The history of monetary system is built on gold. This valuable element has been playing a very important role in the economy since the beginning of time. The first documented usage of gold coins as currency dates back to 600 BC. Gold continued to be the basis of monetary systems until the Bretton Woods System paved way for nominally convertible currencies. Today, none of the world’s currency systems are backed by gold. However, gold by itself continues to hold a fair amount of value. In today’s digital world, we have something which is better than the yellow metal in many ways and it is called Bitcoin.
Bitcoin is a decentralized digital currency based on a cryptographic protocol. Bitcoin maintains a similarity with gold and money while keeping middlemen as designated trusted third parties away. Bitcoin miners, powering the network enabling transactions across the network act as trusted parties.
In an interview, the head of blockchain and virtual currencies strategies at Intesa Sanpaolo – Ferdinando Ametrano offered his insight about bitcoin and its potential to change the economic system. He also forecasted that Bitcoin is the digital gold which is going to end the reign of fiat currency. The interview was published in one of the leading Italian publication – Il Sole 24 Ore (The Sun – 24 Hours).
Bitcoin and Crime
Ferdinando Ametrano also clears the air about Bitcoin being a currency of interest for terrorists and criminals. According to him, unlike reserve currencies such as the US Dollar, which is universally accepted, Bitcoin adoption is not widely used yet and the transparency associated with Bitcoin makes it hard to erase the transaction history. He also supported his comment by pointing out a study conducted by HM Treasury which found Bitcoin to be the currency with least risk compared to other currencies. However, in order to make sure it is not exploited by using existing loopholes, it is good to have AML and KYC regulations in place for bitcoin exchanges where the digital currency gets converted to cash.
After the Paris attacks, it was claimed that terrorists were using Bitcoin to fund their activities. A Europol investigation in this regard didn’t find anything that could substantiate these allegations. However, on the recommendation of the European Commission, the European Union nations is currently contemplating about the possibility of introducing AML and KYC regulations for Bitcoin exchanges.
Bitcoin and Banking
The banking sector has been excited about Bitcoin’s underlying blockchain technology. Many international banks have already come together to create a consortium along with R3CEV, a fintech solutions provider. The main aim of this consortium is to create a blockchain based inter-bank network that can eventually replace SWIFT for cross border money transfers. Intesa Sanpaolo, according to Ferdinando Ametrano is still considering about whether to join the consortium or not. The banking institution is closely following the project’s progress. However, it is still to be seen how a private blockchain database created as part of the project will be different from simple replicated databases which banks can implement right now, without creating a private distributed ledger.
Bitcoin and Gold
For good or bad, the condition of Bitcoin at the moment is the same as that of gold in the present day. Bitcoin is not being widely used as a currency as there are not many places where one can readily spend it. However, it is a good instrument for speculative investment (just like gold). While comparing Bitcoin with ideal characteristics of currency, the digital currency can easily be transferred and it is virtually tamper proof. However, it falters when it comes to unit of account due to its price volatility. Adoption of Bitcoin as a currency has now come down to its stability. Unless the digital currency starts commanding a stable value it is unlikely to be considered as a mainstream currency by banks and governments. The independent adoption of bitcoin (like gold in the early days) however may still bear influence on banks and governments to adopt/consider bitcoin as a mainstream currency.
By the end of the interview, Ferdinando Ametrano mentions that Bitcoin and its underlying technology will pave the way for digitization of cash. Countries will opt for digital currencies built along the lines of Bitcoin in terms of transparency and traceability. The ease of transactions and tamper proof nature of the currency will be an added advantage.
Ref: 1. Changes in modus operandi of Islamic State terrorist attacks- Europol 2. Il bitcoin è l’oro digitale e sancirà la fine del contante. Parla Ametrano di Banca IMI - Il Sole 24 Ore