First Cryptocurrency, Now Smart Contracts: Banks Are Being Replaced Piece By Piece

First Cryptocurrency, Now Smart Contracts: Banks Are Being Replaced Piece By Piece

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What do you think money will look like in 10 years? You can already get a glimpse of the future by looking at cryptocurrencies. Cryptocurrencies are probably going to be considered one of the most important inventions of our century simply because they redefined how money is issued and stored. Cryptocurrencies have so many advantages, compared to fiat money, that governments already started developing and launching their own blockchain-based money. Of course, they do it for different reasons: governments like the traceability of blockchain. That’s why soon we’ll see a Chinese digital currency, issued by its central bank, with partial use of blockchain. 

Large companies also tap into blockchain technology. Just look at Facebook’s Libra, the interest of Square in Bitcoin, the crypto experiments by Rakuten, and you’ll understand that cryptocurrency and blockchain tech is becoming so global that it’s possible that cryptocurrencies will be able to replace banks, or at least change them beyond recognition. In this article we’re going to talk about the technologies replacing banking services right now, and how they’re going to change the way we use money in the future.


Cryptocurrency as a store of value

First of all, banks have always been the place where people store their money. It’s safer than keeping money at home because every wealthy person who is careless is an easy target for burglars. Of course, banks could also be robbed as we have seen in countless Hollywood movies - but in the past few decades, these banks are becoming far more secure. Thus, any person making a deposit can be sure that robbers in masks won’t steal his/her money one day. 

However, the role of masked robbers has surprisingly passed to banks themselves. For nearly two decades banks enforce the AML law, and each year the law becomes just a little tougher; it’s really easy to get your account frozen these days.

  • If you deposit a large amount of money to your account and you don’t provide a detailed report where that money comes from - your account gets frozen.
  • If you like to gamble from time to time, that can be considered suspicious activity, so your account can be frozen.
  • If you have unpaid debts… well, you get the idea. 

Nowadays, banks aren’t the loyal stewards keeping our money safe and giving it back upon initial request. Now they are the masters, deciding if we are worthy of getting our money back. That’s why cryptocurrencies have been developed in the first place, as a response to this “masked” robbery by banks.

Storing your money in cryptocurrency is superior to a bank account. You are the only person controlling your funds, and no one is able to take them from you if you don’t want it. No matter what happens, only the keeper of the private key can access the stored funds. For access, we’ll probably be using a modification of today’s hardware wallets with the integrated eye scanner for confirming transactions instead of a password. There won’t be any way to steal money. So the primary and the most ancient function of banks will become unnecessary. 

Cryptocurrency for payments

Cryptocurrency can also serve as a perfect vehicle for transferring value between two parties; in other words, for payments. Today, most payments are still being done by using credit and debit cards; it’s convenient to swipe your card. But the same action can be done with crypto. 

Every bank-issued card uses payment gateways of that bank to check the availability of funds and to ask the bank to send those funds to another bank for making a purchase. With blockchain, there’s no need for such confirmations, as it can be done in a decentralized way. That’s what BitPay or TenX cards are made for. The only purpose of centralized companies backing them is converting crypto to fiat immediately. When the transaction happens, the necessary amount of crypto equal to the value of your purchase gets sent to the liquidity pool, and the seller receives payment from another bank from the card issuer. 

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Cryptocurrency escrows

One area where cryptocurrencies can make banks look like outdated dinosaurs is providing escrow services. Currently, banks are one of the most important parties in many deals - buying real estate, cars, securities, in other words, in almost any deal where two parties that don’t trust each other in exchanging money and goods. The bank is the only party in the deal that has some trust, as people believe that a reputable bank won’t steal their goods during the deal. Moreover, in some cases, it’s obligatory for commercial companies to hold money in an escrow account. Such cases include:

  • Joint ventures
  • Mergers and acquisitions
  • Project financing
  • Capital raising
  • Litigation settlement
  • Private equity investments
  • Delistings
  • Divestments
  • Initial public offerings

An escrow service observes the compliance of terms. So if one of the two parties breaks terms during a deal, the deal doesn’t happen and both parties are left with what they had initially. 

What if we replace this mediator with a smart contract?

A decentralized escrow service relies only on smart contracts - no need for a third party. If you want to acquire something, you can lock your money in a smart contract and nobody will have access to your funds until you confirm that you’ve received the subject of the deal from the other party. 

We can currently name three reliable decentralized escrow services: Setescrow, Escaroo, Lockscrow. Anyway, two of them, Lockscrow and Setescrow, keep the money of their users in a common pool, which isn’t safe. Escaroo is the only one who keeps the funds of each user separately, on a unique smart contract address, and allows to make truly decentralized peer-to-peer deals. No third party, no bank, no law firms involved. The Escaroo platform isn’t involved either. It only automatically creates a smart contract for the deal to happen. There’re only a few solutions with such security on the market. Additionally, they actually filed a patent application for their escrow service with the US Patent Office in order to register their unique solution.

In the future, such services could possibly be used by everyone, from commercial companies to individuals. Expensive purchases on Amazon, transferring rights for real estate objects, used car sales, the aforementioned mergers and acquisitions of companies, and many more. 

A decentralized escrow service provides the highest level of security, as it’s almost impossible to hack a blockchain address, so it’s a viable solution for the deal of any value, even when we’re talking about hundreds of millions of dollars. If blockchain would become mainstream, then we’ll see such services as Escaroo used by everyone. On the other hand, if the bright future that we’re talking about in this article doesn’t happen, a blockchain-based escrow service won’t have an advantage, because it works only with cryptocurrency. It's potential highly depends on the general adoption of cryptocurrencies and the willingness of both parties for using cryptocurrencies - if you have trouble converting your payment to fiat after a deal, you’ll probably avoid dealing with it. But for anyone comfortable with cryptocurrencies, such services are quite reliable. 


Money has undergone some heavy transformations during the past few decades - since the invention of computers it became digitized, and now it’s moving toward blockchain. How far will the process go - it’s yet unknown, but it’s already clear that banks also have to change. With new blockchain money, they lose their role as the most important player on the board. Now everyone can store money with Bitcoin, pay for goods with BitPay, and make trustless deals with Escaroo. Of course, banks will also adapt, but will they be able to offer the same ultimate decentralization as peer-to-peer interaction?

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