By
Mary Ann Callahan
Just a few short years ago, Bitcoin was heralded by many to be the future of money that would open up new payment opportunities and facilitate cryptocurrency trading at a reasonable BTC to USD exchange rate.
The cryptocurrency promised to offer an alternative to using the often-expensive services of financial middlemen to broker trades for senders, lenders, and investors alike. This in turn would allow for greater transparency, and efficiency. Granted, it still may well be the saviour of our antiquated global banking system – it just looks increasingly less likely at this moment in time. The problem of costly intermediaries, cumbersome exchange protocols, and huge unbanked sectors of the global economy are just as prevalent today as they were in 2009, 2012, or 2015, and equally consistent is the refusal from the heads of our global banking system to loosen their stranglehold on the financial system that’s been so good to them over the years. For them, an embrace of Bitcoin is a huge leap into the unknown. Understandably, their own impending irrelevance is somewhat scary.
The Good and the Bad of Bitcoin
Despite this, from the point of view of big finance, it’s hard to ignore some of the perks that are inherent with a decentralised global currency such as Bitcoin. Dirt-cheap transactions that take minutes, or hours rather than days, or weeks would certainly be a game changer, allowing for capital to flow to where it’s most useful with fewer restrictions. However, depending on your relationship with global finance, there’s some rather unpleasant baggage that also comes with the Bitcoin package.
One of the largest obstacles hindering banking interest’s adoption of a decentralised system such as Bitcoin is just how difficult it is to amend and alter the protocol itself. There is no one benevolent leader of the system. This is evidenced by the current Bitcoin scaling debate, in which all parties agree that changes need to be made to the Bitcoin blockchain to facilitate wider adoption. In true anarchistic decentralised fashion, however, arriving at a solution that appeases all parties is tricky. Different interests motivate the actions of the globe’s largest mining pools, who are ultimately collectively in control of the specific coding forming the Bitcoin blockchain. It’s all very complicated stuff but when Bitcoin is considered for use in high finance, the bickering, squabbling, and lack of action is off-putting. Put simply, big banking interests like to have as much control over their assets as possible, and commanding supreme control over Bitcoin is impossible without compromising the entire point of the project. Other issues that have been raised by prominent bankers relate to the likelihood of security breaches, the loss of private keys, and malware attacks when using digital currencies like Bitcoin. Taken collectively, these factors represent a significant enough barrier to prevent banking getting too cosy with Bitcoin itself.
Blockchain as a Cure
This is where the buzzword “blockchain” comes into play. As noted, some of the benefits of the blockchain technology underpinning Bitcoin are claimed to help greatly reduce the running costs of traditional banking services. Whilst experimentation with the technology is still in its infancy, the result of blockchain adoption in the banking sector would most likely be a somewhat faster, cheaper service for the banks’ average customers, whilst likely leading to even larger profit margins for the banks themselves. Private blockchains, confirmed by the actors within a group of those allowed access to the network, would also do little to enhance the transparency of said institutions – something that many feel is crucial in avoiding the kind of global financial catastrophes that have been constant fixtures of twenty first century world banking.
It’s been argued that blockchain technology could revolutionize the way in which value is stored, credit is handled, and payments are made. It seems unlikely that the result would be a peer-to-peer system allowing the huge unbanked portions of the global economy to take part in traditional forms of financial activity, such as loans, and savings, capable of sending remittances in seconds across the globe and rendering the banks themselves irrelevant. Rather, a slightly upgraded service, doing little to enhance the experience for the haves (the banks themselves included) in the world, while completely ignoring the huge numbers of have nots.
Time to Go Ahead
While the specific projects are closely guarded, it’s no secret that many global banking institutions are currently experimenting with blockchain technology. Across Scandinavia, Japan, and the rest of the globe banks are seeking to develop their own private chains, and seeing which processes can be streamlined by using them. There’s talk in The Economic Times about IBM, Microsoft, and others teaming up with ten commercial banks, and working on a project called Bankchain – a kind of shared ledger between banks, which would help speed up lending operations, and help to prevent fraud. From early descriptions, this sounds like little more than a large database, and in no way as divisive, and revolutionary as a widespread adoption of Bitcoin, or similar digital currency could be.
There’s clearly a lot of hype surrounding blockchain technology and its use in the banking sector. Right now, it remains difficult to judge which is well placed and which otherwise. The coming months will tell how revolutionary the technology will be for the practices of high finance. It seems a shame, however, that one the most innovative features of the original, and largest blockchain, Bitcoin, seems increasingly likely to become a thing a nostalgia. Without a truly distributed ledger is the technology really as disruptive, and ground breaking as was its original purpose? More to the point, should we be concerned that banks seek to control something that’s very reason of existence was to topple monopolies? It’s certainly a long way from the original crypto-anarchistic ambitions of the earliest blockchain pioneers.
Mary Ann Callahan
As an expert on Bitcoin-related topics, I’ve found myself as a Journalist at Cex.io – cryptocurrency exchange. I’m working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.