Banks & Defi- Adapt or Fail
The following is an in-depth analysis of the plaguing decentralization of money and how it may affect the banking industry; I have also included ways banks can adapt to the growing technology.
Interoperability is a vexing issue that is exasperating consumers who use P2P payment apps, bank cards, credit cards, or even tourists who try to utilize foreign currency. This complexity is brought on by the proprietary nature of payment networks, and moving value from one to another requires a negotiation between parties on which a common payment network is used in a transaction. The mainstream solution of sending money to an opposing banking network/ledger is by utilizing an intermediary. An Intermediary (in our case) is a bank that acts on behalf of the sender’s bank. The funds will reach the intermediary bank before crediting the beneficiary. No one gets why in the 21st century this is still the solution most widely used by banking institutions. It can take 2–3 days for payments to be processed and you still bear the risk of an incorrect account balance.
Solutions…
Blockchain/ Distributed ledgers create a decentralized and super secure way of sending money to anyone in any currency. With no sole banking network assigned to a distributed ledger or cryptocurrency, banks are able to utilize technologies like the interledger protocol [Ripple] to create a fast and secure ecosystem for their consumers. Trustless sending was once only a concept but is now a reality and time for banking institutions to take advantage of it.
Concepts:
Banks, as well as Credit Unions, P2P companies, Online Money Companies, Merchants, and Intermediaries- consider the following…
The following ideas are conceptualized from technologies similar to and including RippleX, Interledger Protocol, XRP Ledger, other RippleNet technologies.
International Transferring Capabilities
Using a distributed ledger will not only create a fast and safe ecosystem for your users but will allow money to be packetized/ transported anywhere in the world at any time.
Using RippleNet will not only allow your institution to expand internationally, but you will be able to execute and process transfers in seconds without having to worry about intermediaries or slow digital money companies, i.e. Western Union. Pushing this addition will create greater economic opportunities for everyone.
Decentralized Merchant Services
Giving merchants the ability (especially in high tourist airports) to accept any currency will not only create further economic opportunities but can also promote sales in places such as international airports and border states where the ownership of a foreign currency is common.
The merchant is able to accept a digital payment *inbound* an international currency and it will be converted by using a connector + a distributed ledger and transformed into the currency of the merchant’s desired fiat.
ILP Connector
Running an ILP connector or creating your own protocol, connectors, and native token allows you to not only earn commission from utilizing the connector, but creates a more decentralized ecosystem.
You can easily run an ILP connector anywhere in the world and you are not limited to only one, you can manage as many connectors as long as your system can handle it.
Native Stablecoin
A simple and easy way to jump into the blockchain/ defi space is to create and liquidate a native stablecoin.
The bank or provider would then be able to use this token as an internal intermediary to ensure the money is secure and no way for it to be stolen or lost.
By using a stablecoin within the companies network, you can easily manage your funds and track where they go. This furthermore enables trustless sending + promotes your network (if decided to make the token public. You could have two tokens).
Block Chain(ed) Bank Accounts
Bank accounts based on the blockchain would not only create a more flawless and secure network, but also enable trustless sending. Trustless sending enables users to send money through a network of connectors without needing to trust them. ILP guarantees that the sender’s money cannot be lost or stolen in flight, which is critical for creating an open and competitive network. Technologies like Interledger uses a “forward-and-backward” packet flow, or incentivized two-phase commit, in which the recipient gets paid before the money ever leaves the sender’s account.
Utilizing bank accounts on the blockchain enables a super fast and secure service that historically goes unmatched- compared to current technologies.
If a user has their money on the blockchain, not only can the balance never be incorrect, but the user can rest assured that they have full control of their money and never have to worry about a centralized banking institution borrowing or lending their cash.
An advantage of not granting a centralized institution access to your money would ensure that if there were to be a run on banks, not only would their money be completely safe, but they are able to keep it in their account and not have to worry about someone else taking it (it would also keep its value).
At this point, you are probably asking how banks make money… Banks would obviously be required to make a profit, and without lending, how would they?
Banks are able to still charge a transaction fee and a holding fee based on volume or time. This would be necessary if a user decided to use a decentralized bank account. A bank may also allow staking which would allow the user to lend their money to the bank which would enable the bank to borrow and work as a normal financial institution.
Finally, a decentralized banking network would not only prevent future economical disasters (such as a run on banks) but would also provide complete certainty that the consumer's money is safe and will not be lost in flight.
~ Max Heltzel | maxheltzel6@gmail.com | maxheltzel.medium.com
This article is under constant editing and is incomplete. Come back anytime for future updates and additions. Comment if you see anything incorrect, and I will consider making a change.
