Search Results For: bank
21 Jun
0
Central Bank of Canada revealed the digital Cad coin
Is Cad Coin the future for Canada?
Yesterday the Central Bank of Canada announced its new project: Cad coin, or the digital version of the Canadian dollar based on the blockchain.
Cad coin is just a part of a greater study about the blockchain, called “Project Jasper”, according to The Financial Times.
Bank of Canada is not the only bank involved: in fact, other important banks such as Bank of Montreal, CIBC, Royal Bank of Canada, Scotiabank and TD Bank are participating to this innovative project.
As you can read on a Forbes post, Bank of Canada is doing tests on a system that allows people to give their cash to the bank that will convert it into Cad coin.
Banks: in love with the Blockchain?
During the last months, we read about several bank projects related to the blockchain and digital currencies.
For example, in March, Bank of England announced the decision to create its cryptocurrency called RS Coin, as you can read here.
A similar news came in February, when Bank of Russia revealed to study the blockchain for their own business applications.
“The development of modern financial markets is inseparable from the development of financial technology”, said Bank of Russia’s deputy chairman Olga Skorobogatova.
Are these news the proof that banks love blockchain applications or is it just fear?
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29 May
0
Why the KnCMiners Bankruptcy might be a good news
The Sweden bitcoin mining company called KnCMiner announced its bankruptcy.
KncMiners was one of the greatest mining company who raised $15m in venture funding from Accel and Creandum, among the other investors back in 2015 after only two years of life.
Why KncMiners had to face Bankruptcy
One of the possible reason of this bankruptcy could be the three class-action lawsuit KnCMiner had to face recently.
But CEO Sam Cole denied any relationship between their bankruptcy and these recent lawsuits.
Cole, in fact, argues that the main reason for KnCMiner bankruptcy is the decrease of the bitcoin transaction rewards for miners.
“Effectively our cost of coin – how much we produce the coins for – will be over the market price. The price is now [roughly] $480. With all of our overhead, after July, the cost will be over $480. All of the liabilities we’ll have after that time will be too high”, explained Cole.
Why the Bitcoin Mining Company KnCMiners Bankruptcy might be a positive news
In a centralized economic system currency is issued by central banks who control the emission and the value.
Conversely, in a decentralized economy currency is not controlled by any central authority and this is the reason why – in the Bitcoin case, for example, in his whitepaper Satoshi Nakamoto suggested an algorithm to define when and how many new bitcoin can be created.
According to this algorithm the number of new bitcoins is set to decrease with a 50% reduction every 210000 blocks, or almost 4 years.
As a result, the number of bitcoins will not exceed 21 million.
As the number of bitcoins is set to decrease the same thing happens to the miners reward.
Thanks to a process called halving, the rewards drop down, as it happened back in 2012 when it took down from 50 to 25 BTC.
Now it is set to become 12.5 BTC in July.
For this reason the miners work is not so convenient anymore, so the number of miners is decreasing. Ans this means that the Bitcoin price will grow.
Also, a Bitcoin value is roughly $500, and miners cost of a new Bitcoin is more than $480 in energy and computer tools, so under that price it’s not worth doing it.
Halving process to help Bitcoin rising
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| Image Courtesy of Coindesk.com |
As for any scarce product, like gold or oil, the cost of extraction is one of the main elements that determine its price. If it increases, then the miners stops to do their jobs.
As a result the offer is reduced and its value rises.
Read here another interesting article about halving and watch here the countdown to the next reward drop.
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20 May
0
Why central banks need to study Bitcoin
Japanese central banks need to study Bitcoin
A few days ago Deputy Governor Hiroshi Nakaso explained why central banks from all over the world need to study and focus on Bitcoin and blockchain applications.
During an event held in Japan, Nakaso gave a speech about many aspects of the financial environment, including bitcoin and the distrubuted ledger.
These were his words:
“The application of those technologies would also change the structure of the financial infrastructure that has been built around centralized ledgers managed by trusted third parties. Thus, central banks will and have to follow these issues closely and with great interest.”
Japan believes in Bitcoin
This news came after another important one related to Bitcoin recognition in Japan.
Some months ago, in fact, the Japanese cabinet recnognized the importance of bitcoin and cryptocurrencies, so it aims at recognizing them as a method of payment, so the government is going to bring digital currencies under control of the Financial Services Agency (FSA).
