A digital force awakens

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When it comes to providing means of storing, sending and receiving money, banks and their affiliated institutions, have enjoyed a monopoly for centuries.

They (especially central banks which allegedly are owned a powerful family) have the authority to influence countries and their governments.  We will not go into the level of control as it can pave the way for conspiracy theories which though not proven – are not farfetched.

So, it’s only expected that when some new and unknown entity threatens their prosperity, they start to react.

Blockchain frenzy

How banks are responding is evident by the fervent building of their own internal blockchains, which defeats the purpose of a having decentralized currency system.

Bitcoin and cryptocurrencies get their appeal not just because they are very secure.  But because unlike fiat money, they are not heavily regulated and can be mathematically restricted.

The 21 million limit/cap of Bitcoin by default places it closer to the status of gold) which is not infinite). But what will happen when all are mined?

The current ‘value’, which is now over $9000 could move up again according to the traditional laws of supply and demand as it becomes rare.

To unlock more value the creators might look to split it again as the split that gave rise to Litecoin and Ethereum.  Both cryptocurrencies are racing to newer heights daily.

How banks operate

120x600Now back to the banks – they make money from deposits placed by the public that is matched up by their local reserve banks.

The reserve banks borrow them money which they essentially just print and the banks must ‘turn it’ and pay it back.

So, technically we ‘empower’ them by depositing our money so they can invest the funds in all sorts of mechanisms. Such mechanisms include credit and loans to you or businesses, equities, property.

Then, you have your high-risk investment vehicles like currency trading, derivatives (futures). Banks are the essentially the biggest regulated and legal Ponzi-schemes.

They also make a significant amount of the fees they charge.

A quick example

Let’s quickly put things into context. A bank with over a million customers transacting daily. Let’s say they charge  a 10 cent (conservative figure) transaction fee for depositing, withdrawing from another bank, or an intra-bank transfer.

They will make 0.10  x 1 000 000 = 100 000 units of the currency on the day.

This equates to 1,2 million Euros, Dollars, Rands, or Yen annually. This is just off transactional fees! Then there are the monthly service/maintenance fees that the charge.

These are much higher amount that is guaranteed to the bank and dutifully payable by the customer to keep their account open.

This is what the cryptocurrencies can potentially wipe away from them if it is heavily adopted.  Granted, the means to acquire and use Cryptocurrencies is not easy nor as straightforward as receiving paper money.

That, coupled with the stigma around ‘Cryptos’, means there is still a barrier to entry for that ‘open-source’ monetary system – for now.

Banks will try and bring about their own blockchains to address security concerns around making transactions. For them, however, it would still be business as usual when it comes to the charges.

Birth of Fintech

Some newer financial institutions, however, are already progressing in the favour of their clients – one such is the European based N26 Bank.

You often end up paying for things all month without even having to go to an ATM. It works as a traditional bank would, however, allows the (smart) card to be used as a credit card (backed by Mastercard) would.

This allows one to quickly purchase goods online, book events, flights ticket, and accommodation. The things you still can’t do with debit cards.

There are other digital developments in what is now called Fintech, heavily used in central Europe, US and Asia.

In countries like Sweden and Estonia, the card and digital system have been a thing for a long time now.

Some are adopting or partnering with the cryptos to help deliver their services such as the relationship between a German bank and the crypto Ripple.

Get Ripple easily here

It would be interesting to see what governments and financial institutions do to ‘protect’ their payment systems. Likewise, it will be equally fascinating to observe how they adapt in general to the new digital era upon us.
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