Ripple CEO Brad Garlinghouse thinks 2019 will be the year banks start safeguarding customers’ cryptocurrency.
To be clear, he seems to think that’s a good thing.
“I think one of the things that will surprise us a year from now is that banks will be custodying digital assets directly,” said the CEO recently at the Singapore Fintech Festival, as reported by The Daily Hodl.
The banks’ motives, according to Garlinghouse, will include sharing in the profits generated by exchanges. And because Southeast Asia has “this regulatory clarity . . . and there is a lot of progressive, forward thinking,” Garlinghouse thinks banks in the region “will be the first to actually allow for crypto assets custody in their accounts.”
In another conversation from the same conference, Garlinghouse and IMF Deputy General Counsel Ross Leckow laid out some of the reasons Southeast Asia is particularly ripe for the move. The region receives $130 billion in remittances each year—money sent home by citizens abroad. Partly because banks in the region don’t have good global relationships, those remittances are particularly expensive, making crypto solutions (like Ripple’s own) particularly attractive.
Leaving banks in the picture at all is a far cry from Satoshi’s goal of ushering third parties out of the digital monetary system.
That technocratic, utilitarian thinking is precisely on-brand for Garlinghouse and Ripple. From the very start, Ripple wanted to leverage the technical advantages of crypto to reform, rather than overthrow, the existing banking infrastructure. Its goal is to use the pseudo-decentralized XRP network to shave pennies off the cost of international money transmission. That’s a laudable goal—those pennies really add up, especially for the emigrants and refugees who rely on global remittances.
But leaving banks in the picture at all is a far cry from Satoshi’s goal of ushering third parties out of the digital monetary system. For many of the crypto faithful, the idea of a bank holding your crypto for you entirely defeats the purpose of the technology: “Be your own bank” may be the most universally appealing pitch for bitcoin, which lets you store as much money as you like on a thumb drive. The corollary of that is “not your keys, not your crypto”: a warning to control your own private access codes instead of leaving that up to an exchange or other third party. If Ripple supports banks holding crypto, they’re pulling oxygen away from efforts to, for example, spread user-friendly bitcoin wallets that cut out banks entirely.
It’s further worth noting, then, that Garlinghouse projects that banks will be custodying digital assets “directly.” It would likely be very easy for retail banks to simply act as intermediaries connecting customers to trustworthy third-party crypto-custodial services, which are currently popping up like spring daisies. They range from extremely reputable legacy brands like Fidelity’s Digital Asset Services to new but reputable players like DACC (Digital Asset Custody Company).
Banks offering “direct” custody implies that Garlinghouse foresees them building their own custody solutions, or at least operating white-labeled versions of others’ custody tools. Bankers are undoubtedly highly professional (especially when they’re laundering oligarch’s money, concealing the proceeds of drug lords, and helping scam artists loot developing nations), but this sounds like a recipe for disaster. Having mid-level staffers at a growing cluster of banks trying to handle crypto is all too likely to lead to another round of Mt. Gox-style hacks and screwups, with associated anti-fraud fees passed on to customers.
Then we will have truly succeeded in recreating the bad old system within the new one.
Photo: Christopher Michel, Flickr