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From Skepticism to Acceptance: How Banks are Embracing Cryptocurrency
Though relatively short, the history of crypto in traditional banking is rapidly evolving. Initially, many traditional banks were skeptical of crypto and viewed it as a threat to their business model. However, as the industry has grown and matured, many banks have started to embrace crypto and explore ways to incorporate it into their operations. As the cryptocurrency industry continues to gain mainstream adoption, more and more traditional financial institutions are starting to make the move to integrate blockchain technology into their services.
The earliest mention of crypto in traditional banking can be traced back to 2014 when a few banks began to explore the potential of blockchain technology. At the time, blockchain was seen as a disruptive force that could potentially replace traditional banking systems, but as the industry progressed, many institutions began rethinking their hesitation and began considering blockchain technology.
Rethinking Traditional Finance
In 2016, a consortium of banks, including JPMorgan Chase, Goldman Sachs, and Credit Suisse, launched the R3 blockchain consortium. The consortium was designed to explore ways to use blockchain technology in the financial industry and develop common standards for blockchain applications. Despite their interest in blockchain technology, many banks were still hesitant to embrace crypto.
This changed in 2017, when Bitcoin and other cryptocurrencies experienced a surge in popularity and reached all-time highs in value. Initially, JPMorgan Chase was skeptical of crypto, with CEO Jamie Dimon famously calling Bitcoin a “fraud” in 2017. However, the bank has since softened its stance and launched its own digital coin, JPM Coin, in 2019. JPM Coin is designed to facilitate instantaneous payments between institutional accounts, and is utilized by businesses worldwide. Similar to JPMorgan Chase, Fidelity was also initially skeptical of crypto, but in 2018, they launched Fidelity Digital Assets in 2018, which provides custody and trading services for businesses who wish to utilize crypto.
Overall, the future of traditional banking and crypto is likely to be complex and multifaceted. Some of the largest qualms of integrating crypto into today’s traditional finance systems are government acceptance, rules, and regulations, which can pose difficult workarounds for traditional banks. One of the first known applications of digital currency into banks and governments were CBDCs (Central Bank Digital Currency), which refers to a digital version of a country’s fiat currency that is issued and backed by a country’s central bank.
In 2020, the first CBDC was launched by the central bank of the Bahamas, which launched the Sand Dollar, a digital version of the Bahamian dollar. Accessible through a mobile wallet app, the government has full control over stability, security, and rules of trade of the Sand Dollar, which proves hesitation for the transition into decentralized finance. The mobile wallet app works similarly to a decentralized wallet, where the user must register with security information like name, date of birth, and national identification number, which creates an account that is then linked to their bank account. To maintain control over the Sand Dollar, the Central Bank of the Bahamas has implemented a number of measures, including KYC, transaction monitoring, and control over the issuance and redemption of the currency.
Today, there are dozens of crypto-friendly banks that both individuals and businesses can utilize. While there may be challenges and disruptions, there are also opportunities for innovation and collaboration between the two worlds. One possibility is that crypto will become fully integrated into the traditional finance industry. This means that banks and other financial institutions will offer cryptocurrency-related services to their customers, such as trading, lending, and custody, while still simultaneously offering traditional banking services like cash deposits, money transfers, wire transfers, and withdrawals.
Shift Markets Can Help You Integrate Crypto
Keeping up with a quickly moving field like crypto can be challenging, especially for traditional financial institutions who may not be familiar with rules, regulations, and integration methods, but as a Crypto-as-a-Service provider with over ten years of experience working with enterprises and financial institutions, Shift Markets prides itself on its unique suite of enterprise solutions geared towards making the merge between DeFi and traditional finance truly seamless. Offer a different type of investment option to your customers by allowing them to transfer, hold, and trade crypto from your firm, all while operating within your region’s laws and regulations regarding digital assets and crypto. Learn more about what Shift can do for your financial institution.
Disclaimer: The content on this site is for informational purposes only and should not be relied on as any form of advice. We are not financial advisors. Educate yourself on the risks associated with digital asset trading, and seek advice from an independent financial, business, tax or legal advisor if you have any questions and before engaging to determine the suitability for you.