In order to examine the role of virtual currencies going forward, we first need to look back. Bitcoin is currently still in its early developmental stage, being invented as recently as 2009. The best comparison to bitcoin now is to that of the early internet days in the 1990s. Before that era, businesses and individuals depended on postal or courier services in order to send a letter. One would typically write the letter, add a stamp, walk to a postbox and hope it would get there within a week.
In today’s world, we are more likely to send an email. One can stand in the middle of the street, press ‘send’ and expect the message to be received instantaneously, by someone halfway across the world – at a fraction of the cost. The use of technology by bitcoin similarly allows instant receipt of payment, transmitted through the internet without borders, at a very low cost. Bitcoin transactions cost fractions of cents – rather than typically between £10 (US$15/€12) and £20 per cross-border transaction, depending on the banks involved to make it happen.
When looking at the fundamentals of bitcoin in this basic manner it is no wonder that the financial services industry is slowly starting to catch on to how virtual currencies might provide the potential to shake-up services such as the international money transfer and global remittance markets. It is quicker and cheaper to use bitcoin as currency of choice for an overseas purchase, because these payments are not subject to international banking charges or exchange rates.
As regards the global remittance markets, choosing bitcoin as the underlying currency also shows its advantages. Currently, the average global remittance fee per US$200 sent abroad is US$16.28. By comparison, transaction fees for sending money by bitcoin equal US$0.004, making it just over 4,000 times cheaper. Treasury departments and their teams are starting to notice this potential for cost savings.
Venture capitalists (VCs) have also started to focus considerable attention on cryptocurrencies as they gradually mature. This year has seen VC investment in bitcoin overtake early-stage VC investment in internet companies, with total VC investment to date at US$240m. A recent
Hewlett-Packard commissioned survey
showed that 79% of US organisations plan to adopt digital currencies in the future. Virgin Group’s serial entrepreneur, Sir Richard Branson
“I have invested in Bitcoin because I believe in its potential; the capacity it has to transform global payments is very exciting. It has been obvious to us all for quite some time that people aren’t satisfied with the business-as-usual approach adopted by the major payment networks. There’s a real desire for greater levels of control, freedom and scrutiny over what happens with our money, bitcoin addresses these concerns and that is why so many people believe it represents the future.”
A complementary role
All the signs show that there is room for virtual currencies to play a role in our world going forward. It is important to recognise, however, that these digital currencies are not expected to replace traditional fiat currencies in the foreseeable future. Even Jim Harper, global policy counsel for the Bitcoin Foundation, said recently that there is
of virtual currencies “toppling” fiat currencies or the banking industry.
It is, nonetheless, realistic to foresee a role for both, with digital currencies existing as an alternative payment method to that of the traditional fiat currencies, ultimately providing choice and options for the people.
The internet, a network of interconnected computer systems, and the associated interlinking web pages accessed via the internet, have revolutionised communication. It’s worth recalling the words of the internet inventor, Tim Berners-Lee, as reported in The Guardian newspaper:
“The original design of the web of 24 years ago was for a universal space, we didn’t have a particular computer in mind or browser, or language. When you make something universal … it can be used for good things or nasty things … we just have to make sure it’s not undercut by any large companies or governments trying to use it and get total control.”
Virtual currencies do represent a hugely efficient medium of exchange providing low-cost, rapid transactions from which companies and their financial professionals can benefit. Yet just as the freedom of the internet must be safeguarded, so must digital currencies be left to develop and take their place as pragmatic alternative payment systems offering choice and competition to millions of people around the globe.
After all, we can still post a letter; that option still exists. However, by allowing people to take advantage of the benefits of modern technology, both traditional and modern communication and payment systems should be able to sit side-by-side offering competitive choice. There’s a place for both in this world. The future will be decided both by people’s preference – as well as those of the companies for which they work – and ultimately where their trust lies.
We have been witness to a series of significant security events recently around payment execution, from Leoni in Germany through to ABB in South Korea and SWIFT in Bangladesh to name a few of the major headlines.
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Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.