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Traditional Banking model turning obsolete, can Bitcoin and Blockchain turn it around? [Part 2]

As discussed in the Part 1 of this article, the banking sector is designed with two major sources of income. Owing to the detrimental fiscal policies employed by central banks, these methods are slowly turning to be obsolete. This implies that traditional banking has to undergo a transformation that would shield it from negative effects of bad monetary policies. First let’s look into how banks have tried to shield themselves from the said threats. Then we can assess how Bitcoin and Blockchain can provide a viable solution.

Counter Strategies by the bank:

Due to the deteriorating conditions, banks had experienced a significant profit cut in their margins. So as to level the ground, banks have responded to profit pressure with cost cutting. Though this is not a positive strategy, it has helped many banks to weather the conditions in 2015. But in 2016, with increased number of countries in crisis, the cost cutting was hardly helpful.

Banks even resorted to restructuring to surmount these obstacles but that too in vain. Hence it was evident that with the traditional set up, there isn’t much lucrative for the customers. Even private investors in equity and forex markets have been facing their own set of problems which are effecting the investments.

How Bitcoin and Blockchain might help:

The most efficient way to increase customer base is to improvise over the existing services. That is exactly the kind of solution Blockchain offers. If the transactions are carried out in Bitcoin then it would further add to the beauty of this solution.



One of the major ways in which Bitcoin can support banking would be through transactions. If all the customer related transactions are put on a framework that utilize Bitcoin, then banks can cut down on transaction charges that are generally undesirable. This way it would attract customers and would help banks in revolutionizing transaction speeds. First set of banks to take this step would come out as major market holders in the current scenario.



The ledger based technology has multitude of applications and the Fintech market is already trying to capitalize on it. Banking can be revolutionized through Blockchain as this would bring speed and ease to the traditional set up. With the help of Blockchain many standing problems like cross border payments can be done at ease and lightning pace. Apart from payments, settlements pertaining to credit card market, which is the backbone of the credit structuring system for modern day banks can be revolutionized.

Part 1: Traditional Banking model turning obsolete, can Bitcoin and Blockchain turn it around?

Traditionally commercial and custodian banking have been heavily dependent on monetary policies of the country they are operating in. The main source of income for the existing system is majorly vested in investments and services provided to customers. Implementation of these strategies can be through various channels, but majorly sum up to a common end game: generate revenues. But with the economic landscape shifting drastically, the existing banking system has slowly started to transform into a loss stricken one. Let’s look into what has been plaguing the banking system and how can we avert the impending disaster:

Bank routines for revenues:

As already stated, banks have various channels to earn revenues. Major categories include:



Major Banks (both commercial and custodian) acquire money from their customers by operating savings account. As a part of one of the services they offer, they store the money of customers and ensure its safety. Idle money over a period of time leads to devaluation as it means loss of investment opportunities. Hence banks go for viable investments for reaping profits out of the stored money. These investments are dependent on a multiple conditions and at times might not result in profits in a receeding economy.




Banks offer a host of services to customers for which they levy a service charge that would generate revenue. Few of these services include storing money, transfer of money to other stake holders, fixed deposits and storage boxes. For the stored money, banks are able to provide fixed amount of interest in exchange for the right to invest the money in a better way. For transfer and handling of money, they levy service fee and transaction fee that would generate revenue. Fixed deposits and storage boxes also generate revenue in a manner similar to savings accounts. Hence this range of services provides significant revenue for commercial banks.

Monetary policies hampering this model:


The economic dynamics of the world has slowly been shifting towards a detrimental equilibrium that enforces negative monetary policies. Owing to heavy recession and other obstacles, central banks are enforcing negative interest rates that are further hampering the economy of the country. While the negative interest rates would deprive the banks of the investments they earn, it would also halt the commercial banking services.

Even in the long run, these policies would cripple the economy. Irrespective of the time frame, the banking system would take an irreparable hit that would lead to economic downfall.

In the next segment, we see how banks try to combat these adverse conditions and how can disruptive technologies help to reinforce/transform the existing sytem.