Jesse Lund, IBM’s Head of Blockchain and Digital Currencies, says that the next decade will see the “ever-resilient banking industry” face its “Uber moment.” A sector which has so far managed to stay “immune to disruption” will be permanently changed by the financial development occurring in the cryptocurrencies.
In making his argument Lund distinguishes between “electronic” and “digital”. For business, digital means “speed, scale, and efficiency.” Analog signals may degrade during transfer, while digital signals can be made immune from such problems through detecting and correcting errors. This makes digital transfer “faster, more efficient and scalable.”
Lund says that money, though often electronic, is usually not digital. Even if “we see electronic numbers on our mobile screens,” it cannot be considered a digital system due to the inefficiencies of money transfers. Different banks’ ledgers are not interoperable, and transfers entail “signal loss” and “friction.” Banks then charge fees to cover interbank coordination issues.
For Lund, the “social movement underpinning Bitcoin and cryptocurrencies” can be seen as a “protest against fees charged by banks for the pedestrian task of storing money” and “transferring money to other parties.”
Towards truly Digital Money
If money can be made truly digital, then why store it in a bank? If Bitcoin can do it using electricity, then why not have digital money “on my mobile phone, or in my LinkedIn or Facebook account?”
Though banks could decide to use a common distributed database, all of their incentives are in the other direction. By resisting the new technology they can protect their fees, estimated by McKinsey to account for 40% of all bank revenue.
However, as Lund points out, while banks are holding out against public blockchains the crypto space is not standing still. An increasing number of truly useful products are being developed, building trust in cryptocurrencies, and undermining faith in the traditional banking system.
Up until this point the banking sector has proved to be remarkably resilient in the face of technological change, but that could be about to change.
IBM itself has entered the international payments market, partnering with Stellar on development of the “Universal Blockchain Payments Solution” which uses the Stellar network to settle business transactions across borders.
Image From Shutterstock