Trust and Its Impact on the Banking Industry
March 5, 2023
The recent collapse of Silicon Valley Bank has once again highlighted the issue of trust in the financial services sector. Trust is the bedrock of the banking industry, and when it is eroded, the consequences can be dire, as was the case with SVB. Money itself, is an issue of trust too. Physical fiat USD has always been the bedrock of economic stability throughout the world, but the USD is also under risk form lack of trust.
Ever since banking first started (read our blog on banking here: A Brief History of Banking – Empowch ) it has been about trust and until the creation of blockchain technology, there was no real alternative to storing your money. The only options were banks, credit unions, assets, commodities or under the mattress.
Blockchain technology offers a “trustless” solution called a non-Custodial blockchain wallet. In blockchain, a “trustless” solution refers to a system where the users can transact with each other without needing to trust any third party or intermediary. This is made possible using cryptographic algorithms and consensus protocols that ensure the validity and integrity of transactions. Instead of relying on a central authority, such as a bank.
Does that mean banks have no future after blockchain? No. Banks play a vital role in the financial services sector. These entities connect with customers on a personal level and conduct their own KYC procedures to determine the “risk” each client poses. Once the client is vetted, they develop a working relationship with the client and help provide valuable services in the financial field. Banks can also partake in issuing digital value by holding fiat currency as “collateral”. This digitization of currency allows it to be used in any part of the world instantly without the need for multiple intermediaries.
Does this service exclusively belong to the traditional banking sector? No. Any entity that can build trust and provide a safe space to store and transact with money can offer this service, like Apple, Starbucks etc. However, for individuals and small companies who are nervous of banks or other 3rd parties, there is another option available – non-custodial blockchain wallets.
A non-custodial blockchain wallet is a digital wallet that allows you to hold your own cash reserves without entrusting them to a banking institution or 3rd party. In essence, it puts the control of your money back in your own hands, allowing you to transact directly with other users without the need for intermediaries like banks.
This new option is not meant to be an “attack” on banks. Empowch believes that banks play a vital role in the financial services sector because they develop trust amongst clients. However, the personal one-on-one relationship that banks used to have with clients’ needs to return, and banks themselves need to ensure greater regulation to protect their industry. Banks need to prioritize their clients’ interests above the shareholders and this customer centric approach which always existed in banks before, needs to return, and the needs and desires of shareholders needs to take a back seat. Banks can use blockchain and crypto to enhance their service to their existing clients.
For those who are concerned about having banks and financial institutions hold their money, non-custodial blockchain wallets provide a solution. In a non-custodial blockchain wallet, you are in complete control of your funds, and you don’t have to worry about whether the bank is focused on your interests. In addition, blockchain technology ensures that transactions are secure and transparent, with a permanent record of all transactions that cannot be altered or deleted.
Non-custodial blockchain wallets are an exciting development in the world of finance, but they are not without their risks. One of the most significant risks is the possibility of losing your private key, which is needed to access your funds. This problem has however been overcome with technologies like Stellar Development Foundation’s SEP30 protocol, which eradicates the need for complex 15 part password keys and recovery systems. Today recovery of passwords is a simple straightforward process that can be done by anyone, regardless of their tech savvy level.
The unfortunate collapse of Silicon Valley Bank highlights the importance of trust in the banking industry. While banks play a vital role in the financial sector, non-custodial blockchain wallets offer an alternative for those who are nervous about entrusting their funds to banks. As the financial industry continues to evolve, it is likely that we will see more innovations like non-custodial blockchain wallets emerge, providing consumers with more options and greater control over their funds.
If you would like to test our non-custodial wallet, download the Empowch app today and start testing to see if this is a solution for you or your business.