It's Not a Choice Between Banks and Crypto

Bitcoin Cash is going to bring down banks and free people from centralized fractional reserve based currencies and help the world become a better place.

... is the kind of thing you hear, or read, a lot of when you enter the world of crypto.

And it's just wrong. It's binary thinking that just doesn't reflect reality.

It's not just that the financial world will adapt and change the same way telecoms and media adapted and changed in response to the advent of the internet. If crypto becomes a viable currency, then banks will almost certainly offer crypto services. But, more importantly, consumers do not have to make the stark choice that every crypto enthusiast seems to want them to make.

I currently have about half a dozen bank accounts. Each one has a different purpose, but let me focus on two. One is a huge traditional bank with brick and mortar locations everywhere in Japan, where I live. The other is a strictly online banking service.

The huge bank charges higher fees, but, when I have an issue, or some complicated business operation I want to do, it's nice to be able to go down to a physical branch in person and walk through it with a teller. The online bank leaves me to fend for myself for most interactions, with fairly scant online support. But, its cheap, so, in most cases where I only need to do simple things, it saves me money.

It would be nice to have one bank that is both cheap and has robust customer service, but, that's like hoping for ice that's both warm and solid. Customer service is expensive to run, which is why the costs get passed down to me.

So in order to to get the best balance to meet all my needs, I have set up a situation for myself with an array of options. And that's actually what I do now with my crypto assets. I have hot wallets and cold wallets, and different crypto assets earmarked for different purposes, and they exist alongside my fiat options.

As crypto becomes a more viable form of actual currency, I'm not going to shut down all my bank accounts. I'm going to continue to make my crypto accounts just another set of options, to meet whatever specific needs I have in any one particular context.

I was thinking one time about the possibility of buying or selling some Bitcoin Cash in person to someone I connected to through a service like local.bitcoin.com. Let's say I meet the person at a cafe, and they'll hand me cash, and I'll transfer some BCH to them. What's to stop the person from literally physically grabbing the cash back off the table and running out the room once the BCH transfer completes? Or vice versa, what's stopping me from running with the cash as soon as it's handed to me, before pressing send on the screen of my phone?

We'll be reduced to silly games of schoolyard levels of trust and ritual, which is a problem solved by having third party intermediaries. Like banks. It doesn't have to be banks. But it could be.

Or, consider online purchases. If I buy something online, my transaction record is public and secure, recorded on the blockchain for all time. But that does nothing to help me if the company I bought from doesn't send me the goods I ordered. In the worse case scenario of outright fraud, the Sats I sent are shuffled and untraceable, the website changes domains, and is off to scam new people. If I bought by credit card, I'd have insurance to compensate me. But, with BCH, that money is just gone.

What if a bank were to step in and offer payment insurance for crypto purchases? Would I spend, say, an extra couple bucks as a one time fee for a particular purchase if I was a little unsure about the store? What about banks offering certification for stores, and the merchant pays a little for that certification in order to bolster consumer confidence?

There are a lot of ways banks could work with crypto in order to provide new services, and develop new revenue streams.

There are areas that banks might have to concede entirely to crypto. Just like telecoms, so far as I know, got decimated in the long distance calling market. Does anyone pay for a long distance phone call anymore? I think everyone, even in, or especially in, low income areas of the world, hops on a wifi network and does a voice chat using one of a million free apps. But maybe there's still some place where long distance calling exists.

One area that crypto is likely to potentially steal all or most of the business from banks is in overseas remittances. An international BCH transaction costs less than a cent, but an international transaction through a bank can cost tens of dollars. I think the last time I did one it cost about forty dollars US.

But again, this doesn't mean that banks will die, they'll just let that branch fall from the tree. Telecoms shifted into building cellular networks and providing data services. What will be the banking equivalent? I don't know, but I know that the financial services industry is nothing if not creative about coming up with new ways to move money around for a price.

Bitcoin Cash, and crypto in general, will absolutely effect the banking system. It will create pressure to lower fees and shift services. Overall, I think the net effect will be positive. Just like the internet has made communication more free than what it was under the previous regime of telecoms, banks will have to bow to pressure for more efficient and effective services.

But be wiped out? I don't see that happening anytime in any of our lifetimes.