The Irony Behind Banks’ Interest in Blockchain

There has been recently, at least in the mainstream media, a focus on the possibilities that abound if the blockchain technology behind Bitcoin can be separated from the currency itself. Articles such as this CNBC piece are focused on the attempts of large Wall Street banks and others around the world to use the distributed ledger system that is behind Bitcoin for other purposes. The possibilities if that is done are endless so that focus is understandable, but one of the side effects of all of the publicity is to add strength to the currency, and that could end up having a detrimental effect on those very same banks.

The increase in interest is demonstrated by the chart below, taken from Blockchaininfo.com.

The chart shows the number of Bitcoin transactions over the last two years. As you can see, the number of transactions, after remaining steady for a while, began to climb in the middle of last year and has maintained a decided upward trend.

It is no accident that that coincides with the increase in attention on the underlying technology from generally respected financial institutions around the world. That interest led credibility in the eyes of many skeptics and intrigued some people enough to prompt them to research Bitcoin. Many of those that do that research have presumably been intrigued enough to actually start using the currency. That, in turn, seems to be resulting in relative stability in the price.

The second chart, above, from the same source shows, hardly indicates great stability. It is noticeable, though, that after Bitcoin’s very own “flash crash” back in August the price has been remarkably stable and is currently in a steady upward trend. While all of those who own bitcoin would like to see a higher price, it should be recognized that a gentle uptrend is far more desirable than another bubbly run up. It would show that the underlying principle behind a currency with restricted supply can work. If that is demonstrated, then many of the complaints about the currency from opponents can be put to rest once and for all.

It is, of course, too early to know if this is just a pause in Bitcoin’s volatility in terms of dollar pricing or if it really is a change brought about by the greater liquidity that comes from more transactions. Those who own the currency as a long term investment and a hedge against inflation will hope that it is the latter, and if that turns out to be the case then they should be thankful for, rather than hostile to, the search for alternative uses for blockchain technology.

Those that have a firm grasp of the possibilities of Bitcoin will, however, have seen the inherent problem in that search coming mainly from banks. If the popularity and adoption of Bitcoin continues to increase we could, in theory at least, be closer to the day when many of the traditional roles of banks, as deposit holders and transaction mangers and processors, become redundant. Could it be that the banks’ attempts to co-opt something that they no doubt see as a threat as well as an opportunity are actually hastening the day when the threat becomes a reality? If so the irony would be almost too much to bear.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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