It’s widely accepted that Bitcoin’s technology boasts an array of advancements over traditional financial systems and it is believed by some, that if adoption were to increase, then Bitcoin and other P2P protocols could one day render many parts of banking and finance unnecessary as they can transact without the need for mediators.
Initially, banks believed that with the integration of centralized blockchain technology, they could compete with bitcoin and open source development. However, despite the investment of billions of dollars and massive resources into the development of the blockchain, banks are still struggling to this date to commercialize the technology.
For the most part, the failure of banks to maximize the potential of blockchain technology can be attributed to their misunderstanding of bitcoin and its technical intricacies. Within the bitcoin network, the blockchain operates as its main database system. But, as bitcoin and security expert Andreas Antonopoulos explained, it is required to synergize with many other technologies including Schnorr signatures, advanced elliptic curve applications and ring signatures in order to work.
“[For banks], Bitcoin is a very very difficult bitter pill to swallow, Antonopoulos explained. “The idea that banks are simply going to do a bit of blockchain and fight this disruption is ludacris on its face. Because doing a bit of blockchain doesn’t serve the other six billion. Because doing a bit of blockchain doesn’t unleash a torrent of innovation that comes from open protocols and open access, because most importantly, a bit of blockchain with a centralized counter-party in the middle of every transaction takes us right back to the world we are living in today,” he added.
During his presentation at the EMEA Fintech Talks event hosted by Deloitte, Antonopoulos emphasized that at first, banks rejected bitcoin and alternative cryptographic systems. Then, banks adopted blockchain technology in order to compete with bitcoin and the cryptocurrency market. But, as time goes on and bitcoin evolves into a major financial network with massive market cap, banks will be forced to adapt.
Recently, an increasing number of banks and financial institutions including Goldman Sachs and JPMorgan have started to adopt and integrate bitcoin. Fidelity Investments have become so passionate about bitcoin and its technology that they have begun to test mining software, two-layer solutions, and off-chain applications.
Bitcoin and open source technologies, in general, are a major threat to banks and financial institutions. While some banks like Goldman Sachs and JPMorgan move toward adopting bitcoin, others will resist the disruption led by bitcoin and the cryptocurrency market.
In an interview with The Mirror, Ed Pownall, an executive at Coingeek.com, claimed that banks are working with large media outlets to distribute false information about bitcoin and the cryptocurrency market. Pownall noted that banks are feeling threatened by the emergence and the exponential growth of bitcoin.
“A concept as disruptive to the banking sector status quo as Bitcoin has translated into considerable resistance to its very existence, and therefore, we know that many have an agenda to kill it at birth. As a result, they feed the media, who may not fully understand the ins and outs of this very complex currency, with incorrect information in order to create doubt and uncertainty,” said Pownall.
For banks and multi-billion dollar financial institutions, returning to the status quo and proving their purpose within the rapidly evolving financial industry is absolutely vital. Unfortunately, the rapid growth of bitcoin, cryptocurrencies and open source technologies are making it more difficult for banks to keep up.