchange protocol will neutralize front-running and ensure a fair trading environment. Led by an experienced team of financiers and successful entrepreneurs, Legolas Exchange has partnered with PayQix, a next generation bank with a built-in B2B transaction management platform. PayQix will provide Legolas Exchange customers with bank accounts in at and crypto currencies, deposit security and transparency, as well as access to large at currency transactions."

What crypto can do for banks

While the previous examples are more B2C, banks are also likely to adopt blockchain in a strictly B2B strategy. This “under the radar” method would see them establish blockchain departments or acquire fintech startups who use blockchain to improve existing business flows. One of the best examples is Ripple, a blockchain system that seeks to usurp SWIFT’s throne as the primary way people send money remotely. With a system like this, banks will be able to transmit money (or other assets) to each other inexpensively and quickly. While there are many banks around the world testing Ripple currently, XRP tokens are still privately traded among crypto-connoisseurs.

There are also companies who are developing ways to loan money via the blockchain, or are using the young technology to mimic the other functions of a traditional bank. The blockchain will make the loan approval process easier, by providing an automatic and reliable way to determine one’s creditworthiness from an array of data. There are already fintech companies who have used post-financial crisis regulations to speed up the lending process, and blockchain will only add to this endeavor.

A beneficial compromise

While blockchain fanatics might balk at the idea of working with a bank, and bankers may scoff at the idea of integrating a largely untested technology, both sides need each other to progress. If left alone, blockchain’s total cryptocurrency market capitalization will continue to grow, moving capital from national banks to exchanges like Legolas. However, without a helping hand from the traditional brick and mortar banking industry, blockchain will likely flounder as scaling becomes more and more challenging due to the lack of embrace.

A compromise becomes necessary, and if done correctly, will be beneficial for all parties involved. Banks have a lot to offer blockchain, and vice versa. The future should see them become closer, until what remains is a curious, yet efficient amalgam of new technology and centuries of market experience that ultimately benefits the users with lower costs and faster transaction speeds.

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