While supporters of cryptocurrencies might use the Mandy-Rice Davies argument of “well he would say that wouldn’t he?” given a stated desire of cryptocurrencies is to circumvent the traditional payments system, history tells us revolutions in the financial system are amalgamated into the mainstream as soon as they reach a scale to have systemic impacts.
It’s the Catch-22: regulators and policy makers let revolutionaries prosper until the revolution gains enough followers at which time it is forced into the existing state.
No initial vowel
That doesn’t mean cryptocurrencies will disappear. The architecture has some major attractions, including the potential to limit fraud with the payment (as opposed to scams which occur between the participants, not in the transfer.)
So we are seeing Facebook, for example, explore a new currency via Libra Networks. This reportedly will be a “stablecoin” designed to facilitate exchange between official fiat currencies and cryptos.
Meanwhile, many more major institutions and government agencies are looking at the distributed ledger technology which supports most cryptocurrencies for wider uses. In a recent development, some major global banks are investigating a digital cash system.
UBS is the major proponent of the "utility settlement coin" which aims to utilise such a ledger, a blockchain, to make clearing and settlement in financial markets more efficient.
As befits most new fintechs ventures, the project has a nonsensical, marketing-generated moniker - Fnality (no initial vowel).
Reuters reported the utility settlement coin would consist of a digital cash instrument that banks could use to settle transactions.
“The coin would be a digital cash equivalent of central bank-backed currencies like the dollar or euro that would run on blockchain-based technology,” Reuters said.
Other groups of banks are also experimenting digital currencies and tokens - albeit not cryptocurrencies in the bitcoin sense.
What is salient however is the absence of cryptocurrencies from most of the myriad existential discussions of the future of banking.
For example, the FSB’s new report on FinTech and market structure in financial services: “Market developments and potential financial stability implications” mentions “crypto” only once - and that in a footnote.
A new report from global consultants Celent, “Innovation in Banking and Payments 2019”, runs through the key trends in the field while looking at a model bank of the future, cryptocurrencies don’t feature.
Innovation will focus on open banking, customer experience, mobile and digital channels, the cloud and artificial intelligence. Of course cryptocurrencies might feature if, for example, they enhance customer experience and become more efficient in digital banking.
But it is difficult to contemplate that happening without crypto gaining far-wider legitimacy with regulators.
The always entertaining CB Insights will no doubt have a perspective on crypto but in the meantime it’s a reminder on getting too excited is apposite:
“Hi there, for all you public company executives, please note that artificial intelligence mentions have overtaken mentions of blockchain on quarterly earnings calls. Please adjust your corporate strategy accordingly.”
Andrew Cornell is managing editor of bluenotes