One of the main selling points of Bitcoin is its ability to bring low cost, quick transactions, without banks or other financial institutions as middlemen. Bitcoin transactions are decentralized and secured through Blockchain. The Bitcoin bookkeeping system, where any two people can check that a transaction has been made on an open ledger, are a marvelous invention.
Clearly Blockchain and Bitcoin are changing the world as far as payment technologies go, which has the guardians of the status quo worried. This is part of the reason why Bank of America published a 13,000-word document warning customers and personnel that cryptocurrencies are one of the company’s main risk factors.
Bank of America Warning
The document warned:
“The widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions.”
It is obvious that Bank of America is concerned about the possibility of being relegated by competition in the field of payment systems. The bank was one of the first to launch Zelle, a new payment app that charges no fees and can make a transaction within minutes. With Zelle the banks are now coming together to drive customers away from Bitcoin and provide competing payment technologies. Bitcoin is such a threat that it is driving banks to do what they should have done years ago.
Zelle vs Bitcoin
Zelle allows banks to offer some of the advantages of paying with Bitcoin like fast and free transactions while keeping control over the movement of funds and securing their spot as the middleman. But which is better? Bitcoin or Zelle? So far transactions with Zelle are only possible when both the sending and receiving accounts are based in the U.S. That is only the tip of the iceberg. The main advantage of Bitcoin over Zelle is the elimination of the middleman. Bitcoin allows a new freedom for people around the globe insofar as it creates a decentralized economy. Zelle cannot do that.
This decentralized economy is the main tenet and advantage of Bitcoin over other payment systems; Bitcoin is not merely a payment system, or a P2P version of electronic cash, but the medium of exchange of an emerging economy. Blockchain technology has put the power back in the hands of the people who are actually involved in the transaction. No bank can ever achieve that.
Further Warning About Cryptocurrencies
The document published by Bank of America also warns that cryptocurrencies could curb the bank’s ability to track the movement of funds. When funds move through Bitcoin all transactions are pseudonymous, which makes it difficult to understand why the funds were transferred from one person to the next. This is partly why banks like Bank of America are now trying to persuade their customers to step away from buying cryptocurrency; they need the meta-data from the transactions that go through their systems to collect the marketing data necessary to secure additional sources of revenue.
Bank of America’s Moment of Reckoning
But bitcoin is raining on their parade. At least now institutions like Bank of America are recognizing the power of Bitcoin. Opening the economy and freeing up the movement of money without third party involvement can lead to further economic growth. Bitcoin came out in 2009 but it took more than a financial crisis – in which institutions like Bank of America played a central role – for it to get the attention of the guardians of the status quo. As Bitcoin prices advance and cryptocurrencies become more widely used, we will begin to see more reckoning. Banks are playing catch up in a game they might lose. They will have to develop solutions quickly to respond to the competition posed by cryptocurrencies like Bitcoin. Acknowledging the risk is the first step, but no one guarantees they will be able to retain their relevance in a post-Bitcoin world.
