Welcome to bankcoin
Much to the dismay of the liberati, bitcoin is flatlining. After dipping down to the $250 per bitcoin price earlier this year, it’s stayed there ever since. Noteworthy is the all the marketing spin of announcements of We take bitcoin payments, has died down and the use of bitcoin is not moving. Market capitalisation remains firm at around $4 billion in the bitcoin economy – tiny compared to the nearly $6 trillion of trading in currencies globally every day – and much of the hubbub about this digital currency has died down and almost away.
The news about the currency itself in the past month has been overwhelmingly dull or negative:
But, underneath these headlines about the currency that doesn’t work, is the news that banks are creating their own version of bitcoin which, in my terminology, I now call bankcoin.
bankcoin is the institutionalisation of bitcoin, and it’s happening rapidly for those who have followed this blog. In my last piece http://thefinanser.co.uk/fsclub/2015/08/you-need-to-be-serious-about-this-blockchain-thing.html on this, I noted all the bank developments around the blockchain technology that came out of bitcoin, but a few recent headlines are changing the game even further. For example:
The most important of these announcements is the first, as this development is based on nine of the world’s largest banks working together to create a bankcoin blockchain. Led by financial technology firm R3, who recently poached Richard Gendal Brown from IBM as their technology lead, Barclays, Goldman Sachs, JP Morgan, State Street, UBS, Royal Bank of Scotland, Credit Suisse, BBVA and Commonwealth Bank of Australia are all working in a collegiate to create the next generation SWIFT (with SWIFT involved too btw).
What we are seeing therefore is the move from the Wild West of Digital Currencies that are untrusted and unworkable to the regulation of currencies so that they can be trusted more and become workable. After all, why would you trust bitcoin after so many negative news and views?
What is interesting is that the lack of trust in bitcoin is actually a false view. Satoshi Nakamoto’s original idea of bitcoin was to create “a system for electronic transactions without relying on trust.” The trust would be in the network and the system, not in the individuals and the institutions. And that is the core problem that bitcoin faces. Without have trusted individuals and institutions in the mix, you get far too many negative news:
“The Inside Story of Mt. Gox, Bitcoin’s $460 million disaster” (Wired, March 3, 2014);
“Texas Man Charged with Running Bitcoin Ponzi Scheme” (Wall Street Journal, November 6, 2014);
“Ross Ulbricht Convicted of Running Silk Road as Dread Pirate Roberts” (Bloomberg, February 4, 2015);
“2 Former Federal Agents Charged with Stealing Bitcoin during Silk Road Probe” (CNN.com, March 30, 2015); and
“Board Member Olivier Janssens Leaking Damning Facts about Bitcoin Foundation” (CoinTelegraph, April 5, 2015).
The result is that the general public do not trust bitcoin, and will not until it becomes regulated and licenced like normal money. And that is what is really happening here. The original intent of having a digitally managed cryptocurrency is rapidly becoming a system managed cryptocurrency. The bitdollar, biteuro and bityuan systems are developing, with the bitrouble in the front-running space. The Russian Payment Service Provider Qiwi has just registered all domain names related to bitrouble according to the Russian newspaper Kommersant, a move that the Russian financial ombudsman has called illegal.
Regardless, what we are seeing is the natural morphing of any system from one that has no rules to one that has rules. In the physical world, when it comes to money, banks and governments rule the system. In the digital world, it’s proving to be exactly the same.
P.S. if you are interested in this discussion, there was a very good debate on Share Radio this week on the subject of What is Money. Download the podcast here.