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Forget bitcoin, here’s bankcoin

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:

·         Bitcoin Price Droops After Rates Hike Rally No-Show

·         Bitcoin: 'Islamic State's online currency venture

·         Mike Tyson Bitcoin cash machines coming to Las Vegas

·         Australian Organic Farm Has Its Own Bitcoin Economy

·         Donate Bitcoin for Chile Earthquake and Tsunami victims

·         Should You Pay Your Employees in Bitcoin?

·         ChangeTip Enables Dollar Tipping to Increase Bitcoin Adoption

·         Mt Gox CEO charged with embezzling £1.7m worth of bitcoin

·         After the CEOs Indictment the Great Mt. Gox Bitcoin Mystery Deepens

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:

·         Big banks consider using Bitcoin blockchain technology

·         US regulator accepts bitcoin as a commodity

·         Blockchain technology behind Bitcoin could be a game-changer …

·         Why IBM Thinks Bitcoin Technology Will Change Banking …

·         Bitcoin NG – Tomorrow's Bitcoin in the Works

·         UK could adopt 'Bitcoin' with negative interest rates

·         Paying with Bitcoin: Resolving the Cryptocurrency Usability Dilemma

·         Russian Firm Plans Local Version of Bitcoin Digital Currency

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 MoneyDownload the podcast here.




About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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