By John Oxford
Bitcoin, the world’s most popular cryptocurrency, is back in the news, now that an Australian computer scientist named Craig Wright has claimed to be Satoshi Nakamoto, the mysterious founder and inventor of this alternative internet money and the blockchain technology that runs it.
While tech nerds and crypto fans from around the globe debate whether Wright is or isn’t the real Nakamoto, should the average financial institution even care?
The answer is no and yes.
No – because it really doesn’t matter who invented the blockchain, which is the open ledger that allows anyone to run bitcoin transactions without double spending. Nor does it matter who invented bitcoin—or any other cryptocurrencies for that matter.
Yes – because financial institutions need to have some understanding of the blockchain and how cryptocurrency works, thanks to the technology’s potential to change the transaction game.
Think of how Napster affected Tower Records. And what Netflix did to Blockbuster. And how Amazon served Borders. While these are the most hackneyed examples of creative disruption, they still serve as cautionary tales in the power of technology to shift the ways consumers prefer to access products.
It’s not just what you need to know—it’s what you need to do.
I’ve written about bitcoin before, and NPR recently published a story about it, so this isn’t where I’ll offer a primer on how it works and what its potential might be. And although bitcoin does have a currency market and is traded much like a stock, I won’t use this space to get into how it’s mined and traded.
Instead, my message here is to encourage someone—anyone—in your organization to actually own an amount of bitcoin, to use it, and to understand its transactional abilities. In addition, you should have an awareness of how it might be used one day, should bitcoin or the blockchain move from, let’s say a Napster-level novelty to more of an iTunes-grade sea change. How does one do this? It’s much easier than you think.
Let’s get tactical instead of theoretical.
To get started, simply get on your mobile device or computer, go to the App Store or Google Play, and search Bitcoin Wallet. This is the digital bank that holds your bitcoin and provides methods to convert your fiat currency into or out of bitcoin, which, as you might have guessed, is a non-fiat currency. Coin Base is one well-known digital wallet, but there are many in the digital marketplace.
After downloading your bitcoin wallet app, it will walk you through an easy, intuitive guide that securely puts the app on your phone. You’ll need to link it to a bank account. If you are still unsure about cryptocurrency, this is the point where you may want to open an account just for this purpose. This extra step may give you some peace of mind that your main bank account will not be hacked. (Not that it will, but you don’t need to be losing sleep at night over it.)
Soon after verifying your account and setting up a password and user name, just like most P2P digital banking services, you’ll be able to go into the digital currency market and buy bitcoin with an exchange fee similar to buying or exchanging foreign currency when you travel abroad.
The real benefit of bitcoin becomes clear after you’ve purchased it, when you make a transaction. It is mind-blowingly fast, literally taking seconds to send or receive. And until you exchange the bitcoin for currency, transaction costs are free. That’s because those running the system are being paid in new bitcoin. There is no infrastructure expense on the user.
What are the implications?
If properly regulated, insured, and more widely adopted/understood by the masses—and that’s a big if at this stage—the blockchain has the potential to put current wire services, digital currency transactions, and banking payment networks on serious disruption notice.
The transactional speed of the blockchain is truly amazing, and the cost is even better. If the blockchain can be harnessed for more than just cryptocurrency, we may be looking at a currency version of the internet of things. Properly regulated, it might well be the next big thing in the financial transaction business.
This is not to say banks need to immediately go all in on blockchain research and development. But I would encourage bankers, especially those who serve on product development committees, to have a knowledge of this technology, and to assign someone to experience it. Most of all, be aware that one day it is very likely that the blockchain will be competing with financial services’ core providers and wire services in the currency transaction marketplace.
Online training in digital, mobile and social media from ABA.