Last year, JP Morgan CEO, Jamie Dimon, bashed Bitcoin and other cryptocurrencies claiming that are worse than the Tulip Mania. Other top bankers including Goldman Sachs, Lloyd Blankfein, and George Soros have echoed the same sentiments.
However, behind the limelight, major banks continue to experiment with cryptos and blockchain. For instance, in February 2019, CNN Business reported that JP Morgan Chase was introducing its cryptocurrency. JPM Coin, as the crypto is called, is a USD backed digital token to be used to settle transactions in the bank wholesale payment business.
Goldman Sachs, on the other hand, has made a series of investment in blockchain and crypto startups. Speaking at the 2018 TechCrunch Disrupt Conference in San Francisco, Goldman Sachs CFO, Martin Chavez, expressed the bank’s interest in launching a cryptocurrency trading desk. According to Chavez, Goldman Sachs is exploring how best to serve clients in the digital currency space.
Regarding blockchain, JP Morgan has invested in a project known as Interbank Information System, a payment platform that is expected to settle around 300,000 transactions when fully launched. Umar Farooq, the head of Blockchain at JP Morgan, believes that the transaction speeds will skyrocket as more banks join the platform.
A new approach to cryptocurrencies
With Bitcoin and other cryptocurrencies losing over 80% of their value since last year, there is no doubt that the crypto bubble has popped. The prices seem to have stabilized as speculators exit the market.
Even better, the mainstream financial system appears to have been convinced of the potential of digital currencies. The number of financial institutions and governments exploring cryptos as a payment method is increasing daily. Central Banks in countries such as Sweden, Canada, and Australia have already shown interest in launching their cryptocurrency.
However, most mainstream financial institutions remain skeptical. The dream of Satoshi Nakamoto, the unknown founder of Bitcoin, appears to have hit a dead end as governments move in to control cryptos. Undoubtedly, it is still early to predict whether cryptocurrencies will gain mass adoption as global currencies.
As mentioned previously, banks and other mainstream institutions are exploring cryptos albeit differently from the original dream of crypto pioneers. Most tokens being introduced by these institutions are either backed by Gold or the US Dollar.
The main aim of cryptocurrencies is decentralization which means that they must be independent of centralized institutions. This means that cryptos backed by USD or Gold cannot be considered as fully decentralized. Consequently, the original crypto model is likely on its death bed as banks and other financial institution divert the course to fit the old centralized model.
Blockchain is the real deal
Blockchain, the technology behind cryptocurrencies, is proving to be the real game changer in the banking industry. The majority of big banks have already set up infrastructure ready for the technology.
Apart from being the backbone of cryptocurrencies, blockchain has many use cases in most industries. In the banking sector, technology is being used to secure systems and bring transparency in all core functions.
According to the Financial Times, the five main areas being disrupted by blockchain in the banking sector include Clearing and Settlement, Payments, Trade Finance, Identity, and Syndicated Loans. A survey by Computer Business Review shows that 69% of banks are already experimenting with permissioned blockchains.
Bottom line
While the original idea of fully decentralized currencies is still a faraway dream, blockchain is becoming a reality in most financial institutions. Banks are already adopting the technology en-masse with analysts predicting mass adoption by 2020.