Bitcoin was created by Satoshi Nakamoto specifically to take financial technology to the next level, contesting the financial sector. Banks are so engrained in common lifestyle that no one except for PayPal has tried to put up an alternative. With banks all over the world now in direct competition with Bitcoin, it’s normally expected for propaganda to surface against the five year old technology from these institutions.
The Bank of England has shown a better understanding of Bitcoin instead, though, rather than a normally combative stance the Bitcoin community usually experiences.
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The Bank of England recently published their research paper titled “Innovations in Payment Technologies and the Emergence of Digital Currencies” written by Robleh Ali, John Barrdear, Roger Clews and James Southgate. They opened the paper with these sentiments:
“Modern electronic payment systems rely on trusted, central third parties to process payments securely. Recent developments have seen the creation of digital currencies like Bitcoin, which combine new currencies with decentralised payment systems. Although the monetary aspects of digital currencies have attracted considerable attention, the distributed ledger underlying their payment systems is a significant innovation.”
Immediately, Bank of England set the tone for the entire paper. It starts by outlining the evolution of payment technologies, noting that the modern payment systems use a process that hasn’t changed since the 1500s. They explain that the only shift in the process has been the technology; not the process itself.
“Coins made of precious metals were one of the earliest methods of making payments in a number of regions of the world. Physical possession of the instrument denoted ownership, and the act of physical transfer acted as the payment system.”
In the 1500s, the concept of trading notes backed by gold emerged through goldsmith banks. Merchants could take these notes to the banks holding the gold and retrieve their property at any time. Of course, people didn’t always withdraw their funds and trade directly; they simply traded these convenient notes.
This practice caused some problems in the world as it naturally evolved, which is the reason Nakamoto created Bitcoin. Now the banks are in a position to either reject it, or understand and utilize it. Bank of England continued their paper explaining what Bitcoin technology is in terms that were quite understandable. They were able to simplify it in terms people in the financial sector would be able to understand and condense it to only a few pages.
Bank of England did their research, and it seems they were most impressed with the blockchain technology. Some people have taken this to mean they enjoy the Bitcoin technology. That does not look like the case, however.
Bank of England Being Impressed Doesn’t Equal Acceptance
Bank of England may have done their research and worked hard to put this well-sourced paper together, but that doesn’t mean they fancy the idea of a decentralized person-to-person payment system. They may entertain the idea of a public ledger, but in the end Bitcoin has the power to put them out of business; causing a lot of misplaced employees and unfulfilled profits to stakeholder.
The line in the conclusion shows a more proper approach to Bank of England’s view on the entire technological innovation.
“…digital currencies do not currently pose a material risk to monetary or financial stability in the United Kingdom, but it is conceivable that potential risks could develop over time. The distributed ledger is a genuine technological innovation which demonstrates that digital records can be held securely without any central authority.”
The Bank of England may be impressed with the public ledger technology, but they understand that Bitcoin is not something they can harness with the current institutions in place. In fact, Bitcoin threatens their very existence.
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