Sep 11 2015

Cryptocurrencies Could One Day Disrupt Financial Services

While Bitcoin’s popularity remains confined to a small demographic, some financial institutions see digital currencies as the future of banking.

Since its emergence in 2009, Bitcoin has found its niche on the fringes.

Blockchain, a Bitcoin wallet provider, estimates that more than 14.5 million bitcoins exist today, with a U.S. value of more than $239 each.

Despite their monetary growth, Bitcoin and other cryptocurrencies haven’t yet been adopted by mainstream society. According to PricewaterhouseCoopers’ 2015 Consumer Cryptocurrency Survey, only 3 percent of respondents used a cryptocurrency within the last year.

Consumers’ apparent distrust of Bitcoin is likely due to the very nature of cryptocurrencies, which are not backed by a centralized authority but are instead based on public-key cryptography and blockchain public ledger technology. And although many enterprises find Bitcoin off-putting for the same reasons, some financial institutions now herald blockchain as the key to market disruption.

According to the PwC report “Money Is No Object: Understanding the Evolving Cryptocurrency Market,” blockchain records all Bitcoin transactions and lets market participants transfer assets without a third party. As a result, blockchain technology stands to transform traditional payment systems, as well as stocks, bonds and other transactions involving an intermediary. But PwC says the impact could stretch even further:

This technology has the potential to open the door to revolutionary possibilities in multiple industries. Escrow accounts, securities and financial instrument offerings, “smart contracts,” and electoral systems are just a few of the concepts that are being discussed. Any financial asset that currently requires a trusted third party to provide verification could, theoretically, be disrupted.

Those possibilities have prompted several financial institutions to experiment with cryptocurrencies. According to an article on Banking Technology News, Bank of New York Mellon recently created its own digital currency, redeemable for gift cards and vouchers. CoinDesk reports that Swiss bank UBS is also developing a transaction platform built on blockchain technology.

Those vanguards and others believe that cryptocurrencies will play a significant role in the future of financial services, enabling consumers to store money online and transmit it quickly and securely. But mass adoption won’t come without its challenges.

PwC warns that digital currencies could decrease the income financial institutions receive from transfer services and credit card transactions. They could also drive competition.

As cryptocurrencies give rise to new, nontraditional financial players, established institutions will have to find ways to stay relevant. That means balancing investments to encourage innovation without inviting too much risk.

“Establishing a strong brand in the early stages of the alternative digital currency trend may bring substantial competitive advantage in years ahead, but firms may need to carefully consider the range of outcomes,” says a report from Deloitte. “Moving too fast may result in over-exposure — and embarrassment — if Bitcoin does not enter the mainstream.”


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