Read more here about Bitcoin recognition in Japan.
Japan to regulate Bitcoin
Previously in February the Japanese regulators stated the decision to propose bitcoin among the methods of payment, so to define the digital cryptocurrency as a conventional currency.
In fact, Japan’s Financial Services Agency (FSA) wants to make “revisions to legislation that would classify digital currencies as fulfilling the functions of currency”, reported Coindesk.
Multicurrency Wallet
To keep your Bitcoin safe you better have a good wallet.
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11 May
0
Bitcoin, the trust chain that banks and governments cannot corrupt
Bitcoin is a trustless money
For centuries the use of money evolved according to available technologies and society needs. Bitcoin is a currency and each currency is information.
The information must be exchanged, only this way it can be recognized and associated with a value, especially in today’s world drawn as a network.
How trust can be betrayed
Problems arise when – while exchanging information – there are intermediaries who betray the trust, for example:
1 .central banks, if it inflates the currency (es. quantitative easing, or a tool to inject more liquidity into the market in order to indirectly encourage households and consumer businesses);
2. banks, if they fail, taking away our funds on current accounts (see bail-in or, in case of failure, no longer pays the state, but shareholders , creditors and depositors);
3. governments, if it confiscates assets or block transfers (Amato government in ’92) ;
4. national currency, if it is accepted everywhere (or if it is excluded from a stronger system, for example euro ) ;
5. privacy, if it is violated during the online shopping;
Whoever believes in a cryptocurrency such as bitcoin, knows that history (Argentina, Cyprus, Greece, etc.) has already shown that it is not possible to have confidence in all these linked subjects, because each one carries its own interests.
A centralized entity can actually change, omit or delete any data that passes through its control, since in these entities work people that have a corruptible nature.
What is the “pre-trust” ?
Now, not only friction, costs and transaction times can be reduced, but corruption can be eliminated too. It is virtually impossible to corrupt the ledger: you cannot write on it, and you cannot change what other people write on it: it is no longer a human job.
So, if there is no trust, to have a secure system we need a network that can perform an action associated with a cost. Since you don’t know the other person you are exchanging the value with you have to “pre-trust” in 3 basic elements: mathematicians, economists, technicians.
1. Mathematicians, with the asymmetric encryption, or the concept of public and private keys, you need to certify who is the true owner of the property;
2. Technicians, with the network that reaches consensus through the “proof-of-work” system, and valid the transactions before they are permanently written onto the blockchain, so it is no longer possible to repeat the processing fraudulently (thus solving the problem of double spending)
3. Economists, because of the incentive to earn money with bitcoin. For these reasons a public blockchain cannot live without the use of bitcoin if we want to have its maximum security .
All the above systems are designed to work together without the need for intermediaries.
Now people are starting to use cryptocurrencies, such as Bitcoin, as a method of payment and at the same time entities that accept it are spreading quickly.
On CoinMap you can see the map of all the places where these exchanges take place. And, what is the infrastructure that supports this exchange? The blockchain.
Blockchain, the infrastructure that runs bitcoin
The blockchain – to define it in simple terms – is a timestamp, so it is only a consequence. The important thing is the protocol, the safe encryption with which transactions are signed.
It is not important the account balance, but how reliable is that publicly available data.
So far, paradoxically, it relied on the piece of paper in the hands of anyone. But the paper documents are now easily forged, to be trusted more if we read the declaration of property on blockchain .
Lavoiser stated: “Nothing is created, nothing is lost , everything is transformed .”
But it was a law that applies only to the material world . For the digital world , in blockchain format , the new law is : “Everything is created , nothing is lost , nothing can be changed.”
This article was originally written by Massimo Chiriatti on Startup Italia.
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30 Mar
0
Dutch Central Bank to develop its DNBCoin Blockchain
According to a recent press release, the Dutch Central Bank planned to develop a new blockchain called “DNBCoin”.
On March 16th, De Nederlandsche Bank published the 2015 annual report where they explained this blockchain project.
For DNB the blockchain technology will be able to improve its business, but the report doesn’t give details on the project, not even a release date or the goals, yet.
DNB only describes the projects as a “prototype coin based on blockchain technology” that “aims for 2016”.
