The creation of blockchain came with possibilities and predictions of a future where intermediaries could be eliminated entirely. It is capable of executing millions of transactions within seconds at a lower transaction cost and requires no centralized authorization.
With the blockchain trend going on as strong as the moment, is it possible that blockchain will replace banks any time soon in the future?
To answer that question, we need to take a look at the nature of blockchain and banks in the first place.
While a bank is an entity responsible for storing money, giving out loans, investment and so on, blockchain is a technology that is capable of changing the way we manage money. Blockchain enables decentralized storing and transferring of funds or financial assets. However, other financial services such as issuing credits or investment loans could only be provided by third-party organizations like banks.
Blockchain is a technology, while a bank is an entire institution in charge of managing money and financial assets. It is not possible to compare the credibility of these two, let alone having one replacing the other.
It is easy to argue that since we now have cryptocurrencies and are able to open crypto accounts without waiting in lines or giving out our information, we could entirely ignore the banking system in the future.
However, even when cryptocurrencies are recognized for its utilities such as decentralized peer-to-peer transactions and many more, the one thing that it will never get to do is replacing fiat money. While fiat money represents the responsibility of the government, virtual currency does not represent the responsibility of anybody. Any unforeseen situation can bring its values back to zero.
A cashless society might be inevitable in the future, and governments and banks will undoubtedly prepare for it. A future where governments release their cryptocurrencies is not out of the question, and when it does happen, those currencies will have more power than current cryptocurrencies.
So rather than asking whether blockchain can replace banks, it is better to ask “Will banks start adopting blockchain technology?”
The existing problems in banks nowadays is based on the way they manage data system and process inquiries. As many big banks are operating across borders, if there is a solution to enhance the efficiency of data management, banks could be better than what they are today.
Rather than fighting the trend, banks are more likely to join the blockchain and crypto movement. There are currently many banks that are starting to integrate blockchain technology and solutions to manage their database, such as Intel’s hyper ledger technology.
According to CEBNet, 12 out of 26 publicly listed banks in China have already adopted blockchain technology to their system for various uses, including private banks such as China Merchants bank or the state-owned Bank of China, China Construction Bank and the Agriculture Bank of China. Moreover, 77 banks from all over the world are reportedly using blockchain technology in their operation.
On the other hand, we might expect to see innovations that could add decentralized banking services to the blockchain, which might take more than ten years from now. Hence, before such an application is introduced and widely-accepted, all we could hope for now is steady improvements in banking service quality that come with the world-wide blockchain adoption.