When it comes to crypto-based companies, the main problem is connected to anti-money laundering policies and tax control. Therefore there are some cases when banks terminate contracts with companies to avoid the responsibility for running operations for unfair businesses, which leads to serious problems for entrepreneurs. The important issue i crypto-trade is the fact that it is partly anonymous, therefore there is a need of KYC procedures introduction into the world of decentralized digital currencies.
A crypto-friendly solution
How about creating banks that will embrace blockchain and create fully responsive, certified, state-backed environment for individual and institutionalized operations on cryptocurrencies? This mission surely is a tough challenge for entrepreneurs, regulators, and developers, but creating blockchain banking institution could prove to be exactly what crypto-business will need in the nearest future.
Putting bank records on blockchain may become a milestone in cyber security that will rise bank’s liability. It still needs time for development, but future results will surely bring new solutions. Receiving an approval of international organizations like European Union will improve organizations credibility as an official bank that can be used by certain companies to store, exchange and trade their funds in a secure manner. This way regulators should not be worried that companies may try tax evasion. Open access to banking records of Company X will make all its financial activity transparent.
The other serious issue that blockchain banks can solve for crypto-transactions as a whole is trade anonymity. Thanks to KYC procedure (Know Your Customer) banks can verify and deanonymize their customers, reaching the standards of an average financial institution.
But most importantly, blockchain will allow the borderless, fast and cheap transactions for all types of clients.
At May 4th you will be able to meet four visionaries, who work on developing “bank on blockchain” – Arnaud Salomon, Enrique Melero, Vytautas Karalevičius and Jörg von Minckwitz. We asked them about biggest challenges and opportunities connected with developing decentralized banks. We’ve asked our speakers about the biggest challenges ahead banks on blockchain. Jörg von Minckwitz of Bitwala answered:
The biggest challenge is two fold. One is the regulation, as central banks continue becoming more involved in the blockchain industry and see its positive potential on revamping industries, there is still a long way to go. We, in cooperation with our partner bank, are working very closely with regulators to ensure that all of our processes are understood and accepted. The second one is popular acceptance. Mainstream belief in crypto is not at its strongest yet. This is because some people still think that it is a currency for illegal activities. One of our tasks as we build a blockchain banking experience is to educate everyday people about the benefits and ease of dealing with crypto.
Arnaud Salomon (MtPelerin.com) agreed upon regulators acceptance, but also added an important opinion about leveraging the full power of the blockchain and smart contracts:
In my view, the biggest challenge that banks on blockchain are facing is to shift on chain their entire balance sheet and related banking services in a way that regulators will find acceptable. As a consequence, most of current projects are more about being crypto banks that deal with the storage and transactions of cryptocurrencies than being banks on blockchain leveraging the full power of the blockchain and smart contracts.
The other question was about the mission of banks on blockchain in the future. Arnaud Solomon points out that processing payments is just a tip of the mountain:
The mission of banks on blockchain will not reside in a specific service (although payment processing is a natural first step), but it will rather be about maximal transparency of banking operations and an empowerment of customers on their money. Tokenization will be play a big role here, as it will open the way for both individual and business customers to better investment opportunities and better returns on their wealth, whatever the size.
Jörg von Minckwitz answers this question in a simpler way. Banks on blockchain will be a product that will connect banking and cryptocurrency:
We strive to connect the crypto and traditional banking worlds together. In the short term future, we are focusing on building a world class product that will allow you to buy and sell cryptocurrencies and manage everyday expenses from one account.
What are the perspectives?
The important voice in the discussion was taken by Enrique Melero – former COO of HSBC bank, man with over 15 years of experience in the banking industry. We asked him to comment on the possibility that banks on blockchain will threaten the position of traditional banking or will they just become a supplement to the modern banking system?
Current banks will eventually move to blockchain technology. It is a question of time. In the most inmediate years the answer is no. Cryptoworld is tiny and those having original business models (outside payments/cards) are playing in niche markets where banks can’t or don’t want to enter.
They (banks on blockchain) should play the niche, that eventually will grow because today its participants are underserved, or not served at all: unbanked population, realtime p2p service platforms, community based economies. For now they should focus on embracing the long term benefits of the technology, not just the inmediate opportunity of easy money that it provides or they will not be there in 12 months.