In their Banking Industry Outlook report for the year ahead, the authoritative financial research organization Deloitte Center for Financial Services has concluded that disruption via new innovations –- in particular cryptocurrencies like Bitcoin and automated virtual currency ledgers called blockchains –- will force the banking industry as a whole to face these and other challenges to realize the many potential benefits of this new way of transferring, storing and managing money.
Of tremendous import, Deloitte estimates that in only seven years, virtual currency money transfer will equal the scale of Automated Clearing House (ACH) transactions. This means that — while traditional ACH payment systems will continue to serve a crucial role in helping people send and manage their money going forward — for nearly every industry under the sun that uses banking services, change is coming.
Cryptocurrencies and blockchains most certainly were not devised in a vacuum. Both emerged in the wake of the 2009 global financial meltdown after the orgy of greed — conducted through the deeply intertwined and often conflicting web of contracts, promises and much-derided debt instruments — led to an era-defining, worldwide credit crunch. Let it not be forgotten that this led to millions losing their homes, jobs or both. The huge significance of cryptocurrencies isn’t in any kind of short-term –- though often spectacular — gains some amateur and expert traders have been realizing as of late.
Consider the ’90s tech-bubble that led to huge speculation and many fortunes lost. The Web 2.0 proved that companies like Amazon and eBay were never, in fact, overvalued. The Internet revolution was genuine and real. Though some claim Bitcoin and its closest competitor, Ethereum, represent a Chimera-like bubble and fad, Deloitte in their report makes the case that these innovations simply represent a better, more efficient and crucially more secure way of moving money.
The Great Recession inspired widespread distrust and disgust of many institutions but especially financial firms and big banks. This was the context surrounding the revolutionary development of blockchains that served as a sort-of crowdsourced, open-source, decentralized virtual book that anyone with an Internet connection and the program could access, view and verify. Blockchains allowed people who felt burned by the big banks to place a measure of their trust in computer programs -– or in code –- rather than in human and all-too-fallible institutions.
Blockchains could be hugely beneficial for an enormous array of potential applications, from improving healthcare to providing a more secure and convenient way to vote. While born to enable cryptocurrency transactions, blockchains are so important because they are so secure. In an age of seemingly ever escalating and successful hacking and malware attacks, it could be argued that information is the ultimate new currency. Blockchain is a technology that can reportedly save the world from losing up to $18 billion a year due to things like identity theft alone.
Which brings us back to the report from the researchers at Deloitte. They are unambiguous in their conclusions. Immense change is approaching the financial services industry, for one, which means there is potential for both great losses and tremendous savings. Also, the key factor of interoperability is still being hashed out, as there are a variety of different blockchain-based systems out there. The more integrated and interoperable these different virtual ledgers become, the faster the benefits will be realized.
The report concluded that it will take a tremendous and collective effort from the financial services sector to meaningfully change largely from the ACH system -– which amounts to roughly $41 trillion a year in ACH payments -– to an increasing use of blockchain enabled transactions of virtual currencies.
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