Centralized VS Decentralized

I found this video interesting because it goes against my general opinion. It’s easy to say she is talking her book. That’s the cynical view. But, she makes some interesting points on servicing the back end of the transaction.

I do think she is correct, banks aren’t going anywhere. Segments of their business are going to be threatened. They will experience decreased margins. But, they also have a large regulatory moat and relationships with central bankers that cryptocurrency doesn’t have.

Which is better, decentralized vs centralized? It all depends. In free markets where you want a transparent price decentralization is the best way to go. Centralized strategies can work when you have a limited target market that you want to drive deep into.

Decentralized markets make better decisions than centralized ones.

Banks are going to get unbundled.  Data is going to get unbundled.  Different processes that now are centralized are going to be unbundled.  That offers a gigantic opportunity for startups.

At the same time, existing banks are consolidating like crazy.  Yesterday CIBC bought Private Bank for $3.8B.  CIBC is also a Canadian bank, so they had to cough up a larger chunk of cash due to exchange rates between the Canadian dollar and the US Dollar.  Banks are centralizing because of regulation like Dodd/Frank, Mifid 2, and Basel 3.  It’s their defense to hold on to margin.

We were trolling through a bunch of data.  Depending on the source, roughly 10-20% of the GDP of the US is from financial services.  Only 5% of the VC money goes to startups in that space-and the lion’s share to B2C kinds of startups.

The world of finance is going to get really interesting in the next 20 years.