Learn about whether the proposed Bitcoin system can co-exist with the already established banks. Here are some insights into the digital age of currency, a world of self-regulation on the net run by miners.
Imagine a world where currency is traded digitally, alleviated from, the fear of losing tangible money, the fear of inflation and the fear of divulging your credit card information.
This world is the Bitcoin world.
A world of self-regulation on the net run by ‘miners’ and managed by no one, which can be deemed as an attempt to circumvent the financial system and banks. This world will not however see the cessation of traditional banks, and thus raise the questions; ‘how would they co-exist?’ and ‘what tension would arise between the two?’.
What is Bitcoin
Bitcoin engages with a P2P online platform, operating with no central authority or intermediary, managing transactions via a ledger known as ‘blockchain’ and the interactions between users in issuing bitcoins are carried out collectively by the network. ‘Bitcoins’, as the unit of account, are created as a reward for adding transaction records to the public ledger of past transactions or blockchain. This activity is referred to as ‘mining’ and the miners are rewarded with transaction fees and newly created bitcoins. In addition to this, bitcoins can be obtained by exchanging different currencies, products and services.
Sources of Tension
In a move that could inhibit the hopes of emerging local bitcoin companies, Australia’s big four banks (Commonwealth, Westpac, ANZ and NAB) have abruptly withdrawn the banking services from their future competition. These institutions have subsequently sent letters to various bitcoin exchanges, namely Bit Trade and Buyabitcoin, whereby informing them that their accounts will be closed.
As such, it has been acknowledged that at least 17 Australian bitcoin companies have received similar letters, with 13 already having their accounts closed.
These actions were not explicitly justified in the letters, only addressed in a couple of brief statements;
Tony Pearson: Chief executive of the ABA
States that banks are obliged to close accounts if they can’t see a full payments trail under ‘Anti-money laundering’ and ‘Counter-Terrorism financing’ laws. He further stated that the lack of transparency and regulatory oversight raised a number of risks for users and also posed risks for the payments system.
“Given the risks, there is a need for a clear and settled legal and regulatory framework for digital currencies…”
– Did not discuss specific cases, however they alluded to the notion that compliance with AML and CLF laws was an issue, rather than potential competition with bitcoin players.
Restricting Bitcoin Affiliates – Competition derived tension
The actions of these financial institutions have extended to the individual Bitcoin users. Brought to light on the 22nd of September, dozens of Australian Bitcoin users have made accusations that the top four Australian banks are refusing to do business with them in an attempt to hinder the cryptocurrency industry.
Michaela Juric, 22; has been engaged with the bitcoin currency for two and a half years. Recently her business bitcoin-babe.com has come under threat because she has “been blacklisted from Commonwealth Bank, National Australia Bank, Westpac, St George, Bank of Melbourne, Bank SA, Bank of Queensland, Rams and BT Superfund. She stated that she couldn’t “open or hold any any accounts with those institutions because [she dealt] with Bitcoin”.
Daniel Wilczynski, 28; is a former Bitcoin user who is currently out of business due to the fact that his personal and business accounts were closed by six different banks. He told Mandie Sami (reporter) that his “first bank closure was by NAB and then [he] had ANZ close, and then Westpac and then about two months ago the Commonwealth Bank closed my bank accounts”. As a direct result of this, he suffered a substantial financial and personal loss.
Potentially disruptive Impact
These closures have hindered the viability of the wave of newly generated financial service businesses that are viewed as a disruption to the existing sector. The bank’s call for greater regulation is valid and necessary to consider when devising an updated structure for disruptive innovations such as Bitcoin. Nonetheless, the transformational world that is illustrated in the 21st century, requires the sector to exhibit a dynamic facet, specifically foregoing continual reform as Bitcoin’s incorporation in the financial sector is inevitable. These constant reforms are essential, as with every sector, as companies are igniting offers and developments that are cost-effective financial services for consumers and businesses.
Can they co-exist? Should they co-exist? Is a competitive financial/banking industry necessary?
Let us know what your view is on this disruptive innovation by tagging us @lawpath or #lawpath.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.