Why do banks, regulators and payment systems have their own cryptocurrency

The financial world is experiencing a massive passion for cryptocurrencies. This week, the launch of its own digital currency by the four largest world banks (Swiss UBS, German Deutsche Bank, Santander, BNY Mellon) together with the brokerage firm ICAP was reported by the Financial Times. Earlier in the media appeared information about the interest in the Bitcoin analogue from the Bank of England , the QIWI payment system and the Yandex.Money service.

We decided to find out what caused such a stir, and why should traditional financial institutions create new cryptocurrencies?

Each cryptocurrency

Since the advent of bitcoins in 2009, digital currencies have become a headache for national financial regulators. Most of the advantages of cryptocurrency - a decentralized system of circulation of funds, the inability to track transactions, the absence of a single bank - turn into disadvantages for them. To date, the world draws up to 2000 variations of cryptocurrency. But, despite the ambiguous reputation of the same Bitcoins (mainly due to its high volatility), the attitude towards virtual money is changing.
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The court of the European Union at the end of 2015, in fact, equated Bitcoin to other national currencies, abolishing VAT when it is exchanged. That is, what initially did not have any territorial binding, it became closer to offline reality.

In Russia, the attitude towards cryptocurrency, to put it mildly, is wary. On the one hand, in the press, there are regular statements about the need for strict control over the circulation of cryptocurrency and even the introduction of criminal liability for its release. On the other hand, the Central Bank of the Russian Federation is carefully studying Bitcoin and Blockchain technology, without making any sudden movements.

Bank of London was the first of the traditional financial institutions to take a step towards cryptocurrency by hiring specialists to create their own virtual currency RSCoin (we will return to this article more than once). His laboratory in London to study the possibilities of the blockchain technology underlying most cryptocurrencies was founded in 2015 by the Swiss bank UBS. According to analysts from Accenture, investment in this sector in 2014 rose to $ 12 billion (for comparison, in 2013 - $ 4 billion).

And now the world's largest banks have come together to create their own cryptocurrency. NASDAQ and JPMorgan Chase are interested in developing their own blockchain technology. To her eyeing the Russian "Yandex". As Bitcoin Magazine told the company itself, the technology of payments via cryptocurrency is inexpensive and easy to start as soon as the Russian authorities give it the green light.

Faster, easier, safer

What is the reason for such a stir? The first conclusion suggests itself. Banks, large financial institutions, traditional payment services do not want to miss their piece of the pie. In November 2015, the bitcoin market capitalization amounted to $ 4.8 billion. Do not forget about 30 other popular cryptocurrencies, among which, perhaps, the most famous are Litecoin, Ripple, Ethereum. 150 thousand people around the world use cryptocurrencies to make purchases. The potential and dynamics of the market are impressive.

Another prerequisite for the use of digital currencies by traditional financial institutions is speed, security and efficiency in making payments. National financial systems used by central banks remain quite costly. It is impossible not to take into account the relatively high time waiting for the response of the system - innovations do not occur here instantly.

The same, to a certain extent, applies to banks. “Today, trading between banks and financial institutions is a rather complicated, time-consuming and costly process,” said Julio Faura, Financial Times, head of the research department at Santander. “That's why we all have to have huge back offices.” Cryptocurrency rationalizes this process and makes it more efficient. ” The department calculated that the new settlement system will help banks save 20 billion dollars by 2022.

The cryptocurrency technology, adapted for four large banks by Clearmatics Technologies, will allow them to pay for assets (bonds and stocks), without waiting for the completion of the traditional transfer of money to the account. Instead, they will use digital currency directly convertible into cash in central banks, reducing the cost of a post-sale settlement.

What remains of the Bitcoin idea?

Why financial institutions do not adapt existing digital currencies for their needs? Experience of such cooperation is available. Back in 2010, one of the American stock exchanges agreed to exchange bitcoins for real money. Today, the number of exchange sites exceeded one hundred.

The fact is, according to the British developers RSCoin, that, despite the success of the existing cryptocurrencies, they have a number of significant limitations. The main one is poor scalability. The most active Bitcoin network can be managed with only 7 transactions per second. Attempts to raise this level higher have not yet led to success. For comparison, PayPal holds 100, and Visa from 2,000 to 7,000 cash transactions per second.

Other restrictions that are important for regulators are high volatility and lack of control over the issue of monetary support. According to the developers of the new cryptocurrency, the technology incorporated in RSCoin is able to close these issues. Its system will be centralized and controlled by a certain central bank responsible for issuing digital currency. In RSCoin there is the possibility of unlimited emission, while the issue of bitcoins is limited by software.

In this system, the central bank delegates the authority to confirm transactions to a certain number of financial institutions, which the authors called mintettes. They differ from traditional anonymous miners that are traditional for cryptocurrencies. All of them will be known and accountable. Adapted two-phase completion technology during the transaction allowed the developers to scale the RSCoin system in tests up to 2000 operations per second.

What else will the blockchain be used for?

All new players in the cryptocurrency market are essentially interested only in the technology underlying them. For the first time a blockchain or “ chain of transaction blocks ” appeared in Bitcoin. It has been described many times, it makes no sense to dwell on it in detail.

The system is decentralized and does not need intermediaries. That is, in theory, when it is used on ordinary trade and financial transactions, the process of interaction between subjects is simplified, the need for intervention by any controllers is eliminated. Financial transactions can be faster, cheaper and more reliable. Yes, and the record and the transaction can not be "erased" by carelessness or whim of one of the parties.

This technology, in fact, from all angles is checked by the research consortium R3 of the world's largest banks (Goldman Sachs, JP Morgan, Credit Suisse and Barclays). In Russia, her evangelists include German Gref and the QIWI payment system.

As The Economist writes , in relation to the blockchain one should distinguish between three things that are often confused: the Bitcoins themselves, the specific blockchain that supports it, and the very idea of chains as such. According to the publication, it is a universal machine for building a high level of confidence in the economy. The fate of bitcoins as a currency is still ambiguous, but the idea of the blockchain is seen as truly revolutionary, and dozens of startups from all over the world are engaged in its capitalization.

Why do banks, regulators and payment systems have their own cryptocurrency

Each cryptocurrency

Faster, easier, safer

What remains of the Bitcoin idea?

What else will the blockchain be used for?

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