How are banks responding to Bitcoin?
The virtual, digital, cryptocurrency that we know as Bitcoin first emerged around 2009. It was time when the world’s economy was in absolute turmoil – banks and financial institutions were struggling to remain solvent as the foundations of the international monetary system were shaken to their core.
It was in the midst of this turmoil that Bitcoin appeared – a digital currency that effectively removed the need for banks, no longer requiring central bank regulation or government control.
Do we still need Bitcoin?
What’s interesting is that even though the world’s economy has begun to return to a sense of stability and normality, Bitcoin remains a viable cryptocurrency.
In addition, we are now seeing banks and financial institutions starting to explore, adopt, and adapt some of the features that makes Bitcoin such a powerful force for change.
Banks as large as JP Morgan, Citigroup, Barclays and Credit Suisse are actively investing resources into understanding how the opensource code created to facilitate and record Bitcoin transactions (its general ledger, known as the block chain) could be adapted to the transactions required by traditional banks.
It’s the technology of the block chain that banks are interested in, not the Bitcoin currency itself.
What this type of technology would give to banks is that it will improve the transfer of financial assets between these international institutions. The ownership of an asset would be recorded by cryptographic software in a block chain – simplifying and speeding up the asset transfer process. The size of the prize? Some estimates put the number as high as $20 billion worth of savings for banks as they reduce the infrastructure costs required for this type of transaction. $20 billion definitely makes Bitcoin’s block chain worth investigating.
Why couldn’t banks just use the blockchain created by Bitcoin?
Banks are building their own version of the blockchain because Bitcoin’s block chain is essentially a public record – this would potentially expose commercially sensitive or customer data.
Another driver for bank’s to establish their own private or semiprivate versions of the block chain relates to the volume and speed of transactions required. Bitcoin’s infrastructure currently supports around seven transactions per second, with each transaction taking around 10 minutes to be added to the block chain. This wouldn’t be sufficient to cope with the volume and value of transactions managed by international financial institutions.
It’s not just banks and financial institutions that are investigating the potential of the block chain infrastructure – technology giant IBM has huge projects underway to develop backend processing systems that could potentially have application beyond the banks to all types of industries who are managing assets and transactions.
Where to next for Bitcoin?
Bitcoin will continue to have a value beyond the blockchain technology that it has created. Bitcoin is considered a “store of value”, similar what Gold is for traditional investments. Other digital currencies emerge and the block chain infrastructure evolves into other uses and Bitcoin has the highes market share of about 60%. Even if at the moment it seems unclear as to how Bitcoin will generate enough value and volume of transactions to become a global payment method accepted by all merchants from all industries, Bitcoin investors are optimistic and a bullish trend is expected for 2019.