How Will Cryptocurrencies Affect The Finance Industry?

Bitcoin has the potential to be revolutionary. However, some of the OGs envisioned cryptocurrencies becoming integrated to the financial institutions, rather than replacing the industry. This article seems to argue that, even though the three main functions of banks - warehousing or storage of physical money, loaning, and clearing of transactions - can be handled by distributed ledger systems, banks might take a larger role in managing a cryptocurrency based economy.

Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.


I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today.

- Hal Finney (a Bitcoin OG)

Do you think this is a realistic view of the future of finance? Have you personally witnessed the finance world move in that direction, beyond reading in the news about banks such as JPM setting up distributed ledger systems and cryptocurrency asset funds? What are the advantages of going into a traditional banking role, when FinTech is growing so much faster?

Comments (4)

Oct 20, 2017

I agree with your sentiment. I can see banks restricting the flow of bitcoin by purchasing enormous amounts of it. Then the creator would be forced to either create more stay with the current model. I wonder what the impact on the prices of bitcoin would be in a situation like that.

"The only thing I know is that I know nothing, and i am no quite sure that i know that." Socrates

Nov 3, 2017

Yeah I could also see them buying enourmous amounts of it. This would make the price go up astronomically, because, the creator cannot make more bitcoin. They could do a fork, but that would not be bitcoin anymore.

Oct 21, 2017

I promise you bitcoin will be looked back as the "coke 2" of "money".

Aug 24, 2018