On 21st November 2018
By Chris

Blockchain in Banking: The Yin Yang of our future Ecosystem?

The notion behind the Yin Yang, famous for its symbol emanating from China, depicts a scenario in which two forces might initially appear to be conflicting or incompatible in nature.



However, time would prove that the same two forces, which appear as being opposite, can instead end up complimenting each other, in a sense that such forces could ultimately create a joint unit that ends up being more dynamic and disruptive than each force could have managed achieving on its own.

As the title suggests, the reference to the Yin Yang is being drawn to create an analogy between the concept behind it, and the arm’s-length relationship that has transpired between Banks and Blockchain, particularly with the latter’s underlying assets, which have famously (or notoriously, depending on one’s philosophy) come to be known as cryptocurrencies. It’s beginning to happen and it may only be a short time until a tipping point as we see centralised currencies such as XRP adopted in major banks.


Satoshi’s Vision

When the platform behind Bitcoin went live, Satoshi’s philosophy was that of wanting to create a utopian ecosystem, free of cumbersome regulation that leads to greedy third parties taking advantage from the lack of power individuals had over their assets.

Banks were identified as unnecessary institutions sustained by the world leaders to control and manipulate its citizens and dictate what they do with their own money. Not necessarily, should banks and blockchain work hand in hand for a better financial future.

For the first time ever, this new technology was presenting a way of how transactions could be carried out between different parties in a fair, secure and transparent manner, whilst simultaneously providing the right level of privacy that was missing from the traditional financial system. This was achieved through a pseudonymous setup whereby the identity of the users of the platform would be concealed.

However, as soon as that address would be linked to a particular individual, all of the transactions’ history associated with that address would be revealed as such information is stored on the blockchain indefinitely on an immutable distributed ledger, not controlled by a 3rd party.

As a result, transactions and addresses could not be considered genuinely anonymous, because as soon as the connection is made, one would be able to connect all the dots leading to the real owner.

This is not to say that there are not ways for one could go about preserving ones identity, especially to individuals that put their privacy first.

This was perceived by regulators, banks and other financial institutions as providing a safe haven for criminals and an easy channel for money laundering. Unfortunately, some of the events that followed did not do much to change their perception.


Criminal us of cryptocurrency

Silk Road, amongst others, started utilising bitcoin as a means of payment on online black markets to facilitate peer-to-peer trades relating to illicit goods and services including drugs and firearms.

The image of bitcoin started getting tarnished and associated with criminal activity and money laundering from thereon. As a result, legit users of Bitcoin face an uphill battle for main stream adoption of the currency and spreading Satoshi’s vision to the masses has become harder than ever.


The evolution of Bitcoin

The above only begins to touch the surface in relation to the history of bitcoin and its misconceived perception by the rest of the financial services industry; at the time of launch, one could not even fathom how this technology, conceived through anarchist philosophy, could ever compliment or coincide with the traditional systems of banking that have been around for centuries.

Fast forward 10 years and one can rightly beg to differ without the surrounding people having to raise their eyebrows in conflict. This evolving technology, and cryptocurrencies as a whole, have started to attract the interest of high-calibre individuals, VC’s, funds and organisations that are major players in the traditional financial world.

The use for this technology has strayed away from just presenting a new method for means of payment. It has provided a new way for start-ups to generate funds in order to implement their projects without having to go through the bureaucratic and stringent regime of Initial Public Offerings.

Altcoins have also been issued that present a somewhat different philosophy or protocols from that of bitcoin, all attempting to solve any existing problems and creating a trustless ecosystem that doesn’t require 3rd party ownership or middlemen.

However, when all is said and done, the full-scale adoption for cryptocurrency as a means of payment is still years away. And until then, the need to bridge fiat with cryptocurrency remains.


Cryptocurrencies and Banks

Ironically enough, this desire to provide easy access to digital currency has led to the creation of new intermediary parties in the form of cryptocurrency exchanges, OTC desks and brokers to name a few.

In turn, the latter require fiat currencies to sustain their operations including to pay salaries to their employees and other costs to their suppliers.

Banks have generally closed their doors to opening any corporate accounts for active operators within the blockchain and cryptocurrency space. Other financial institutions have gone so far as disallowing any form of payments to be made to such operators to prevent their customers from actually dealing with cryptocurrencies.

This approach of completely ignoring what was happening has backfired, particularly when governments in various jurisdictions started taking a positive stance towards this new emerging asset class and their response simply strengthens Satoshi’s original cause.


Banks and institutions attempting to prevent the adoption of cryptocurrencies are the exact reason these currencies exist in the first place.


In fact, and perhaps controversially, such jurisdictions started to regulate such industries in order to provide companies operating within this sector with an element of legal certainty, whilst simultaneously providing investor protection and prevention of market abuse.


Crypto Regulation

This proactive approach taken by various regulators have enticed financial institutions to start considering taking a slice of this lucrative pie.

If operators in this industry would undergo the scrutiny of a serious regulatory regime, it would automatically mitigate the risks for banks wanting to provide accounts for such service providers.

The main issue with banks is the fact that they already service other industries, which form a big part of their client base.

Smaller banks, which in their ordinary course of business would have had to resort to correspondent banks to execute transactions in a timely fashion, would end up risking the same relationship should the correspondent bank be risk-averse and opt against having anything to do with blockchain-related businesses.

Hence, it’s unfair to call out certain banks for being against cryptocurrencies, when in actual fact, being operational in such could result in terrible consequences for the rest of their business.


Banks and Blockchain – embracing crypto

In my opinion, the cryptocurrency industry is like a train heading directly towards another train coming in the opposite direction, the latter representing the banking industry. A terrifying result could be the trains colliding into each other, with the undesirable outcome of having to pick up the remains of both industries.

A more appealing outcome would be that the trains end up moving in parallel, side by side, whilst having the capability of crossing to the other train’s rail at suitable times. The latter represents the idealistic world whereby distributed ledger technology would be used to enhance the efficiency of the traditional banking system.

At the same time, financial institutions would be ready to assist the operations of companies within this new emerging industry and continue to support its innovation.


If you represent a start-up company within this space, be that an exchange, ICO or Security Token Offering for example, you need to make sure to have strong business relationships in place. This may only be achieved by having experienced and passionate advisors engaged, that can also introduce you with their partners, such as crypto friendly banks, that are a result of their connections built over many years.


Organisations within this space should not have to be forced to deal with certain banks due to a lack of expertise and choice and end up risking their entire operation.


In the years to come, financial institutions must continue working on opening their doors for this new business industry that has the potential to revolutionise the financial world, in more ways than one. Speak with Harvex for any of your accounting needs across cryptocurrencies and igaming.