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terça-feira, 17 de junho de 2014

Bitcoin: The future of Banking

Recently a friend of mine, I still have one left, entered her local bank carrying a bag of coins. She approached the counter, envisioning a simple transaction; she informed the teller that it was her intention to lodge this money to her account. The teller declined the simple request by informing her that “We have stopped taking coin over the counter.”

It would appear that my friend’s bank, like many others, is moving towards an era, and pushing its customers with it, where all transactions within the branch are, wherever possible, electronic. That need to change is going to cause problems for the, ever decreasing number of, technologically challenged consumers. But customers will have to accept these changes if they want to utilize a government-run monetary system that depends upon banks to carry out the necessary functions of distribution.

Banks, at least in Europe, have changed. The good old day’s where there were numerous well staffed branches in every street are long gone; we now have smaller, leaner structures that offer an ever decreasing level of services. The banks have, through their own actions, had change forced upon them.

Bitcoin, today’s decentralized cryptocurrency of choice also has its problems; it is far from perfect, but it just might well turn out to be perfect enough. Bitcoin has more in common with commodities; it is actually more seen as more akin to a type of asset, much like gold, than it is to a currency. Many holders seek to hold bitcoins for speculation, or store-of-value, rather than to use it as a currency and to transact business.

When all else goes belly-up, there will still be gold, silver and Bitcoin. This mentality is often seen following a severe recession (The second great depression?) and indeed, following the recent world-wide financial crisis, and the near total collapse of the euro currency, a collapse averted only by quantitative easing (central bank money-printing), it’s easy to see Bitcoin’s appeal. There is also the issue that any alternative to national, fiat currency should be welcomed, if only because open competition always acts to benefit consumers.
Bitcoin’s advantages

Bitcoin has numerous advantages over fiat, or traditional forms of money, Bitcoin is relatively free of transactional charges, at least in comparison to banks and PayPal, and governments are not as free to use it as a tool to manipulative markets. Bitcoin is also seen to be a well structured innovative technological platform that has the capacity to support numerous other applications.

Banking is harnessing new technologies to cut costs and increase profits, but cryptocurrencies must be seen, at least by the governments and the banks, as destructive technology. Bitcoin has the capacity, properly developed, to transform, undermine and destroy banking’s incumbent monopolies. Bitcoin is bringing a new model to banking, and banking is now forced to face the reality that they may well have to embrace it.

This week saw Europe wide protests by taxi drivers against Uber, a car sharing mobile app., that they believe will drastically reduce their incomes. Zopa is another new technology; a broker between people willing to borrow and people willing to lend, taking one percent in the place of the banks ten, and Transferwise is another, they function as broker between buyers and sellers of currency, converting at mid-market rates and again taking only one percent. Airbnb brings property owners and tenants together to rent out their apartments and houses, and all of the above have been subject to resistance from entrenched vested interests.

Monopolies did not get to where they are by ceding market share. The unwillingness to accept change is not just commercially motivated; there is generally a good reason behind the existence of regulation within certain sectors. It is important to maintain consumer confidence, operational standards, and, of course, health and safety. However, banking must address the shortfalls in the services it offers and when there is a level of demand for the services that Bitcoin offers, and there is a considerable demand, they must accept that the technology that is Bitcoin adds economic value.

Bitcoin expands the market and that is what shocks the incumbent monopolies into making changes, and that is how positive economic progress is made.

Throughout Africa, banking has gone through an evolution based on the use of mobile phone networks. This has proved to be low-cost as well as effective in Kenya as well as Zambia and today, Kenya probably has the World’s most advanced electronic banking system. Competition is seen as positive and all the telecommunication companies, that run the service, are looking for more and better products. When they tried to open up this service in South Africa, the banks responded and, acting with the government, succeeded in crushing the incomer with the use of regulation.

In Europe and America, banking’s only major development in the last twenty years has been the ATM, and the main function of that innovation was to reduce staff and increase shareholder profit. Banking is looking at Bitcoin’s technology platform and wondering how it can adapt it. It is unlikely that they would consider any pre-existing crypto currency in its present form. The available margin alone would not suit the banking bottom line.

Banking remains the incumbent and banking is also very much hated. It has become a case of adapt or die. State Regulation can hold back the tide back for only so long.

Featured image by Shutterstock.