Satoshi Nakamoto, the anonymous creator of Bitcoin, published technical documentation on his research in 2009, bringing together existing concepts that could facilitate a fair online currency. The currency is important because it functions as a decentralized public ledger, allowing people to track assets in a verifiable and relative manner around the world. Just like banks that invest in Bitcoin, you can also profit by trading Bitcoin on BitlQ.
No one can change the transaction ledger without anyone noticing, so it is a fair way for people to exchange goods and services. In addition, the basis of these rules is a consensus, so all users are responsible for the system. This feature ensures the integrity of the system and allows it to be improved if the improvements benefit the general public. So far, we have seen several of these improvements and developers continue to add new interesting elements to Bitcoin from time to time. It is a dynamic code base.
Another intriguing aspect of Bitcoin is how all transactions on the network are recorded on the blockchain, allowing us to see the history of all transactions in real time. We can track their movements around the world, which is useful for auditing. However, people can also use it to track the history of a specific token or asset. For example, if we “tokenized” cotton, we could see how particular units of cotton might move through a local supply chain and eventually become a finished product. That’s advantageous to many different stakeholders for a variety of reasons. It’s something some have wanted for a long time.
Why some banks have started investing in Bitcoin.
Several financial institutions are protecting their investments and taking Bitcoin seriously. They want to be part of its expansion. Blockchain, accounting technology and digital currencies will play an essential role in these institutional banks. Investing in some of the early Bitcoin companies gives them a sense of how the industry is evolving and access to the technology developed. Trust them to incorporate that technology into their existing infrastructure.
If financial institutions have started investing in Bitcoin, why not invest in this powerful technology?
How banks can incorporate Bitcoin
Banks could use blockchain or a public or semi-public ledger to complement current interbank settlement networks, such as Swift or ACH. Banks would reduce pricing and compliance risks by implementing blockchain. In addition, because it is a protocolized, rules-based technology, there is much less chance of human error.
Banks could also use Bitcoin in novel ways, they could “tokenize” loans and then sell them in a flexible and traceable way in the marketplace, or say they want to offer products and services in markets where they don’t currently exist. Suppose a New York-based bank wants to provide services to a community in Southeast Asia. That would not be easy to do today. Still, with a digital currency, the bank could potentially reach that new market without having to convert the fiat currency of that local community to the bank’s local currency.
In addition, there is security. Bitcoin is at the cutting edge of cryptographic technology. By integrating these new concepts, banks would incorporate advanced security features, such as public key encryption and private key message signing. As a result, consumer protections would be more robust.
Would you advise banks to invest in Bitcoin?
Many experts would, particularly with large banks. Many have BTC working groups actively researching the potential of the technology. What many experts would advise banks to do is to take it seriously. We saw what happened with the recording and publishing industries and the banking industry cannot be left behind. Banks would do well to integrate some of these technological advances into their business models. We have success stories like iTunes, Pandora, “The New York Times” and Bloomberg: they embraced new technology rather than fighting it.
