Jo Howes, Commercial Director, CREALOGIX
For all the hype that currently surrounds cryptocurrency, it is easy to forget that the birth of bitcoin in 2009 was a non-event. Even a year after Satoshi Nakamoto had introduced his system of making digital payments, the price of bitcoin languished quietly beneath 50 cents a unit. The subsequent growth in the number and popularity of cryptocurrencies is a distinctly recent phenomenon. With this growth has come a great deal of attention and speculation from those outside the immediate community – whether they be businesses, consumers or regulators.
The sudden surge in the price of bitcoin last year took many by surprise. Nevertheless, those at the very top of traditional financial institution maintained a complexion of cynicism amidst the media frenzy. Most notable was Jamie Dimon – CEO of JPMorgan Chase – who called bitcoin a fraud, only later to express his regret at the statement.
Banks are fast waking up to the potential that exists in this space. Dimon’s own JP Morgan is now committed to investigating the benefits that blockchain technology can have for banking. They have even gone as far creating a blockchain initiative team which has singled out Ethereum and Zcash as being technologies of particular utility. With a global technology team of over 50,000 people – almost twice that of Facebook – JP Morgan has the clout to truly develop powerful applications with this technology.
In the UK market, Barclays has led the way in exploring the crypto space alongside its traditional banking practices – most notably by allowing cryptocurrency exchange Coinbaseaccess to its Faster Payments Scheme. However, despite such steps towards crypto-integration, Barclays – much like all other large banks – is still some way behind the smaller fintech start-ups who are pioneering in this space.
For instance, not only has challenger bank Revolut been offering access to bitcoin trading since late 2017, but it also recently added access to Ripple and Bitcoin Cash. Such moves indicate the confidence that Revolut has in blockchain and the crypto space, and tacitly endorses it in at least the medium term.
This is just the tip of the iceberg, with new challengers such as Fiinu planning to raise funds in an ICO to support the creation of a smart contract backed loan business. Technical reasons may have forced the ICO to be abandoned, however this has not stopped itapplying for a banking license so that itcan “bridge the gap between banking and the crypto world.” Itsaim, according to chief executive MarkoSjoblom, is to “allow you to access the crypto-world without having to go underground and potentially fallvictim to some of the fraud that is happening in that world.”
This is a clear example of the most obvious route to take towards crypto integration. As with so many new financial technologies, its growing popularity has kicked off a race between challenger and established banks towards new and bold cryptocurrency banking features. There is no doubt that the established banks have the technological heft to make this happen, JP Morgan Chase’s 50,000 strong tech team demonstrates that, so the only doubt is whether or not it hasthe agility to match itssmaller, newer competitors.
The large banks have two main options. The first is to invest large amounts of time and money into developing these applications in-house. The second option is to enlist the help of third-party services that are already operating in this space by developing crypto-functionality and adding it topre-existing banking or investment applications. In doing so, banks would give themselves the ability to bring such services to market far faster, compared to doing this themselves. This may be the more viable option, as the skills gap in the blockchain sector is proving to be a major limiting factor for development and growth of in-house developer resources.
In its entirety the cryptocurrency market is worth billions. The blockchain-as-a-service market alone is expected to reach a market value of $15.5 billion by 2023. Put simply, this technology is not going away, and its potential is only just beginning to be understood. With further adoption and integration almost a guarantee, all that remains to be seen is which banks will be able to capitalise on this.