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 all the marketing spin of announcements (such as we take bitcoin payments) having died down, and the use of bitcoin isn’t moving. Market capitalization remains firm at around $4bn in the bitcoin economy, which is tiny compared to the nearly $6tn 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 CEO’s 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 institutionalization of bitcoin, and it’s happening rapidly for those who have followed this blog. In my last piece 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, which recently poached Richard Gendal Brown from IBM as its 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’re 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’s 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’1. The trust would be in the network and the system, not in the individuals and the institutions. And that’s the core problem that bitcoin faces: without have trusted individuals and institutions in the mix, you get far too much negative news:
- The inside story of Mt. Gox, bitcoin’s $460m disaster (Wired, 3 March 2014)
- Texas man charged with running bitcoin Ponzi scheme‘ (Wall Street Journal, 6 November 2014)
- Ross Ulbricht convicted of running Silk Road as Dread Pirate Roberts (Bloomberg, 4 February 2015)
- ‘2 former federal agents charged with stealing bitcoin during Silk Road probe (CNN.com, 30 March 2015)
- Board member Olivier Janssens leaks damning facts about bitcoin foundation (CoinTelegraph, 5 April 2015).
The result is that the general public don’t trust bitcoin, and will not until it becomes regulated and licensed like normal money. And this is what’s 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’re 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.
1. Bitcoin: A Peer-to-Peer Electronic Cash System (PDF)
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.