Page 30 - Banking Finance April 2020

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offered by the these investments and regulators suddenly 3. XRP (XRP) $11.7bn
woke up to the challenges and opportunities posed by these 4. Bitcoin Cash (BCH) $4.1bn
new form of virtual currencies which had the potential to
5. Tether (USDT) $4.1bn
uproot the authority of the central banks as the issuer of
6. Litecoin (LTC) $3.6bn
currency and overhaul the financial system.
7. EOS (EOS) $2.9bn
The advent of disruptive technology and its acceptance has 8. Binance Coin (BNB) $2.4bn
thrown many challenges and opportunities in so far as the 9. Bitcoin SV (BSV) $1.5bn
financial ecosystem is concerned. In hindsight we know that
10. Stellar (XLM) $1.2bn
in the digital age we need to embrace technology and work
(Data taken from Yahoo Finance)
with it to develop a more inclusive and efficient financial
system but the sudden surge of crypto currencies and their
The benefits of virtual currencies are many including ending
acceptance has caught the government agencies napping
the dispute of artificial promotion of exports by some
and like all the good initiatives the use of virtual currencies
countries by devaluing their currencies. The world could
is now associated more with the grey market, terrorism and
become one financial nation with the same currency and it
crime. The end result is that instead of focusing on
could solve the problem of exchange rate fluctuations and
developing the crypto currencies and harnessing its potential
could facilitate inter movement of goods between countries
we are more focused on how to prevent its misuse.
and reduce tariffs.
In recent years after the initial success of Bitcoin there has
Bank's earn their income by the net interest margin between
been a number of virtual currencies like Dodgecoin, Etherum
the cost of deposits and the rate on advances. Though there
and others however all of them seem to derive their value
are many other streams of revenue of banks the primary
through Bitcoins. Blockchain Technology or Virtual currencies
source of income is by way of commission be it in core
or crypto currencies are mined though a computer program
activity or in ancillary activities like cross selling. The use of
through the use of high capacity computers and the quantity
blockchain technology with its zero transaction costs could
of the virtual currency that can be mined is dependent on
change the financial landscape forcing banks to adapt to the
the underlying computer program.
new reality or let go the business.
The most valued currency of all Bitcoin is limited in numbers
and can be mined only upto a specific quantity which is the Each borrower could borrow directly from the public
reason why there has been such an increase in its value. The although the credit risk could limit its use however many of
more bitcoin is minded the more difficult it becomes to mine the creditworthy borrowers may try to take the direct route
the subsequent unit of it. Some other currencies that can and save on the cost of borrowing, also with the borrowing
be mined unlimited number of times limits the appreciation and lending in retail segment being on the path of largely
that can be gained because the currency is unlimited. technology driven with the credit score and online footprint
of an individual deciding his credit worthiness the credit risk
Beginning with the largest, the top 10 crypto currencies are of an individual could easily be assessed by a lending entity
currently Bitcoin ($BTC), Ethereum ($ETH), XRP ($XRP), on a blockchain network.
Bitcoin Cash ($BCH), Tether ($USDT), Litecoin ($LTC), EOS
($EOS), Binance Coin ($BNB), Bitcoin SV ($BSV) and Stellar We must also bear in mind that what was considered
($XLM). The aggregate value of the top 10 crypto currencies impossible earlier in the field of banking is a reality today
(as of 8th October 2019, 14:00) is $194bn which is a decrease like mobile banking and so there is high probability that if
of $88bn since 8th July 2019. and when the blockchain network gains traction there would
1. Bitcoin (BTC) $147.3bn be advent of technologies that could make banking plausible
2. Ethereum (ETH) $19.4bn with blockchain.

28 | 2020 | APRIL | BANKING FINANCE