When it comes to the banking sector, the banks want to have the cake and eat it too. On one side, all the major international banks are making a beeline to incorporate blockchain technology into their operations whereas, on the other hand, they are not so eager to offer their banking services to bitcoin companies.
Bitcoin has exhibited a strong growth since 2013. The digital currency has been around for the past 7 years, but its rapid growth gained everyone’s attention. The growth of bitcoin adoption also saw many startups offering innovative bitcoin-based financial services crop up. These services were far cheaper and more efficient than the conventional financial services. In addition to financial services like remittance and fund transfer, bitcoin combined with its underlying blockchain technology also started to gain a foothold in the fintech sector.
Banks Keep Their Distance from Bitcoin
The sheer potential of bitcoin in banking and fintech applications has got the banking and financial institutions threatened. Banking and fintech sector are still dependent on legacy systems and bitcoin technology is something that is completely new to them. The hostility towards bitcoin and bitcoin-based companies is mainly due to the following reasons
- Bitcoin is a decentralized virtual currency. It means, there is no central authority that can dictate terms on the currency. In other words, if bitcoin becomes widely accepted, banks will virtually have no control over a bitcoin-driven economy.
- Bitcoin became popular after its extensive use in the deep web marketplaces like Silk Road. Initially, bitcoin transactions were considered anonymous making it the ideal currency for procuring illegal or banned substances. It was later proved that the digital currency is not as anonymous as it was initially thought. Bitcoin transactions are pseudonymous at best. However, it still continues to be the preferred currency of criminals and hackers. There have been various instances where extortionists, hackers, and kidnappers have demanded ransom in bitcoin. The bitcoin ransomware attacks still continue to affect the computers across the world. The notoriety of bitcoin combined with various strict banking regulations requiring banks to report illegally obtained funds act as another detrimental factor. It is virtually impossible for the banks to determine whether funds connected to bitcoin are legally obtained or not. to be on the safer side, they tend to distance themselves from the digital currency connected business, even if it means driving away most of the legitimate businesses. This adversely impacts these businesses.
- The absence of regulations in many countries is another reason for the banks to harbor hostility towards bitcoin and related businesses.
- With countries and central banks recognizing bitcoin as a financial instrument in the recent days, bitcoin regulations are not far off. Once bitcoin regulations come into effect, it will gain legal status, which may impact the banks. Banks would rather lobby against the digital currency in a futile attempt to safeguard their profit margins than start accepting bitcoin and run a risk of running out of business.
Banks also realize that bitcoin is here to stay and they have ignored it along with blockchain for too long. Now they fear that they will perish if they do not upgrade their services to match bitcoins’ offerings. So they are now heavily invested in adopting the technology themselves, minus the bitcoin itself.
Currently, we have few banks that are open to bitcoin while the rest continue to find ways to bury the digital currency while embracing the very technology that owes its existence to it.