On the report the blockchain is described as a possible cost-saver in the financial industry, even if the DNB commented that it’s early to say what possible applications it could have in the future.
The report explains:
“Blockchain technologies can affect the revenue models of banking systems, they can also benefit with new ways to generate revenue and reduce costs.”
Payments and banking consultant Simon Lelieveldt commented:
“So when we now see central banks moving forward in the electronic cash domain (now conveniently labelled: blockchain/FinTech) it might be to no longer spin it off to the market, but to create a permanent digital replacement of cash. Therefore, this time it might be different.”
Banks and blockchain: love or hate?
Recently lots of central banks from all around the world are suggesting that the blockchain can be useful to release more centralized digital currencies, even if central banks declared that it is impossible to predict the development of cryptocurrencies without a proper legalization and regulation.
You can read more about central banks and blockchain by clicking on the titles below.
Also, here you can read the ISITC Survey Results about the the financial services progress which gives also a specific forecast on how the industry will be during the current year.
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17 Mar
0
Bank of England will create its own cryptocurrency
The Bank of England announced its decision to create its own digital currency.
The cryptocurrency will be called RSCoin and it will use the blockchain, the decentralized ledger where bitcoin transactions are written and executed.
More Centralized Control
RSCoin has been developed by researchers at the University College of London.
Of course, this new cryptocurrency will provide a more centralized control compared to bitcoin.“RSCoin introduces a degree of centralization into the two typically decentralized components of a blockchainbased ledger: the generation of the monetary supply and the constitution of the transaction ledger. In its simplest form, the RSCoin system assumes two structural entities: the central bank, a centralized entity that ultimately has complete control over the generation of the monetary supply, and a distributed set of mintettes that are responsible for the maintenance of the transaction ledger”, it is said in the RSCoin abstract.
How could this be positive?
Even if RSCoin is centralized and the opposite thing of Bitcoin, we could say that it is positive as it means that worldwide Central Banks are starting to give importance to cryptocurrencies.
However, RSCoin has its own benefits: for example no double spending, non-repudiable sealing, timed personal audits, universal audits and exposed inactivity.
Read the complete documentation
Univerisity College of London researches George Danezis and Sarah Meiklejohn published an abstract about RSCoin.
The full whitepaper is intitled “Centrally Banked Cryptocurrencies”.
The abstract begins from the bitcoin history, to explain everyone the impact of the digital currencies not only in the finance world:
“Recently, major financial institutions such as JPMorgan Chase and Nasdaq have announced plans to develop blockchain technologies. The potential impacts of cryptocurrencies have now been acknowledged even by government institutions: the European Central Bank anticipates their “impact on monetary policy and price stability”.
People’s Bank of China and its own cryptocurrency
In January 2016, the People’s Bank of China commented about its plans to launch its own digital currency and create a new financial infrastructure for the country.
The project started in 2014, when researches began to study cryptocurrencies related to business operations.
People’s Bank of China commented:
“The issuance of digital currency can reduce the significant costs of issuing and circulating traditional currencies, improve the convenience and transparency of economic transactions, reduce money laundering, tax evasion and other criminal acts, enhance the central bank’s control of over the money supply and currency circulation, better support economic and social development and aid in extending financial services to under-served populations”.
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29 Feb
0
Bank of Russia is working on the blockchain
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Bank of Russia has revealed its decision to study the potential applications of the blockchain.
On Sunday 28th, February 2016, the central bank, in fact, has announced that they started to analyse the “advanced technologies and innovations in the financial market”, including the blockchain.
Previous statements in Russia
Bank of Russia’s deputy chairman Olga Skorobogatova previously commented:
“The development of modern financial markets is inseparable from the development of financial technology.”
Also, Rambler News Service has reported that Skorobogatova previoulsy commented in 2014 that the Russian central bank thinks the blockchain can have an important role in the future:
“In 2017-2018, we will see real examples of the use of this system. As a closed system, I think the blockchain is the future, and we need to prepare for it.”
In the meantime Russia is supporting a possible “ban on monetary surrogates”, a definition that also includes digital currencies.
In fact Russia’s Ministry of Finance, State Duma and the Investigative Committee have previously commented about the use of the blockchain within their businesses.
