The commercial bank in its present form is an endangered business. However, its successor is unlikely to be just Bitcoin, but rather tech giants such as Google and Facebook with a hint of Bitcoin. Alibaba already has the largest money market in the world, while in China Wechat Pay has replaced cash. Initially, the competitors took the form of young financial technology companies, whose stated purpose was to relegate banks to the rank of ashes of history. Fintech startups, ranging from LendingClub to Robinhood, caught the attention of bankers, but did not worry them too much. After all, banks have significant advantages over new financial technology firms, such as privileged access to data and capital, as well as the benefits of the competitive element of government regulation.
Commercial banks are beginning to recognize that the real threat lies in advanced technologies, not in financial technologies. Unlike fintech startups, companies such as Amazon, Google, Alibaba and Tencent have deeper pockets and better access to data than any bank. More importantly, large technology companies have particularly intimate relationships with their customers. It is a popular belief that Bitcoin will kill the banks. But it’s the tech giants that will eat the banks lunch. In China, the tech giants have already demonstrated the upheaval they can inflict on the banking sector. Alipay has become a payment juggernaut and Alibaba has since added an arsenal of complementary financial products to its repertoire. Just ten years after the launch of Alipay, Alibaba has consolidated all of its financial products and services under the umbrella of Ant Financial. Today, Ant Financial offers almost all the financial services the average customer needs, including deposit accounts, credit management and wealth management. The rise of the smartphone and middle class in Latin America is combining to stimulate demand for the next generation of banking products and services. This newly “banked” population skips the traditional step of the agency relationship with a financial institution and is obtained via mobile. Technology giants are acquiring a significant share of mobile user portfolios, as evidenced by deployments of payment platforms such as Android Pay, Samsung Pay and Apple Pay.
Bitcoin may well be the successor of central banks. We believe that the role of Bitcoin is more monetary than transactional. Therefore, we expect the influence of Bitcoin on all the giants of technology mentioned previously as single or unique basis used as currency. For money to be used as money – to exchange value and to measure value – it must be accepted by citizens and be easy to transport, while being fungible and highly divisible. Throughout history, there have been several iterations of sound money, from the Rai stones of the Yap Islands to the gold standard. However, sound money has remained inaccessible in the last century as credit expansion has proliferated through fractional reserve policies of central banks leading to endemic inflation. The Austrian School of Economics has always predicted that the sound money would guarantee a prosperous society and a stable price-setting mechanism in market economies. Understanding sound money is essential to understanding the fundamental benefits of Bitcoin and why its novelty is often difficult to accept or understand after a prolonged period of global fiat money domination. For an asset to be money, it must store value. Look at Argentina or Venezuela. Both countries are currently suffering from hyperinflation. If you live in a country where money is not sound, you run a high risk of currency depreciation, leading to hyperinflation or an exponential loss of the value of the currency. In simple terms, what sound money guarantees is a layer of complexity that determines who can create money. Because it is difficult to produce, it is also difficult to reduce because of supply restrictions. Just as we can use Android Pay, Samsung Pay and Apple Pay with dollars now, we expect to use them with Bitcoin once we reach Hyperbitcoinization.