What's the Future of Bitcoin? Banks Intend to Find Out

Bitcoin is a new kind of payment network and currency, using peer-to-peer technology and operating with no central authority or bank. Transaction management and issuing of bitcoins is done collectively by the network, which is open-source, public, and owned by nodiv. Anyone can take part in bitcoin, and use it in ways that other payment systems can't be used. Main things people like about Bitcoin are:

  • Bitcoins can be transferred internationally in minutes with no banks gumming up the works
  • Paying your neighbor is the same as paying someone on another continent with Bitcoin
  • You can pay a tiny, voluntary (currently 0.0001 Bitcoin) mining fee for transactions (Not including the mining fee makes the transfer happen more slowly, but it goes through.)
  • There's no credit card number, and not necessarily any tie to your identity with Bitcoin

Other alternative currencies are popping up, but currently Bitcoin dominates. Big financial institutions are still dismissive of Bitcoin, and some are becoming actively critical of it, which Bitcoin advocates see as a sign of the alternative payment system's increasing legitimacy. Here's what's currently going on with banks and Bitcoin.

Big Banks Don't Think Much of Bitcoin as Currency

Chase CEO Jamie Dimon, Berkshire Hathaway CEO Warren Buffett, and Automated Clearing House senior vice president Dave Fortney don't consider Bitcoin as any sort of challenger to the way things have always been done. Some of them believe that once governments subject Bitcoin to rules and standards like those that other payment systems are subject to, it will be the end of Bitcoin.

But They Are Intrigued by the Underlying Technology

On the other hand, big banks are quite interested in the payment transfer technology underlying Bitcoin. Some securities companies and banks are wondering whether the block-chain technology used by Bitcoin could augment, or even replace existing fund transfer systems, because of the negligible costs incurred, and the speed of the transfers. Payment networks like Automated Clearing House typically settle transactions within one business day, which means in reality, it can be several days before transferred funds show up in an account. Bitcoin, on the other hand, moves money in minutes.

Learn more: Mint now integrates with Coinbase, the leading Bitcoin wallet. Find out how!

Some Banks and Brokerages Now Offer Bitcoin Services to Customers

Boston-based Circle, a bitcoin-based financial services company, was launched in 2013 and has recently unveiled a suite of financial services for everyday consumers. Founder and CEO Jeremy Allaire (who made a lot of money with online video company Brightcove) is putting his confidence in Bitcoin's value as a payment medium more than as a store of value (because bitcoins have a reputation for fluctuating wildly in value). Ultimately Allaire sees Bitcoin adoption following a path similar to that of other successful technologies.

Some Finance Moguls Are Very Bullish on Bitcoin

Some prominent people in big finance have a very different view of Bitcoin than Buffett, Dimon, et al. Michael Novogratz is CIO of Fortress Investment Group and was formerly a partner at Goldman Sachs, and he is unhesitatingly bullish about Bitcoin. He told Bloomberg Television in early May, "I think you're going to see things like peer-to-peer lending...The Internet disintermediates large players and I think Bitcoin is just one of the threats that the finance industry the way we know it has coming against it."

Bitcoin's legality around the world is not consistent. China is trying very hard to keep Bitcoin out, and Apple currently won't let Bitcoin transmission apps into the Apps Store. The United States appears to want to embrace Bitcoin, most likely so that it can impose regulation and taxation on it. You're already supposed to pay capital gains tax on any value that your Bitcoin gains while you hold it.

If you use Bitcoin, you probably enjoy its benefits as a money transfer system more than its utility in day-to-day life. More mainstream merchants, online and off, accept bitcoins, but as for things like buying groceries and gardening rakes, we're not quite there yet. However, just the fact that it is generating controversy and drawing comment from major financial figures in the US and elsewhere shows that it continues to gain importance, even if we don't yet have a clear picture of how Bitcoin will figure into the ordinary person's everyday life.

Learn more: Mint now integrates with Coinbase, the leading Bitcoin wallet. Find out how!