Also, earlier this month, Bank of Russia’s head, Elvira Nabiullina, stated that the Russian bank was “monitoring the blockchain to develope its own approach to financial innovation”.
How banks want to improve their users base
“Users of bitcoin and other cryptocurrencies now number 200,000, with only the US, China and Germany having higher numbers”, reported member of the Russian State Duma, Andrei Lugovoi.
In fact, Lugovoi stated that the Russian central bank is now positive for a “careful approach to bitcoin and saw a serious economic potential” in the blockchain with the likely objective of a potential growth of their users.
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23 Feb
0
“Bitcoin is Property, Not Currency”, stated California Bankruptcy Court
Some days ago an American judge for the Northern District of California stated that bitcoin is a property and not a real currency.
This happened during a case in which US Bankruptcy Court for the Northern District of California heared HashFast, a bitcoin mining service that declared bankruptcy in 2014.
The case sees a fiduciary suing the HashFast promoter, Mark Lowe, because he wants his 3,000 BTC bank, amount that is said to have been illegally transferred to Lowe himself.
Bitcoin: property or currency?
The main problem turned to be the classification of bitcoin as a currency or a property: should bitcoin be considered as a currency, Lowe would have to return the 3,000 BTC at the value they held when he received them (almost $360,000).
But judge Dennis Montali on February 19th decided that bitcoin is a property, so Howe must return about $1.3m.
These were his words:
“I understand how the parties acted, but that doesn’t make them dollars”.
Montali said that he would return to the question, if required and Lowe would transfer the 3,000 bitcoins or the equivalent dollar amount.
Pasted cases and decisions
Previously the US Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service (IRS) stated that bitcoins are a commodity too. But in October, 2015, the European Union’s Court of Justice decided that bitcoins are a currency and they are tax free so exchanges don’t have to pay VAT.
About the author: Amelia Tomasicchio is a writer and a journalist of Bitcoin-related news and articles. She started writing about Bitcoin in 2014 and she graduated in Rome with an essay about movie industry related to Bitcoin.
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16 Feb
0
Royal Bank of Canada wants to use the Blockchain
A good news comes today when Royal Bank of Canada (RBC) confirmed that it is doing tests on the blockchain to improve its consumer rewards and loyalty.
Royal Bank of Canada has $343 billions of assets and now they want to expand their market using the blockchain.
In fact, during a new interview, Linda Mantia, RBC’s EVP of digital, payments and cards, commented that RBC wants to use the blockchain, focusing on “applications for capital markets, cross-border payments and smart contracts”.
These are her words:
“If you look at every major advancement enabled by technology, there’s always hype. Eighty percent of the money won’t make it, but the last 20% can be massive,” she said.
Bitcoin for loyalty and rewards
According to an interview conducted by Coindesk, she explained the value of the blockchain technology for the RBC’s loyalty project.
In fact, Mantia said that the blockchain would improve the loyalty value for their customers.
“We’ve always said, ‘Your points, your money’. So we don’t lock people into the rewards store. We also let in certain merchants like Best Buy, so clients can use our points to buy from them. We were moving pretty aggressively to let our clients think of it as another form of cash.”
In addition to this, Mantia commented that RBC wants to enlarge their payment products and wants to take advantages from privacy and anonimity of Bitcoin.
About the author: Amelia Tomasicchio is a writer and a journalist of Bitcoin-related news and articles. She started writing about Bitcoin in 2014 and she graduated in Rome with an essay about movie industry related to Bitcoin.
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19 Jan
0
Bitcoin is “digital gold” and will mark the end of cash. Ametrano from IMI Bank explains.
(Sole24ore) Bitcoin is periodically back in the news, most of the time in a bad way like the recent presented use of the currency, then denied, from islamic terrorist authors of the attacks in Paris. At the same time banks and financial institutions seem extremely interested in the tech behind bitcoin.
We talk about this with Ferdinando Ametrano(*), from IMI Bank, Banca Intesa Sanpaolo group.
Professor Ametrano, what is Bitcoin?
Bitcoin is a private currency, that isn’t issued by any central bank nor guaranteed by any institution. It is electronically transferrable in a practically instant way, utilising a cryptographic security protocol. It is based on a completely decentralized network: the transactions don’t require a middleman, cannot be censored, don’t have any kind of geographical or amount restriction, and are possible 24 hours a day every day and are substantially free.
