Why banks are suspicious about cryptocurrencies.
The whitepaper in which Satoshi Nakamoto introduced the Bitcoin network to the world had the words “peer-to-peer” in the title.
On the very first page, in the abstract to the whitepaper, Nakamoto talked about how the Bitcoin network would allow users to transact “without going through a financial institution.”
Because of all of this, many of the banks have a very negative attitude towards cryptocurrencies.
Many of the affluent people also have a very negative attitude. For example, Bill Gates once said that Bitcoin has directly contributed to deaths of many people (source: http://fortune.com/2018/02/27/bill-gates-on-bitcoin-ripple-price-reddit-2018/). Jaime Dimon, the chief executive officer of J. P. Morgan Chase Bank once called people that buy cryptocurrencies stupid (source: https://www.cnbc.com/2017/10/13/jamie-dimon-says-people-who-buy-bitcoin-are-stupid.html ) He later apologized for his words (source: https://www.cnbc.com/2018/01/09/jamie-dimon-says-he-regrets-calling-bitcoin-a-fraud.html), but the fact is that many other people follow this pattern in their behavior: they first express a lot of negativity towards cryptocurrencies and it takes some people a lot of time to realize that they were wrong and some stick with their opinion even as more and more companies, individuals, and industries embrace cryptocurrencies and blockchain technology.
It is easy to understand why this is happening. Bill Gates has made his fortune building proprietary software and operating his company in a heavily regulated environment of the regular stock exchanges and working with regular banks and companies that also have to comply with various government regulations. This is what he is used to, this is the environment in which he has created a fortune for himself and this environment does have its own benefits.
Open-source cryptocurrencies that exist because people choose to transact in them and invest in them are the opposite of how a company such as Microsoft operates.
The same is true of a chief executive officer such as Jamie Dimon. His bank always had to comply with regulations and cryptocurrencies are not only something new, but a thread to the banks.
The second part of the problem
The second part of the problem in dealing with the banks is that banks exist in a heavily regulated environment and historically most of the changes have been coming from the government. Banks know that they need to comply with regulations. They prefer to deal with businesses, entities and people that also have to comply with regulations.
To them, accepting someone as a client when this client is openly engaging in transactions that can exist without any regulations goes against everything they are used to.
Also, in essence cryptocurrencies exist because of the proliferation of technology. Bitcoin and other cryptocurrencies can’t exist without the Internet.
The Internet and technology-based companies have already disrupted many industries and the scenario of the development of such disrupters has been very similar no matter the industry: big players and those who adhere to the standards do not like when new players come to the market, even though and when these new players bring a lot of convenience and price efficiency to the consumers and get rid of a lot of outdated processes in the industry. This is exactly what has been happening with Uber and Lyft and the taxi industry. This is what has been happening with Airbnb and the hotel industry. In a way, this is also what is happening with the regular banks and businesses that are involved with cryptocurrencies. Banks have been doing business in the way they are currently doing business for a long time. Dealing with systems that can potentially make them obsolete is not something they are interested in. For those who are interested, figuring out blockchain technology and its applications means spending time and resources, which in many cases is not what large companies prefer to do.
Typically, the bigger an institution, the slower it moves. Management needs to create committees and have a lot of meetings and then inform the employees about their decisions and educate the employees. This is true of all organizations, including banks, and this is one of the reasons why even the banks that understand the potential of blockchain technology and of cryptocurrencies are likely to be moving very slowly.
The third part of the problem: protection of consumers
Another part of the issue of banks not willing to deal with businesses in the cryptocurrency space is the protection of consumers.
Out of all the reasons to try and slow down cryptocurrencies this one makes the most sense because the majority of people in the Western world are used to a lot of protections when it comes to management and spending of their money.
People know that if and when they buy something, they can return if they don’t like the product. They can also ask for a refund if they don’t like the service. If a merchant doesn’t deliver on a promise, a person can call the bank and open a dispute by asking to reverse a transaction.