If any cryptocurrency-based startup has a chance of winning banks over, it might be Ripple Labs. Just last week, the payment protocol and exchange network signed up two US banks to its open-source protocol. Ripple’s system allows for banks to complete instant digital currency transfers across borders at no cost.
Chris Larsen, co-founder and chief executive (CEO) of Ripple Labs, sees this as just the beginning for banks adopting cryptocurrencies. “It really is a viable alternative to correspondent banking, and banks are seeing that,” he told gtnews.
Larsen believes that the notion that cryptocurrencies will somehow replace banking is absurd. “Banking is super-hard,” he said. “Banking is integrated into all parts of our government and regulations. So this technology, if it’s adopted, is going to be driven by the incumbents; the financial institutions. We really think the banks are going to drive this.”
Yoni Assia, CEO of social trading and investment network eToro and board member of the Israel Bitcoin Association, sees bank adoption of cryptocurrencies as inevitable. “Look at what the internet has done to publishers, and what online advertisers have done to advertising companies,” he said. “It’s all about technology progress. You can either embrace it or fail. Technology progress is inevitable and resistance is futile.”
Value to Treasurers
There has been rather less discussion over whether corporate treasurers will ultimately see the value in adopting cryptocurrencies for payment.
Nevertheless, Larsen does see many benefits for corporates in adopting these innovations. “They can get many of the benefits that the small banks would, getting off the correspondent rails,” he told gtnews. “Most importantly, it’s the capital tie-in. you’re stuck dealing with correspondent banks; it’s expensive, it’s slow – or you can move to a system where you don’t have to outlay any capital. So it’s a really huge benefit to small banks and businesses.”
The Sibos audience was also surveyed on what they believe banks’ position should be with regard to virtual currencies. They were first asked whether banks should eventually leverage Bitcoin’s blockchain technology , the electronic general ledger, to enable transactions themselves “There are fundamental efficiencies associated with this that are pretty obvious that people are going to want,” said one attendee. Another countered that Bitcoin’s blockchain is not secure.
Audience members were also asked whether banks should eventually take deposits in cryptocurrencies like other currencies. One attendee answered that “it would be silly” if they did not. “It seems clear to me that the Internet disintermediates virtually all human activities and it would be silly not to anticipate some form of that spreading much wider. Cryptocurrency deposits would be just one part of that,” he said.
Larson agreed. “The world now has the ability to construct an internet for value exchange, just like we’ve had this internet for information exchange over the last two decades,” he said.
For more Sibos 2014 coverage:
The global economy has seen about eight years of growth, but we are starting to see the end of this which is triggering some volatility in global markets, Stefan Bielmeier, DZ Bank, argued in his keynote speech at the Bellin annual 1TC conference. Other speakers discussed blockchain, cyber crime and netting.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.
In modern-day banking, transactions are still a laborious process—sending money across the globe involves time, effort and risk. Payments moving across borders are slow, as they typically hop from one correspondent bank to another, each sitting on the funds, ccollecting afloat for who-knows-how-long.
The UK’s Prompt Payment Code will have a significant impact on the relationship between large businesses and their suppliers. What does the Code mean for your business? And how can you navigate this change effectively?