How can transaction be substantially free? Who covers the costs of the bitcoin network? Who guarantees its safety?
Bitcoin’s network security is handled by nodes, that validate transactions and are also called miners.
The costs that they sustain while doing this activity are covered by issuing new bitcoins.
We’re more and more hearing about blockchain, how is it related to bitcoin?
The validated bitcoin transactions are “stacked” in blocks. Every new block of transactions is written down on a public and distributed ledger, organised like a ordered chain of blocks. This public ledger is in fact called blockchain, a term generally used to define the underlying technology of bitcoin. The blockchain tech regulates the transfer of a “digital token” to the whom can be associated a variety of goods and rights of the real world. The token, that is fundamental for the existence of this technology, gains value due to its use in the digital world.
The bitcoin currency is in fact the digital token of the first and most distributed blockchain: it’s impossible separating the two. It’s hence possible having technological applications that “hide” the token or in which the token has a value not relevant if compared to the right or to the good that it represents, and avoid calling it bitcoin or utilising a different blockchain from the one bitcoin’s using.
Is it true that bitcoin’s author could be proposed for the nobel prize in economics?
The white paper that describes the bitcoin protocol was published around October 2008, by a person known as Satoshi Nakamoto, an identity which has yet to be confirmed. Nakamoto released the source code for Bitcoin in January 2009, and then he gradually vanished, leaving the development to others. He vanished completely around mid-2010, when he stopped answering to any message. As of today, even due to the poor understanding of Bitcoin and to the lack of diffusion it has, the Nobel prize is just a boutade.
We frequently hear about anonymity in bitcoin transactions. Why?
We should instead talk about pseudonymity: the blockchain is in fact a public ledger and all the transactions take place in a transparent way between the different bitcoin addresses, which are like IBANs from our bank accounts. There is not however any way to force the identification of the person or organization behind the address.
The lack of user identification and the fact that transaction can’t be censored are aspects that make bitcoin interesting for terrorists and criminals, don’t they?
In theory, yes. But in practice the interest is limited. The common sense suggests that the currency used by terrorist in still in most cases the US dollar, because it’s globally accepted.
Back in October the British Treasury has completed a study revolved around the key points in money laundering and terrorism financing: Bitcoin was found to be the one with less risk, before banks, legal services and accountancy, gambling, cash etc. We know that criminals use internet, cellular phones, and transport services: we can’t shame technology because of this.
There are always new challenges and we have to adapt to them: the authorities have shown they know how, for example when they took down Silk Road, the darknet market that used bitcoin as the go-to currency. The most sensitive point in the Bitcoin environment are for sure the exchanges, where people can buy and sell bitcoins: they represent the point where Bitcoin and the regulated financial system make contact, where suspect actions can be intercepted.
Obviously, regulating and prosecuting the illicit uses of bitcoin is necessary, exactly like how it’s done with all the other tools we have to our disposal. How far are we in doing this?
The international regulators are following with great attention the Bitcoin phenomenon. The New York Department of Financial Services has released last June, the so-called BitLicense, a regulatory framework developed in about two years of study and consultations. The head of this department said that the regulator should not, especially at this time of development, suffocate the innovation that this new technology brings. This was repeated in the following months by the chairman of the Australian Securities and Investment Commission and the Canadian Standing Senate Committee on Banking, Trade and Commerce. Bank of England defined this promising technology as a payment system.
The European Central Bank has published two studies. If other countries and states are prudent, Europe decided a more cautious approach: the European Banking Association urged national regulators to discourage banks from buying, selling and holding bitcoins.
And yet Banks, stock exchanges, and the financial institutions in general, even while staying away from bitcoin are really interested in blockchain technology.
Of course, and for an absolutely crucial reason. Financial transactions are reversible for a long time (with credit card chargebacks possibile for up to 6 months) and even when they seem to take an instant they are actually regulated (clearing and settlement) in two or three days after the transaction itself through central counter-parties and clearing houses. The settlement system is burdened by significant costs and levies. In a world where information travels instantly at virtually no cost, these layered and convoluted processes are inefficient, expensive and inadequate. The validation of a transition on blockchain happens at the same time as its clearing and settlement and is not reversible, resembling in a lot of ways cash transactions. When you receive bitcoins you are certain that whoever sends them is in real possession of them and that the transfer is immediately effective and irreversible.
