The Committee on Economic and Monetary Affairs (ECON) of the European Parliament issued a 136-page report titled "Competition Issues in the Financial Technologies Market,” which makes one wonder about the future of banks. The report states that the emergence of cryptocurrencies issued by the central banks of the world (CBDC) can displace Bitcoin and Ether from the market. It is assumed that the authoritative cryptos that will work on blockchains will hold the banking system together with the regulators and even strengthen it altogether.
Obviously, distributed registry technologies are becoming so important that they can no longer be ignored. How can the modern banking system integrate into the world of cryptocurrencies, though? After all, banks are now the ones actively trying to find approaches to new technologies, rather than cryptocurrencies trying to borrow existing practices from credit and financial institutions. Anthony Pompliano believes that banks, like other key elements of the modern financial system, are facing a big challenge, and "the transition to the digital financial system has only just begun," and no one is guaranteed a place in the new world.
Modern banks are very vulnerable. John McAfee directly speaks about the unreliability of deposits in American banks, and this fear has a strong rationale, as deposits in the United States are now 370 times higher than the resources of the Federal Deposit Insurance Corporation (FDIC). The investment policy of banks raises much doubt about its appropriateness, as credit organizations in the E.U. and the U.S. are active buyers of government bonds, and the yield is negative for a number of them. The volume of such loss-incurring bonds is $10 trillion, and they hang on the balance sheets of banks.
Imagine what would have happened if banks had invested the money of investors in crypto coins, creating a more balanced portfolio. According to a 54-page study conducted at the Carroll School of Management at Boston College, the average income from participating in the purchase of various new cryptos is an impressive 82 percent. If we talk about the effectiveness of crypto investments for a period of three months, then the yield is at least 150 percent. All this refutes the idea of cryptocurrency investments being "high risk.” Yes, they are risky, but the formation of an investment portfolio allows one to reach the level of profitability that no bank in the world can offer nowadays.
The fact that the European Parliament believes that the launch of the CBDC will lead to the ousting of the main cryptocurrency looks only as a hope that the modern banking system is able to adopt new technologies without undergoing any fundamental changes. This idea is traced in the fact that cosmetic changes are being carried out, as some banks are using blockchain equipment mainly for cross-border transfers in test mode while registering patents for blockchain. They are not, however, fundamentally changing, although the first bell has already tolled a long time ago with the appearance of the Internet. Internet banking is now being used by more 51 percent of Europeans, and this led to the fact that the number of brick-and-mortar banks in eight years fell by 6 percent. There is a concentration of credit institutions taking place as Germany now hosts 25 percent of all banks from the 28 countries in Europe. ECON concludes that such a concentration "can increase the efficiency and scale of the work of European banks.” This once again confirms that many regulators in the world, after recognizing the advantages blockchain, do not understand that its essence lies in its decentralized nature of storing and processing transactions. During this process, information and information carriers ("digital rights") can be transferred. This cannot simply compete with traditional money, but it can allow it to perform its functions more effectively. For example, this is what is being said about stablecoins by experts of the Pinsent Masons law company.
Even centralized exchange platforms for cryptocurrencies are likely to fade into the past as they will not be able to cope with the competition of decentralized platforms. What role can banks play in this case? The internet has led to the fact that the physical offices of credit institutions are being emptied. The emergence of Web 3.0, however, leads to databases being transformed into "data banks,” and online banking offices, even if they are in the form of mobile applications, will also be empty, as well as their physical counterparts. It is not only the process of paying money that is changing but what is happening is that cryptocurrencies are starting to take on their functions. Banks are losing (shrinking in different dimensions) not only in the E.U. but also in emerging economies. Among the 961 pages of a large-scale study "The Blockchain Industry in Great Britain: A Review, the Second Quarter of 2018," in chapter XII, it is stated that the blockchain is only a fast-growing niche of the financial market. At the same time, the authors of the report themselves acknowledge that "financial services based on this technology" (that is, cryptocurrencies) are aimed at proposing "the inclusion in the financial world of a multibillion-dollar, untapped ocean of people in developing economies that are not covered by banking services." The same report states that every second inhabitant of the African continent lives in a country where cryptocurrency settlements are allowed, in particular, in such states as Botswana, Tanzania, Rwanda, South Africa, Nigeria, and Uganda.
A reasonable question arises pertaining to why it is assumed that a blockchain bank will become an assistant to banks in what they could not achieve for decades, and what cryptocurrencies do so easily. They are demonstrating a huge increase in distribution in the countries of Africa and South America.
In these regions, the population's awareness of cryptocurrencies is often higher than in the current key crypto economies of the world, such as Japan, South Korea, and the United States, and this indicates that it is there that the potential for growth in the use of the cryptos truly lies.
In addition, the level of income offered by cryptocurrencies, as well as the possibility of obtaining them by bypassing traditional institutions of the financial market from banks to investment funds, means that we find ourselves in a situation where it is very difficult to understand how modern credit organizations can integrate into emerging new realities. Their work is often tied to tasks that go beyond classical banks, such as the purchase of U.S. and E.U. government bonds to ensure the stability of the U.S. and European budget systems, from which they expect to receive assistance in the event of a shortage of their own funds. This established work principle makes sense if economic growth is high enough to solve emerging issues.
The emergence of the global problem of pension provisions, the decline in yields on deposits that no longer cover losses from real price increases in the U.S. and the E.U., and risky lending policies that lead to the fact that a significant part of the funds provided by investors is locked in the "bubbles" of the real estate and securities market cannot be solved by point integration of blockchain or the launching of CBDCs. Moreover, it would be naive to consider that cryptocurrencies can disappear. Unlike all previous technological changes that always revolved around the improvement of existing processes in the economy, everything is now fundamentally different. It is obvious that cryptocurrencies carry a new value system that is so needed that demand converts these principles into significant revenue for crypto holders.