As an onlooker you may have noticed mixed messages from banks and big financial institutions regarding Bitcoin and its underlying technology Blockchain.
However, if you dig a little deeper it becomes apparent that the financial world doesn’t hate the technology itself—it could provide many benefits, as we’ll see—it hates the idea of a rival currency that it cannot control centrally or profit from.
Bitcoin’s Founding Principle
The founder of Bitcoin—Satoshi Nakamoto—has never been identified and while he may be sitting pretty on an estimated $4.7 billion worth of his cryptocurrency, the founding principle was not about making money, but to allow people to freely and easily partake in financial transactions without government or big bank involvement.
Coded into the very first block that was mined on the chain was the following message: “The Times 3 January 2009 Chancellor on brink of second bailout for banks” – referencing the financial crisis and how the UK taxpayer was forced to bail out the banks.
Many people feel the financial crisis was created by the greed and manipulation of a few powerful banking institutions. Bitcoin was intended to bring a revolutionary change to that system.
The way the technology functions means no central authority or government can control it, BTC transactions do not contain any personally identifiable information, and as long as you can connect to the internet, there are no restrictions. Countries may outlaw the use of cryptocurrencies, but they have no real way of enforcing it.
The Bottom Line
The primary reason why banks are scared of Bitcoin is that people can trade directly with each other, which means they don’t need a bank to act as the middleman.
In one way or another, banks charge fees for everything and people go along with it because it is (or was) the only solution that could guarantee a level of security.
Banks can’t make their money if everyone adopts BTC, which is also inherently more secure than the current banking system.
Every single transaction (or block) is securely recorded on the digital ledger using cryptography and encryption. It’s verifiable and immutable, meaning fraud and hacking is impossible unless somebody is conned to send currency to the wrong Bitcoin wallet.
But, Banks Can Copy Blockchain Technology Themselves
The banking system’s hatred for Bitcoin does not necessarily extend to blockchain technology itself. The big institutions could (and are in some cases) adopt all the beneficial aspects while maintaining control and charging the fees it desires.
Clearance and Settlement
Right now, it costs billions of dollars to run the tangled web of accounting that underlies the loans and securities markets.
The whole process can take several days to complete because some of the mechanics are still analog. Third-party intermediaries charge high fees for certifying share ownership and clearing transactions by their old in-house facilities.
Clearing trades, registration, changing the name on security ownership, moving assets from one account to the other etc can now all be put on the blockchain, and it can all be done quickly, automatically, and transparently.
Trade finance is extremely outdated, with much of it still on paper and being faxed and posted between parties!
Blockchain modernizes the process and allows for all parties to quickly access the information they need, giving the recipient an experience much like direct deposit loans obtained online.
Central banks across the world are also moving their payment systems to blockchain and are even testing their own versions of cryptocurrencies in hope that their partners and the public choose them over Bitcoin.
Swiss bank UBS, for example, has developed the “utility settlement coin,” a cryptocurrency used in the financial markets that is convertible to cash on deposit at central banks.
One area that is directly opposed to Bitcoin’s founding is the use of Blockchain, not as an anonymizer but an identifier.
For years banks have been trying to create a universal system for identifying customers to speed up verification of transactions and to prevent fraud.
The ability of blockchain to share and constantly update records can be used to inform all partaking banks while protecting the information from outsiders.
What do you think, will banks be able to embrace blockchain or other distributed ledger technologies without being made obsolete by cryptocurrencies like Bitcoin? Or, will the free and decentralized principles envisioned by BTC’s founder force banks and their central control into obscurity? Let us know in the comments below!