Why banks joined the cryptocurrencies race? To stay relevant, match up to competition, exercise control or defeat existing crypto?
Why banks develop their own digital currencies?— Cointelegraph (@Cointelegraph) September 7, 2016
According to the Cointelegraph twitter quiz, over 46% of participants think that banks develop their own cryptocurrencies so they can exercise control.
In a patent application filed October 30, 2014, but published only recently, Goldman, Sachs & Co. has made a claim of having developed a new cryptographic currency called SETLcoin that will be held in electronic wallets.
According to the description made in the application:
“The wallet has the technology to generate, manipulate, and store a new cryptographic currency, referred to as SETLcoins, for exchanging assets, such as securities (e.g., stocks, bonds, etc.) cash, and/or cash equivalents via a peer-to-peer network.”
Banks are all in for crypto
It seems that the banks have placed all their chips on cryptocurrency. Goldman Sachs has come up with its own flavour and Citibank, too, has a variant called Citicoin.
In August, the four big boys of banking namely UBS, Deutsche Bank, Santander and BNY Mellon joined forces to develop their own digital money.
The Bank of Tokyo-Mitsubishi UFJ (MUFJ) is also planning to launch its own digital money according to The Asahi Shimbun and they might actually be the first one to debut this currency around Autumn 2017.
Bitcoin has proven to work
It seems that the technology behind Bitcoin has now been proven to work. The real world scenario of Bitcoin adoption is a factor which is pushing up confidence in cryptocurrencies and the Blockchain tech behind it. The idea that costs can be cut down and the transmission of money made easier for interbank settlements, as well as P2P transactions, holds sex appeal for these big banks.
As the Asahi Shimbun reports while talking about the MUFG coin:
“The MUFG coin system will work much like prepaid electronic money, such as “Suica,” already widely used in Japan. However, users will be able to remit MUFG coins to others through the Internet at a low commission. The MUFG coins will make it easier, for example, for customers to equally share a bill whilst out drinking or dining.”
An elegant solution
Blockchain was initially perceived as an existential threat by the bankers and now their attitude seems to have turned to, “if you can’t beat ‘em, join ‘em.”
It is a clever move on the part of the bankers because they know that once they step into the game and start issuing their own coins, regulations will have to be brought in and they will apply equally to existing currencies like Bitcoin, Ethereum and Dogecoins. Essentially this can be seen as a hijack bid.
Besides this, banks can get rid of the outdated correspondent banking systems like SWIFT in one fell swoop, so for them controlling transactions makes even more sense by hitting two birds with one stone. An elegant solution.
Patents to the right of them, patents to the left of them
In February 2016, American Banker reported that the Bank of America is seeking 20 more Blockchain-related patents in addition to the 15 they had previously filed in 2014. The whole patent business was described as a “race to the courthouse” by Carol Van Cleef, partner at the law firm Manatt Phelps & Phillips in the American Banker article.
We talked with David Duccini of the Strength in Numbers Foundation and he describes this whole business as, “ALL banks are filing patents left and right. The sentiment is that most of them are “defensive” so that they can do horse trading in the future, potentially via R3.”
On its website Alix Partners, a global business advisory firm, carries a comment by Catherine Bessant of Bank of America:
“Owning patents in the Blockchain space is “very important... to reserve our spot even before we know what the commercial application might be.”
The motive appears less than noble
There can be many reasons for banks like Goldman Sachs to step into the crypto world. Innovation, fighting to stay relevant, control over the economy or to remove redundant old processes, but one thing is certain - the motives are not noble.
Banks are essentially doing anything they can to stay in the game, even if it means taking a slightly unethical approach.
Using essentially open source tech and modifying it a bit and then going on to patent it as their own serves an ulterior purpose. This is certainly pointing towards keeping control over the tech which was developed as a way to free the masses from the clutches of the banks in the first place.
Then again, it could simply be the case of adopting something that just works as Niall Maye Director of Marketing and Business Development at Sato.sh points out, “Imitation is the sincerest form of flattery”.