It’s more than a little ironic that the US banking system which nearly destroyed the world economy thanks to a heady brew of avarice, stupidity, and thrill-seeking, has shown such a level of trepidation towards cryptocurrencies. And yet, here we are, with industry titans banning their customers from treating with cryptocurrency exchanges. They’re afraid of how Bitcoin is used on the black market by nefarious blackguards, despite the fact such claims are over-blown, and the level of risk such a volatile market poses to their customers makes them jumpy, even though risk was something they were up to their eyelids in circa 2008. The real reason may lie elsewhere: banks are the apocryphal ostrich, burying their head in the sand, praying to the ostrich-god to save them from danger that crypto poses to their business model.
Any way you slice it, the banks are spooked, and agencies like the SEC are coming down like a sack of bricks on crypto. The reaction in the community is twofold: some crypto evangelists are having an ostrich moment of their own (see: John McAfee), while others are racing to get out ahead, figuring that if regulation, centralization, and the involvement of banks are foregone conclusions, they should try to shape it to their benefit as much as possible. If you can’t beat ’em, join ’em, as the old saw goes.
Square the Circle
There are players on both sides of the crypto / bank dichotomy who want to want to work together. Crypto-investors want to stay on the right side of the law, and banks want to pacify crypto so they can do what they do best, make money off of it. To that effect, Goldman Sachs has partnered with Circle to create a crypto-banking start up. They’ve begun the process of registering as a brokerage so they can trade in soon-to-be-classified-as-securities ICOs, and are currently seeking a federal banking license, the first crypto company in the US to do so.
Circle’s reasoning is sound – since the US government is eventually going to systemize crypto, bringing it under the federal regulatory umbrella, it makes sense to forge positive working relationships with state-run agencies now. Hopefully they can exert some influence over the process, rather than allowing people who aren’t familiar with the technology (or who are outright hostile to it) to take it out at the knees with an onerous set of rules. For instance, Circle could help lay the groundwork for keeping crypto assets secure, something that’s currently lacking thanks to the patchwork of online exchanges, many of which are vulnerable to malfeasance.
A Bridge between Heaven and Earth
Similar deeds are afoot on the other side of the Atlantic. SolarisBank, a German tech company, has recently done the impossible, securing a full banking license in their native country. Like Circle, solarisBank is angling to get the jump on the competition by safely ensconcing themselves within regulatory armor. They’ve partnered with vPE Bank to officially trade token securities, and, under the ensign of their new ‘Blockchain Factory’ brand, they’re in the process of building the infrastructure needed to connect crypto companies to the banking industry.
Details are spare at the moment, but they’ve floated a fiat banking service for currency exchanges, as well as a debit card that connects to crypto wallets. As a company that makes white-label products, they’re in excellent position to market their services to crypto and blockchain start-ups everywhere, and could easily become the industry standard. Security is another pillar in their model, which stands to reason, given that protecting assets is the whole reason banks exist in the first place.
Despite the fervent fantasies of techno-libertarians everywhere, crypto isn’t going to dethrone government-guided banking, and neither will banking snuff out crypto. A hybrid system is the most likely outcome, and as much as we love our crypto to float freely in uncharted waters, we need to face the reality that complete decentralization and reliable security are at odds with one another. The hope is that we can find a way to crack one of the oldest riddles of all – how to enjoy safety and freedom in equal measure.