How is Bitcoin’s monetary policy defined?
The validation of a new block of transactions happens every 10 minutes or so, and requires a significant work from miners. Those who exhibit this kind of work (proof-of-work) is paid back as of now with 25 bitcoins every block. This reward halves every four years and it will reach 0 approximately in 2140, when the system will have to cover its costs with transaction fees, that, at the moment, are negligible. This defines entirely bitcoin’s monetary policy.
So, can we expect the rise of new and more efficient financial services and the redefinition of the actual ones on through blockchain technology?
It’s hard to find clear arrival points in this pioneering phase. The ‘fundamentalists’ of the blockchain technology believe that the traditional financial world will be swept away completely; these are opposed to radical conservatives who believe existing financial institutions will instead simply incorporate and adapt the tech to its needs; as always, the truth probably stands in the middle. In any case, despite the general enthusiasm or concern, it is not yet clear if and which applications will be adopted by the traditional financial world.
The blockchain technology aims at uncensored transactions guaranteed by an inherently decentralized ecosystem. Decentralization is, however, naturally inefficient in terms of scalability in the number of transactions (about 3 per second, compared to the 60 thousand possible inside the centralized VISA network) and completely sealed against regulatory processes. These features make it a problem for financial institutions and regulators.
And yet blockchain technology is more and more being represented as able to solve all the problems that currently burden our financial system: costs, inefficiency, lack of transparency, etc.
I often have the impression that behind the blockchain innovation label is behind hidden the attempt to reform the organizational side of these processes even before the technological one. Many of the proposed solutions are simple misinformation, implemented through databases in a more efficient and cheap way than a blockchain. In general, the blockchain is suitable for public goods or services, which must therefore be handled in a transparent, decentralized way.
For example, the transfer of monetary value between different countries and different currencies: you could have IOUs issued and guaranteed by banking groups and placed on a circuit that automates their compensation. A similar situation is offered by Ripple, one of the distributed public ledger solutions alternative to bitcoin. It’s easy imagining a group of banks that share this idea, maybe utilising the concept in a different distribution.
It is recent news that thirty of the most important banks in the world have joined the R3CEV consortium. The goal is to make the public distributed ledger useful in the financial world traditional, going past scalability limits. Will Intesa Sanpaolo be there?
The event that you are describing is certainly the most interesting, if nothing else just for of the caliber of participants: Intesa Sanpaolo is considering whether to join or not and in any case it will be interesting to follow the work that will be done there. The performance limits of the current blockchain technology are intrinsic to the exceptional level of decentralized security: they can be mitigated or even improved by reintroducing a minimal centralization in the network. Along this path of centralization, however, you might find that the database technology has a competitive advantage. In recent months, the debate on the distributed records saw the opposition of public (no control, such as bitcoin) to private (controlled, as Ripple). It is open to question whether and how the private distributed registers differ from simple replicated databases.
What role could banks play in the blockchain ecosystem?
The stability of the financial market needs an influential player, able to provide adequate guarantees of reliability. Banks play this role in our economy, even if not flawlessly. The customer identification (for anti-money laundering and to fight of terrorism financing), being a ‘custodian’ for the whole system and granting its functionality, giving out credits, the market-making on financial markets: these and many other activities have the banks in leadership.
I don’t think the entry in the banking world of technology giants is imminent, although it should be noted that Apple capitalise about the same as the top 30 banks in the eurozone. Moreover, the British Bank Association wrote that “banks must agree to the fact that they are more and more part of a wide ecosystem that consumers themselves are building. Well, their role in the ecosystem is far from secure. ” A lesson has already been tried in other areas by leading brands such as Kodak, Blackberry or Blockbuster.
What is Intesa Sanpaolo doing right now? Between all the great international groups you are the ones with the most conservative public profile about it.
Our bank has been following the Bitcoin phenomenon since May 2014 at least. A study task force coordinated by our Chief Economist, Gregorio De Felice, worked six months involving all of the bank’s the different functions and summarised what should be the strategy guidelines for the group. In July, we responded publicly with a documented analysis to the “Call for Evidence” of the European Security Market Association. It is certainly a land where you need to move with caution: this is why we are evaluating with great selectivity a number of initiatives. I am confident that soon enough our operational choices will become more clear.
