By now, cryptocurrencies like Bitcoin, Ethereum and Litecoin have become almost as commonplace as US dollars and Chinese Yen. In fact, it could be said that the cryptocurrency boom that began taking off in 2012 is responsible for the complete displacement of some forms of currencies.
While this is remarkable, a bigger question is worth posing: what does this all mean for the global banking systems that rely on traditional, international financial transactions?
To answer this question, it helps to have a bit of a history lesson.
From Dollars to Digits
In the latter part of the 20th century, the explosion of the internet provided a platform for a faster, more reliable way to send money from one person or organization to another. While international currency exchanges had long been modernized through the use of fiber optic-enabled computing, internet-based currency exchanges completely changed the game.
When people started realizing that cryptocurrencies like Bitcoin could be used almost as easily as cash—in some cases, even more securely than cash—billions of dollars began flowing into the cryptocurrency marketplaces. Some speculative investors even liquidated assets just so they could get a piece of the action. During this time, millionaires were made out of ordinary, everyday technology enthusiasts. It was the ‘golden era’ of the dawn of crypto.
Now, let’s consider how all of this is currently impacting traditional banks. Because the money used by banks is backed by the governments from which the currency is issued, there isn’t any consistency in value or exchange rates. This is to say, a US dollar might be worth more or less in Germany depending on how well it’s performing against the Euro. Cryptocurrencies change this entirely.
With cryptocurrencies, there are no government-backed exchanges or variable value structures. In the case of Bitcoin, a massive network of competing nodes work tirelessly, day-in and day-out, to complete the transaction validation that used to be a function of big banks.
Who’s Afraid of the Big, Bad Banks?
So, should the banks be concerned about this? Yes. Yes, they should. The reason is because, with cryptocurrencies, there’s no way for a single organization or person to control the flow of money. There’s no way to tax or add fees, either, as transaction validation is rewarded by the nodes that perform the blockchain validation checks and balances themselves (also known as ‘miners).
What the future of international banking holds is not entirely clear. But, one thing is for sure: Bitcoin and cryptocurrencies like it are here to stay. The old way of moving money is changing, and the world is sitting up to take notice.
