Blockchain technology is quickly emerging as a way for companies to make and verify transactions almost instantaneously — without a central authority. It’s also the technology behind bitcoin. The lack of a central governing authority and the vast potential of blockchain technology has led some to speculate that the “era” of banking and how it works, could be nearing its end — with cryptocurrency taking its place.
No one wants to end up like Blockbuster
While the declaration of disintermediation of federally insured depository institutions is premature, make no mistake, blockchain will disrupt traditional financial institutions.
A good example of this type of disruption played out in the home video market. At one point, you had competitors like Blockbuster, Hollywood Video and Netflix — all vying for the same market. Digital infrastructure improved to the point where video streaming was the norm. Netflix embraced this new opportunity; Blockbuster and Hollywood Video did not. In a similar vein, financial institutions that adapt to and embrace this new technology will benefit from blockchain’s advances including reduced fraud, lower costs, and most importantly a faster, more secure transaction platform for members/customers.
The difference is this disruption will happen gradually because of the more complex infrastructure related to banking and currency, due in large part to central banks and oversight by governments.
Governments don’t like anonymity
The feeling of anonymity that attracts many to blockchain (bitcoin), is also its weakness when viewed by central banks and governments. Governments need to manage commerce and trade, levy taxes and fight illegal activities like crime and terrorism. This can’t be done effectively with anonymous cryptocurrencies. One option for blockchain to have a viable future, is for central banks, either individually or collectively, to create managed blockchain networks for their member institutions. This would provide the advantages of blockchain, while still allowing central banks to peer through the veil of anonymity.
Deposit Insurance is key
U.S. consumers also place a high value on deposit insurance, which protects an individual’s assets up to $250,000 per depositor in the event that an institution fails or is otherwise unable to meet withdrawal obligations. By staying with a sovereign currency and a traditional institution, consumers retain this benefit — something a cryptocurrency cannot provide.
Change is coming — and with it a new world order when it comes to banking. Those institutions that plan for it and embrace it will be left standing.
About Todd Harris
Todd Harris is the CEO and President of Tech CU. An industry veteran, Harris has more than 25 years’ experience in financial services, including in the banking, credit union and leasing company sectors. He also has extensive expertise in economic theory, ALM, Fed policy, financial markets, risk management and product development. Prior to becoming CEO, Harris served Tech CU as CFO and COO and was instrumental in leading a variety of key initiatives aimed at improving the member experience. He is currently on the Tech CU and Joint Venture Silicon Valley Board of Directors. Harris received his bachelor’s degree in business administration with a focus on finance from San Jose State University.
