JP Morgan Veteran Daniel Masters Explains How Blockchain Will End Commercial Banks

Forbes | Michael del Castillo and Steven Ehrlich | Oct 24, 2020

Daniel masters 1 - JP Morgan Veteran Daniel Masters Explains How Blockchain Will End Commercial BanksAs much as bitcoiners and crypto enthusiasts try to deny it, bringing in converts from traditional finance is the best way to legitimize and publicize the industry in the eyes of many investors.  One of the earliest executives to take the leap was CoinShares executive chairman Daniel Masters. After a distinguished career with JP Morgan and elsewhere, he serendipitously stumbled upon bitcoin after the commodities supercycle ended following the global financial crisis. Forbes sat down with Masters to get his thoughts on the future of this industry.

Forbes: How do you think this evolution towards CBDCs will impact traditional financial infrastructure?

Masters: The most interesting aspect of CBDCs is the impact they will have on commercial banks and the financial system as a whole. Today, central banks issue currency to a slew of commercial banks like Chase and Bank of America. These banks do two things—create products and services such as mortgages, and deal with the end users.

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I think we are going into a new paradigm where central banks issue CBDCs, commercial banks cease to exist and the service layer is filled by crazy new emerging companies like Compound Finance, Uniswap, SushiSwap, and people that are really getting distributed, decentralized finance done today.

Then the final interesting layer is who actually faces the consumer. You can already see that there are multiple choices. Coinbase would like to get to all the users, as would Binance though probably not in America. You’ve got wallet infrastructures like Blockchain.com that already have 50 million outstanding wallets.

That said, you could get incumbents as well. Samsung is putting chips into phones now, making them essentially hardware wallets. Amazon could come out with a digital wallet. Whoever owns that level at the bottom is critical.

Forbes: I don’t have to tell you that discussing or predicting the demise of commercial banks is a strong statement. Can you expand on that thought?

Masters: I think the old world is lumpy in the sense that the fractionalization of assets is much more cumbersome than in the digital world. It is getting better with shares sometimes, but gold and real estate aren’t really fractionable.

So, it’s lumpy and over intermediated. You buy an ETF; I can give you 12 service providers between you and your asset that aren’t really necessary.

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The old world is also heavily centralized, which stifles innovation because you can’t just get inside that wall and change anything.

There is a migration taking place to the new world of capital, talent and even regulatory mindset. For example, people need to stop worrying that every single bitcoin transaction is fostering some kind of terrorist activity, which it isn’t.

This migration started slowly, but it is happening faster now. The place we are getting to will be the tokenization of everything, and it will be catalyzed when central banks figure this out.

In her maiden speech, Christine Lagard (president of the European Central Bank), spent 15 minutes talking about stablecoins.

If everyone’s got a digital wallet and CBDCs, which aren’t backed by anything anyway, are de rigueur, then all of a sudden bitcoin looks great. It will assume the role that gold served with regards to legacy money, and all the other digital assets will fall into place.

The middle layer—the services layer—will become much more automated, technological and democratic, and the endpoint layer will become a real fight.

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