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Blockchain technology — perhaps the hottest topic in the financial tech community — has finally made it on the radar of the U.S. Congress, but it’s been a long haul, much more education is needed and time is of the essence. Banks are scrambling to avoid disintermediation by the technology, according to U.S. Rep. David Schweikert, R.-Arizona.
Schweikert — who spoke at last week’s DC Blockchain Summit in Washington, D.C., and serves on the House of Representatives’ Financial Services Committee — said he has been following cryptocurrencies and Bitcoin for a number of years. The DC Blockchain Summit was hosted by Georgetown University’s McDonough School of Business.
“I will make the argument right now that only six or seven of my brothers and sisters [in Congress] even understand the basic mechanics of the distributed ledger,” Schweikert said. To combat that knowledge gap, when The Economist published a cover story about blockchain technology last October, the Financial Services Committee bought dozens of copies of the issue to distribute to members of Congress, Schweikert said.
Schweikert suggested that banks and other financial services companies are “scared to death” that blockchain technology will put them out of business. “If you’re in the money transfer business, if you’re in the credit card infrastructure business, if you’re the old processing systems, is this technology basically your disruptive threat?” he said.
Schweikert pointed to blockchain technology’s potential to enable peer-to-peer value transfer between people — without requiring a bank or government to enable or execute the transaction — as an enormous threat to community and regional banks. This threat is especially pronounced when you consider that there are many millions of people in the world who up until now have been “unbankable” — without access to a bank account and therefore unable to participate in a credit-based economy. With blockchain technology, cryptocurrency and a mobile phone, these people can join the economy without ever doing business with a bank, representing a huge lost opportunity to financial services companies.
And it’s not just banks that face disintermediation, he said; any company that acts as a middleman in financial transactions is at risk. “Say you want to sell stock,” he said. “Could I buy it directly from you and never have to have it land in another platform?”
Schweikert said that while banks’ biggest problems used to revolve around regulatory compliance requirements, today the biggest threats they face are cryptocurrencies.
He finished up his talk with a call to action for audience members, many of whom are advocates of blockchain technology. “What I will beg of you is, for those of you who have relationships with those of my kind, those of us who get elected and think we already know everything: Educate us on the upside here before — and I don’t have a delicate way to say this — before the control freaks find some way to destroy the incredible good this could do to our economy and the incredible good this could do for our world.”