It is estimated that the banking industry’s gross output could be around $7.6 trillion worldwide by 2020, with $1 billion of this said to be from blockchain-based cryptocurrency activity. This may seem like an extremely small share of total gross output, however market implications are significant as the banking industry is beginning to welcome cryptocurrencies as a legitimate format to store value and act as a medium of exchange. As a result, it is expected that cryptocurrencies will achieve a business value growth of over 90% by 2020 through supporting technology and new digital business models.
The increased usage of cryptocurrencies as a valid format within the banking industry will no doubt force other sectors to reshape their business models, such as tax and accountancy methods, transaction and payment systems and pricing of goods, in order to incorporate this new currency within their businesses.
Delware legislation has also recognised and legalised bitcoin transactions for business and accounting records, and this legitimatisation through legislation has developed within the EU and other countries. Law is giving cryptocurrencies the recognition needed in order for them to be utilised in mainstream commerce.
There are over 900 cryptocurrencies within the market, all of which if were converted into US dollars, would exceed $155 billion, of which $74 billion (45% approximately) is attributed to bitcoin. The quantity of tokens entering the market is still increasing due to Initial Coin Offerings (ICOs)combined with an increasing media attention.
Complementary currencies have always been contextualised for specific uses, such as within gaming or time banks. Social scalability will always be a challenge until there is further usability and reliability in blockchain networks to convey trust. However, the banking industry’s $1 billion in business value from blockchain-based cryptocurrencies by 2020 should convey this level of trust, the knock on effect being more engagement and acceptance from all industries.
Banks are actively working on blockchain-based currencies, which may include using some of the new capabilities of cryptocurrencies or blockchain technology. It is therefore believed by 2022, at a bare minimum, one of the world’s leading central banks will have blockchain-enabled currency running through its monetary system
CIOs should keep their eyes on developments from a customer, economic and technological point of view:
- Customer – When will customers accept and adopt cryptocurrencies as mediums of exchange? A big part of technology comes down to trust.
- Economic – When will legislation be active across the world and set standards and frameworks in place, to allow a fluid exchange of cryptocurrencies, digital and physical assets and flat currencies?
- Technological – When will technologies mature enough to accommodate every situation cryptocurrencies would be used in to include formal, traditional and economic activities?
Banks are viewing cryptocurrencies and digital assets in the same way as which they view traditional platforms. More varied business value will begin to accrue. This growth in value will be compounded as organisations then begin to accept cryptocurrencies as valid forms of payment.
Leaders in businesses should engage with seniors in their teams to develop strategies to best respond to a wider market adoption of cryptocurrencies. Cryptocurrencies and digital assets usage within strategies should also be incorporated via scenario planning which is based on growing market awareness. Finally a team within IT, legal and compliance will need heading up with an aim of prioritising digital business IT transformation needs, in preparation for the exploitation of cryptocurrencies, which will be instrumental to banks in the very near future.