Cryptocurrencies and Blockchain: Are They Still a Threat to Traditional Financial Institutions in 2019?
In 2017, cryptocurrencies like Bitcoin and blockchain networks were seen as a growing threat to traditional financial institutions. However, this perception has evolved. In 2019, despite significant advancements in the crypto space, traditional banks remain robust and popular. This article explores why this is the case and what future developments might change the landscape.
What Constitutes a Threat?
The enthusiasts of cryptocurrencies often portray these digital assets as a beacon of financial freedom, disrupting the conventional banking system. However, from the perspective of traditional financial institutions, the threat often seemed limited to credit card usage. In fact, the idea that standard banking services would fade away due to cryptocurrencies is not borne out by real-world usage patterns.
Smart Contracts and Decentralized Applications
Smart contracts and decentralized applications (dApps) were hyped as the future of blockchain technology. However, in practice, most smart contracts are merely a bug bounty, with no significant real-world application. This context highlights the challenges in translating theoretical benefits into practical use cases, especially in the financial sector where reliability and regulation are paramount.
Resistance to Change
Even in scenarios where cryptocurrencies gain mainstream traction, the traditional banking system remains incredibly resilient. Many individuals find the complexity of remembering multiple passwords and PINs daunting, let alone a lengthy 25-word password. The perceived complexity of cryptocurrencies poses a significant barrier to mass adoption.
Real-World Usage and Long-Term Stability
Economic realities also weigh heavily on the prospects of cryptocurrencies. Even if a cryptocurrency were to prove functional in the real world, the world would circumvent it. For example, the once-forecasted death of postal services due to email has not come to pass. Instead, the postal service adapted, becoming a hyper-efficient package delivery service.
The Role of Traditional Banks
Cryptocurrencies might offer a glimpse into the future of finance, but traditional banks are far from obsolete. Banks will continue to manage wallets, offer loans, and provide mortgages. Financial advisors will still be in demand for those who prefer to hold onto their cryptocurrencies (HODL).
Regulation and Control
Regulation is another critical factor. Central banks have a significant influence over monetary policy and inflation rates. The introduction of an uncontrolled cryptocurrency would likely lead to economic chaos. Therefore, even if a purely decentralized finance system were to emerge, traditional financial institutions would remain central to the economy.
Futuristic Developments in Blockchain
While traditional banks remain dominant, there is speculation about future developments. DAG (Directed Acyclic Graph) protocols, a new form of blockchain, are expected to hit the market in the latter part of 2019. These advancements may enable high-speed decentralized applications and smart contracts, possibly marking a tipping point in the technology's adoption.
These developments signify that the financial landscape is not static. However, at present, the role of traditional financial institutions remains indispensable. The banking system's long-term stability and regulatory framework will ensure that cryptocurrencies and blockchain technologies coexist alongside traditional financial services.