The future of finance is not in your bank

Why you don’t own enough cryptographic assets – by Undercover Investor

Like it or not, crypto has solved two major problems. Simply, it allows the transfer of information (let me say ‘money’ to attract your attention) between parties who agree on a set of facts, instantaneously and with no friction. Secondly, broadly speaking, the blockchain, on which crypto relies, has solved the problem of databases.

If the first proposal is obvious to you, the second might not be, so let me explain. We have been able to store information on a database for thousands of years, from the advent of papyrus and probably before that. Databases have become integral to the functioning of modern society. So much so that we don’t really think about it. Each of us probably has hundreds of working relationships with databases. We probably ‘trust’ those databases, for they are often ‘fronted’ by big international names, Meta and Amazon in example. The majority, by far, today are ‘centralised systems.’ They work ok most of the time, but
not always.

Some databases hold millions of pieces of information, and you can transfer that data in a millisecond if so inclined. I am lucky enough to have had my mind stretched by the sheer scale of the world’s financial system, its trading floors and the unquantifiable amounts of data, moving in the blink of an eye, all around the world, all the time. It is staggering, but I do not believe that the size and speed of transacting in the financial markets is the most important thing to consider when we talk about databases, though of course the financial world will typically argue that faster is always better. I believe that we need to consider (and doing this quickly would be better) the structural and social implications of our databases and how we use them.

“There was an argument used at the outset of the internet that it would decentralise everything. The reality, years later, is that it hasn’t.”

 

There was an argument used at the outset of the internet that it would decentralise everything. The reality, years later, is that it hasn’t. I would argue that we now rely upon fewer, larger (and now almost certainly online) databases for the functioning of our lives, (our bank accounts, our water bills for example). Willingly or not, we must trust databases with our data, and we are relying on a smaller number of larger entities all the time. I would call it centralisation.

So, what happens when that central database goes wrong? Take a couple of experiences I have had in just the last few weeks. The water utility company discovered to have closed my account with them over two years ago without instruction, and the Steptoe and Son (older readers only I am afraid) shenanigans of getting it opened again. It has literally taken weeks and held up a property transaction which creates a real cost to a whole chain of buyers and sellers. Despite everyone agreeing on the facts in the first place. Ridiculous.

And then my bank; the one that is a ‘too big to fail’ entity with whom I have had a relationship since I was 15! They have compensated me several times over the years, when I have complained and they have admitted (eventually) that they were in the wrong. I will not list all the instances here but the required unravelling of their interlocking of mine and my sisters’ bank accounts many years ago, (“well…you have the same initials, so it was an easy mistake for us to make”) still makes me choke.

Last week, I moved a sizeable amount of money out of said bank, directing it to another well-known UK Bank, where I am a named signatory on the account. Many UK businesses rely upon this receiving bank for their banking services, yet in the ‘those that know’ circles, it does not have quite the same balance sheet as one of the ‘big banks’. Instructing the transfer at 8:00 am, following what I am told were countless checks and double checks, the money, with my CHAPS fee, left my account 4 hours later. Everything was fine at 08:30 am so why the delay?

You already know what I am going to say. It didn’t arrive. Cue untold anxiety as I made six attempts during the business day to find an agent that would say anything more than “we have done everything correctly at our end”. That is six calls to the switchboard, six onboarding conversations, and six times listening to their infernal background music. Similar calls were made to the receiving bank.

If that’s relatively predictable so far, you might not anticipate where the money was eventually found. At an ‘intermediary bank’. I peg your pardon, I hear you say (I obviously said something similar!) How does one’s money, moved from one known UK bank to another, find its way to an ‘intermediary’, (which turned out to be another ‘big bank’). How does the intermediary bank then decide not to release the money to its rightful destination, holding it for two nights, presumably to its advantage and certainly to our business’s cost?

Under pressure from my remonstrations, I was finally sent the correspondence between the intermediary bank and my sending bank. The only question that was asked was about the reference code that I had placed on the transfer to remind me in a few years’ time why I had moved the money. Nothing to do with money laundering or KYC or in fact anything to do with banking. Just someone, or an algorithm, interfering. That is scary indeed if you consider what a ‘bad actor’ could do, rather than just an incompetent one.

“Well…you have the same initials, so it was an easy mistake for us to make”

 

The sending bank has acknowledged that ‘they could have handled it better” but the receiving bank does not want to answer my questions. There are of course a huge number of other questions that you and I might like to ask about how ‘safe’ our money is (though we must remember that it is not ‘our’ money when we give it to a bank for ‘safe keeping’). I will leave you to think about how much you ‘trust’ our banking system, which is one of the biggest of the centralised databases that we use every day. I can’t stop thinking that the receiving bank is being ‘chaperoned’ by the bigger bank and it might be urgent that I change to another provider.

I apologise for the length of the discourse on my banking and utility company problems, but I hope that you can now see the relevance of both stories. If information was held on an immutable blockchain, whether data or money, mistakes such as these would not occur and transmission of data could occur seamlessly. Bitcoin is of course a bank outside a bank, if you see what I mean. Perhaps that’s the reason it is so difficult to buy crypto from a UK bank account?

Blockchain technology is going to be a very big challenge for the banks and more specifically for their employees, because we are not going to need them in the same way as we have done in the past.

My prediction is that we will come to trust the underlying blockchains more than the institutions that today run the databases that support our lives (just one transaction now has me suspicious of three UK banks and about how the banking system ‘works’).

Which takes me back to the question I asked at the beginning. What are the societal consequences of moving to a crypto based society? Combine that with a world run by artificial general intelligence; the changes ahead of us are going to be profound. And they are round the corner.

Mindful that I am writing as your undercover investor, I recommend you diversify your money across multiple banks if need be and reflect on the role and value of crypto and blockchains in our society of the future. Ideally, do it now, before others do.

I have concluded that it is no longer a question of ‘Is Bitcoin/Etherium/Solana etc investible?’, it is ‘Do I own enough?’

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