Article | Bitcoins or banks: who is taking care of the business by Hans de Vries

| 2-8-2017 | Hans de Vries |

Banks have long been target of wild spread ideas that their role as facilitator in the (inter) national money transaction industry will soon be overtaken by new Fintech initiatives like PayPal, Bitcoin and recently Ethereum. The idea behind these new technologies is that the Trusted Third Party (TTP) role of the conventional banks which is crucial for the operational day to day operations of the economic systems can be overtaken by the new block chain technology. Main advantages are clear: transactions are no longer limited by timing (no dependency on the operational boundaries of clearing houses, cut-off times of banks per currency, immediate processing etc), account opening procedures at the banks, the costs involved in maintaining accounts and transactions themselves etc.

The recent Ransomware attacks, that had an enormous impact on numerous companies and governmental institutions at a global level, showed however a less favorable aspect of this new technology. Due to its lack of control on the specifics of account ownership, Bitcoin proved to be the ideal means to collect the ransom money the victims have to pay to free their systems. This piracy trend will in my view also seriously hamper the future development of these sort of bank independent transaction mechanisms. Even more threatening for the Bitcoin development are the recent crypto robbery cases in which millions of dollars’ worth balances were stolen from the accounts. These incidents show the vital role of the banks as TTP since most banks are obliged to deliver their services according to the rules and regulations of their national and super-national banks. As indicated before, this means that for opening accounts lots of formalities have to be endured (the KYC rules are in some countries stretched to the absolute max). At the same time., due to the international regulations the control on international transactions are very extensive and therefore at the same time very costly for the banks. Every violation of the international code book on transactions to banned countries can have severe financial consequences for the banks involved. An last but not least banks have to maintain an international network of correspondent banks to make sure that the international transactions reach their beneficiaries in a reasonable timeframe and at reasonable costs.

This whole system has of course been developed to gain maximum control on transaction flows locally and worldwide. However it also provides the trust needed to be able to deal with (inter) national trade flows crucial to our economic day to day operations. As long as there are no ways to secure your transactions and balances in a bitcoin like environment as most transaction banks are providing today, Bitcoins remain a very interesting technological experience but will in no way replace the role of banks as TTP shortly.