The U.S. banking business is being challenged by unregulated virtual currencies, known as digital or cryptocurrencies. The largest and most well-known of these is Bitcoin, started in 2009.
While banks evaluate Bitcoin’s key software â€œBlockchainâ€� for their own internal use, regulators are rushing to catch up with the high risks inherent in digital currencies.
These currencies meet depositors’ wishes for fast, low-cost money transfers, privacy and isolation from deposit seizure. The World Bank Conference in October 2014 reported 547 virtual currencies were in existence.
The banking industry’s drive for profitability has resulted in charging large spreads on currency conversions and deposit interest with bloated fees, inefficiencies and costly delays in money transfers.
Conversely, virtual currencies do not require expensive middleman involvement. Depositors do not even have to disclose their real names. Digital currency proponents believe it to be a cheap, private and efficient alternative to conventional banking.
Digital currencies eliminate the need for checks, credit cards or cash. This threatens the mainstay of the traditional banking business.
Virtual currencies are growing in popularity. Wallace Young, director of the San Francisco Federal Reserve branch, wrote in the Fed’s Community Banking Connections second quarter 2015: â€œ… according to recent estimates there are now over 100,000 merchants around the world that accept Bitcoin.â€�
He added that the value of all Bitcoins in circulation in late January totaled $2.85 billion.
After 9/11, the anti-laundering provisions of the Patriot Act allowed government encroachment into depositors’ accounts. In March 2013, Cyprus banks went so far as to confiscate customers’ funds electronically. Depositors worldwide were concerned about potential seizure of their money. Digital currencies act as insulation from government intrusion and
Originally appeared at: http://triblive.com/business/brownebusiness/9151769-74/currencies-digital-banking