A few days ago, Bankir.ru published an interesting feature by Corezoid founder and PrivatBank's e-business center head, Alexander Vityaz. His predictions stating that VISA, not Bitcoin or blockchain technology, will eventually destroy the banking system, have gone viral across media and social networks. ForkLog talked with Alexander to make things clearer.
ForkLog talked with Alexander to make things clearer.
FL: In your feature, you predicted the banking systems demise caused by development of VISA. Some experts in crypto-technologies have come to the same conclusion, yet they believe that Bitcoin and blockchain technology are more likely to bring traditional banking to an end. In your reckoning, can those technologies effectively compete with VISA?
AV: I think the experts are wrong. Experts are wrong most of the time, and the reason is simple. They attempt to undertake a linear extrapolation just by using conclusions they get after observing only one side of a phenomenon. For instance, Linux never killed Windows, yet it caused the computer world to change. Bitcoin will walk down the same path. Something will definitely change, but what exactly and how are questions yet to be answered.
FL: Is traditional retail banking still going the way of the dinosaurs?
AV: It definitely is. The basic reason for the demise of banking as we know it is its inherent fragmentation. When a traditional banker tells you how he or she tries to compete with global companies or works with big data, you may simply switch to discussing the weather without fear of losing any meaningful insights. Theoretically, defragmentation of a super-fragmented system (there are 30,000 banks in the world) is possible with two systems only, vertical or horizontal, namely payment systems or Bitcoin respectively. However, I think we may count Bitcoin out for now, as currently it's unacceptable for legal and technical reasons in this sphere. As I said, there are 30,000 banks globally, and all of them are customers of VISA and MasterCard. Certainly, all banks issue the same plastic, everyone imagines themselves as a competitor to Google; they create check-outs, anti-fraud systems, Internet banking, spend enormous money for developer wages et cetera, only to finally solve similar and totally useless issues and maintain the market's fragmentation. So, the score is 30,000:1 for VISA.
FL: So, where's the place for Bitcoin in the system you described?
AV: Bitcoin is not a competitor for VISA, as VISA now isn't the same as VISA back when PayPal emerged. It will research, integrate, and keep its finger on the pulse. In fact, it will most likely be a kind of co-evolution rather than confrontation.
FL: How do you generally estimate cryptocurrencies' chances to eventually supersede fiat money?
AV: I think cryptocurrencies may supersede minor currencies, or even become a basis for the financial system in countries like North Korea. It's the only chance to bypass the banking system with its obstacles and reach the world for such totally enclosed nations. As for "mature" currencies, it will be more a case of hybridization rather than superseding. Classic money will adapt useful features from cryptocurrencies and use Bitcoin's ecosystem. Transfer of cash issuance onto altchain is quite likely for some countries.
FL: What do you think about PrivatBank's service for purchasing with cryptocurrencies? Do you see any future for the initiative?
AV: Considering it was me who launched it in the first place (in cooperation with the CEB team), I think it's pretty good! It's a pilot project, and we're still searching for the right financial future. However, there are lots of regulatory issues unsolved as yet. As for the technological future of the initiative, it has already come. We use such features of bitcoin wallets as Public and Private keys for EDS transactions and encryption of traffic in Privat24 and Sender apps. In addition, we're testing blockchain for notarization of transactions. Integration of Corezoid with the bitcoin network will allow us to implement smart contracts for real business purposes.
FL: Presently, many banks try to tame the blockchain technology. They think of it separately from Bitcoin, and create private blockchains. Do you think they'll succeed in using the technology's potential to retain their market influence?
AV: It's not many, but some would be more appropriate. And they talk more than do. That's a perfectly normal situation. On the one hand, banks are constrained by regulation, on the other hand, the classic banking business isn't really compatible with open systems. No one has succeeded in fast replacement of a hierarchic system with peer-to-peer one. For central banks, replacing cash with altchain is a totally comprehensible and realistic thing. However, it requires lots of factors, like 100% smartphone penetration among the population, small area, 4G technologies, etc. It won't work with today's Ukraine.
Summarizing it all, I'd like to say that the basic problem of commercial banks isn't Bitcoin, but the localization of banking. A bank may expand only to some geographic borders. Eventually, a chunk of the global banking business will somehow be acquired by a global player. Any practical banker today should not fear Bitcoin, they should focus on how and in what way they can continue to exist in the mid-term.
Interviewed Tanya Otter