Bitcoin was introduced in 2009, barely a year into the Great Recession. It was a radical new idea; a digital currency protected through democratic consensus with a hard-cap on supply. Most people didn’t understand the technology and treated it as a gimmick. You can’t blame them, we’ve lived our entire lives with one kind of currency, the kind issued and backed by governments and central banks across the globe. How could software written by random programmers ever be considered currency?
It turns out, given the right conditions, it can. Bitcoin’s creator(s) released Bitcoin during the height of the Great Recession at a time when central banks were scrambling to prop up their failing economies. They did so by drastically increasing the money supply through lowering interest rates and quantitative easing. Although this injected much needed capital to an anemic economy, the expanding money supply also dramatically increased inflation. Ordinary citizens who were already hurting from widespread layoffs and home foreclosures were thus punished a second time with inflation. Many lost faith in the “old” financial system and Bitcoin, being secure, decentralized, and anti-inflationary, was an attractive alternative. To some, Bitcoin was the “anti-bank”.
As we all know, Bitcoin’s price rose dramatically in the coming years. Its success prompted the creation of hundreds if not thousands of new cryptocurrencies. Many of these “altcoins” were, like Bitcoin, secure, decentralized, and anti-inflationary. Today, the combined market cap of all cryptocurrencies is $101 billion.
You would think that a technology designed to challenge the banking sector’s control over the monetary system would face significant opposition from the banks themselves. Oddly, this isn’t the case. Most banks have watched the cryptocurrency market grow without so much as lifting a finger. Some have even come out in support of cryptocurrency technology!
Trying to understand the weird dynamics between the banking sector and the cryptocurrency community is beyond the scope of this blog post. However, I do want to summarize a series of high profile partnerships that banks all over the world have created with the cryptocurrency community. These partnerships are both fascinating and important for the future viability of cryptocurrencies.
The Russian airline S7 recently began accepting payment for tickets in Ethereum. This move was supported by Russia’s largest bank, Alfa-Bank. The primary reason that S7 is using Ethereum to process payments was to simplify and speed up the payment process between airlines and agents.
Another Russian airline, Aeroflot, has also recently announced interest in using cryptocurrencies in their payment system.
JP Morgan Chase (United States)
Earlier this year, JP Morgan joined the Enterprise Ethereum Alliance along with hundreds of other companies. The bank has even created an open source fork of Ethereum called Quorum. Quorum is a private blockchain that requires permission to participate. It seems JP Morgan is interested in leveraging Ethereum’s technology internally to speed up internal banking operations.
You can view Quorum’s Github repo here.
National Bank of Canada (Canada)
Canada’s sixth largest commercial bank, the National Bank of Canada, also joined the Enterprise Ethereum Alliance and is interested in developing financial applications and platforms using the Ethereum protocol.
Banco Santander (Spain)
Banco Santander is a Spanish banking group. In May 2016, Santander was ranked as 37th in the Forbes Global 2000 list of the World’s biggest public companies. The group’s Head of Blockchain R&D, Julio Faura, is the Chairman of the Enterprise Ethereum Alliance.
Monetary Authority of Singapore (Singapore)
The central bank of Singapore, AKA the Monetary Authority of Singapore (MAS), published a report in June this year detailing Project Ubin, a blockchain proof-of-concept pilot to facilitate interbank payments. Project Ubin was deployed on a private Ethereum network and allowed banks to settle payments and transfers using digitized dollars over the network. In order to participate, banks had to deposit cash with the MAS as collateral. These banks could ultimately swap the digitized dollars to cash through the MAS. This blockchain based system of settling interbank payments will be faster and reduce fees.
Other notable banks that contributed to the project include Bank of America Merrill Lynch, Credit Suisse, and J.P. Morgan.
The report had the tagline, “The future is here”.
Norway’s largest online-only bank, Skandiabanken announced in May that it planned to offer clients the ability to link bank accounts to cryptocurrency holdings. The first such connection would be with Coinbase. Customers will be able to view their cryptocurrency balances within Skandiabanken’s app.
People’s Bank of China (China)
China’s central bank, the People’s Bank of China, developed a prototype cryptocurrency last month that could potentially be used alongside the country’s primary currency, the renminbi. The PBoC plans to test the cryptocurrency by running mock transactions with commercial Chinese banks.
The benefits of a public digital currency include decreased transaction cost, faster transaction speeds, and decreased rates of fraud and counterfeiting.
Bitcoin Suisse AG is the first public entity globally to accept bitcoin payments for public services. Specifically, it operates as a payment gateway service provider for the Town of Zug in Switzerland.
The company also operates a network of bitcoin ATMs in most major Swiss towns, performs exchange and treasury services, and trades with and on behalf of a number of the major companies and actors in the virtual currency and asset markets.
Last month, the Swiss Financial Market Supervisory Authority gave the Swiss bank, Falcon Private Bank, the green light to manage cryptocurrency assets. Bitcoin Suisse AG will act as a currency broker for the bank.
On April 1st, 2017, the Japanese government passed a law recognizing Bitcoin as a legal method of payment. In July, more than 260,000 stores in Japan begin accepting Bitcoin as payment. Japan also introduced a tax reform bill the same month that eliminated consumption tax on the sale of Bitcoin.