London is a well-known centre for technology and innovation, but it is quickly becoming a development hub for alternate currencies and reformatting the structure of the banking system. One of the most exciting digital innovations to be backed from London is the digital currency Bitcoin. City institutions including the Bank of England, Barclays, UBS and Goldman Sachs are all reportedly interested in the potential Bitcoin possesses to speed up traditional processes in finance.
What is Bitcoin?
Bitcoin, at its simplest, can be described as a decentralised cryptocurrency. Bitcoin cannot be printed, and instead is created, held and distributed digitally, and due to its decentralisation, no single institution controls the bitcoin network, and no one ‘runs’ the money.
All bitcoin transactions are stored in what is basically a giant spreadsheet on cloud servers, which is referred to as the ‘blockchain’. This blockchain is impossible to edit individually, requiring confirmation from a number of people before acceptance, and therefore represents significant progress towards stopping fraudulent banking transfers, as everything is tracked and recorded automatically.
As the currency is purely digital, it allows some advantages that physical currencies can’t match. Transaction fees, for instance, are practically non-existent as technically no banking transaction needs to be made.
It is this advantage that banks see as a potential future alternative to be used for faster and more cost-effective financial transfers, which are currently severely held back by legacy factors of current banking systems. The advantage of a digital currency also includes the prospect of a central decentralised blockchain between all banks, removing the need for a centralised clearing authority, another factor which slows banking speeds for major financial transactions.
A report published early in June, authored by Santander, has estimated that the potential of this technology could lead to reductions of $20 billion a year up to 2022 across sectors such as multi-nation payments, securities trading and regulatory compliance.
However, one of the biggest drawbacks is the currency’s volatility, where it lies at a catch 22. Its current value instability lies with its relatively small user base, but it can only increase its adopters by increasing its stability. This could lead to bitcoin changing its true purpose as it goes.
It goes to show that in a time where every boundary we can see is being pushed, even the old familiar of physical money could all be a thing of the past, but it also proves that when there is a clear goal in mind when aiming to innovate, then the likelihood of success is greater. With the most recent budget by George Osbourne including a £10 million allocation for research into Bitcoin, once again it’s proved that no one can afford to stay still anymore, it’s onwards and upwards or crash and burn.