As of now bitcoin hasn’t really imposed itself as a currency for commercial transactions, not even online.
This because bitcoin is not a good currency for transactions, but rather a speculative investment. In the digital environment bitcoin it is more comparable to gold than to a currency, sharing with gold some severe limitations in the use. A good currency should have three characteristics: being a mean of exchange, utility conservation, unit of account. Bitcoin is unbeatable on the first two aspects: instantly transferable, divisible without limit, tamper-proof, non-perishable, with virtually zero cost of conservation, and it can be easily stored for later use.
The not so good sides of Bitcoin come out when analysing the unit of account: the currency, in general, is the good we reference when we measure the relative value of other assets. And a unit we use to measure. The value of each asset, however, is determined by the law of supply and demand: as the supply of bitcoins is deterministically fixed and completely inelastic, any change in demand is reflected in changes in value. The value of Bitcoin has appreciated by a few cents in 2010 to about $ 300 today (almost touching, with a frightening volatility, the level of $ 1,200 in 2013): this aspect makes the joy of speculators but makes it impossible to have stable prices in bitcoin, contract mutual, fix salaries or lock in forward prices.
In the recent years we’ve been hearing controversial things about e-money. So is bitcoin going to fail
I wouldn’t talk about failure: bitcoin could be used, in the future, as a digital “gold reserve” asset for a next generation of cryptocurrencies with a flexible monetary policy, the ones i call “Hayek Money”. Gold was adopted without any central planning by all civilizations in the world, for its peculiarities (the fact that it does not rust and its rarity) and uses (jewellery and ornaments). The adoption of bitcoin is spreading in a similar way in the digital domain, without central planning, for its peculiarities (available in a limited non-alterable quantity) and utilities (transferable token can not be duplicated). The possibilities that are opening up in money’s history are extraordinary.
What exactly do you mean?
Money is a social relations tool and on it we’ve based the whole exchange economy. It was created by mankind to cooperate with those who are outside of the gift economy, a characteristic of the family and of close relationships. Gold has historically established themselves as a monetary standard: the minting of the coin from Caesar will initially only confirmed purity and quantity. Gold has been gradually replaced by notes, that were initially conceived as certificates that could be converted into gold, guaranteed first from private individuals and later by kings, governments and central banks.
Gold has been gradually reduced as a tool of monetary policy, due to the restrictions it involves: today we use fiat money (fiat from the Latin “fiat lux et fuit lux“), money without intrinsic value whose acceptability is based on a social contract which determines the legal tender. All democracies and developed economies have delegated the management of the currency and its stability to an independent central bank, to avoid abuses that governments could make.
The Blockchain technology has the opposite trend: for the first time after thousands of years it looks like currency can be used without Cesar controlling it.
We often hear about non financial uses of the blockchain: public vehicle record, land register, digital id certification, notary services. What is your opinion about them?
With the blockchain we have for the first time a digital token which can be transferred, but cannot be duplicated. This opens new scenarios: I have great interest and curiosity in the various proposals and I try to support their development through participation in AssoB.it, the Italian association for the promotion of the blockchain technology. But i must confess that for know i see bitcoin as the killer app in blockchain technology, like e-mail was for internet back in the 90s. There will certainly be in future businesses and services difficult to predict, like Google, Amazon or Facebook we some time ago. Personally i’ve yet to identify them.
In a time of growing demand for dramatically scarce blockchain skills, i’m afraid that Italian universities are not really being receptive. Luckly something is moving with the private research center BlockchainLab in Milan.
What could be the next big thing in the bitcoin/blockchain environment?
The digitalization of cash, which is in my opinion the most urgent and inevitable. The pros of bitcoin over cash are its traceability, transparency and the fact that it’s impossible to forge it. The blockchain could be for payment systems what was internet for communication and information.
Author: Massimo Chiriatti, technologist and member of Assob.it
*F. Ametrano is a leading italian expert in the field of coins often called virtual, mathematical or cryptographic. Professor at the University Milano Bicocca is also a member of the supervisory body of AssoB.it
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