Cryptocurrencies like Bitcoin that exchange digital information are a disruptive area for banks. The industry at first dismissed such currencies, but is now looking at how Bitcoin could change their business.
BitX, a Bitcoin wallet and exchange for emerging markets, has worked closely with a number of large banks across Europe, Asia and Africa on their Bitcoin blockchain strategies, including building a fully integrated internal pilot system for one bank. “[Banks’] plans and likelihood of getting involved in this space vary by geography and size of bank, but if I had to generalize, I would say that banks are still moving quite slowly in the cryptocurrency space,” says BitX CEO and former investment banker Marcus Swanepoel. “The early winners in this market are more than likely going to be fintech (financial technology) companies.”
He attributes banks’ slowness to innovate in the cryptocurrency space to regulatory uncertainty and banks’ level of understanding of the technology.“We are seeing a lot of banks using the buzzword ‘blockchain’ and saying things like they are interested in the blockchain but not necessarily in Bitcoin,” says Swanepoel. “But for those that are more advanced in their understanding, they soon realize that the two are inseparable, and that many of the blockchain ideas they have are not feasible, or if they are, there are other technologies that can achieve the same goal better.”
Blockchain refers to a public ledger of all Bitcoin transactions executed. In May, US stock exchange Nasdaq announced that it would start using the blockchain for transactions on its market. As banks’ thinking around cryptocurrencies evolves, Swanepoel believes that they will speed up their pace of involvement. Commenting on rumors that banks could create their own cryptocurrencies, he says that in this example, people are referring to building some kind of technology whereby things are tokenized on the blockchain, and issued as, for example, shares or currency. These things may work in theory, but there may be trade-offs, adds Swanepoel, such as a loss of the interoperability, which you get with an open platform like Bitcoin. That said, banks have come a long way since their initial skepticism. Increased regulation will continue to drive the financial sector’s interest in cryptocurrencies.