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Five ways Bitcoin could shake up finance

Five ways Bitcoin could shake up finance

French bank BNP Paribas has published an article titled “Cryptomania” in the latest edition of their in-house magazine. The article, authored by Johann Palychata, a research analyst for BNP Paribas Securities Services, discusses five benefits that Bitcoin could bring to the banking and financial services industry.

The five benefits discussed include:

MEANS OF PAYMENT As the value of Bitcoin increases, more merchants are willing to

image of bitcoin

Five ways Bitcoin could shake up finance

sell to the newly wealthy Bitcoin owners. It also helps them to bypass the payment card industry, which can retain a hefty 2% cut of a transaction’s value.

As a result, there are startup companies developing options for the installation of Bitcoin payment terminals both in physical boutiques and online: purchases on certain sites, such as dell.com, can already be paid in Bitcoin. We anticipate the slow emergence of an ecosystem to accommodate a broader use of crypto-currencies in the real economy.

PAYMENT SYSTEM BETWEEN LARGE CORPORATIONS Bitcoin has settlement batches roughly every ten minutes and operates continuously day and night. Transactions are irrevocable and cheap. Nonetheless, the unit of account is comparable to central bank money in its nature. Large corporations might decide to use the Bitcoin network rather than existing settlement systems.

DECENTRALISED INFRASTRUCTURE FOR SECURITIES ISSUANCE AND SERVICING Paper bonds disappeared during the second half of the 20th century. In the 21st century, the same thing could happen to the current centralised model based on custodians, clearing houses and Central Securities Depositaries (CSD). Bitcoin is a comprehensive decentralised registry, settlement and messaging system that is currently used to host a currency.

Over the last 12 months, many initiatives (Mastercoin, Ethereum, NXT) have started facilitating the issuance of equities and bonds. They aim to replicate the mechanisms such as the placement of orders on exchanges, delivery versus payment, payment of dividends (or interests) to shareholders, corporate actions, and electronic voting for corporate governance. These initiatives might first appeal those who are already raising money through alternative channels such as crowdfunding. However, we might not be far from the day when a quoted company says that coins (that we could call ‘Bitshares’ to distinguish them from the currency coins) represent shares of its capital.

WORLDWIDE NETWORK FOR FUND DISTRIBUTION

Bitcoin is a worldwide network any individual can join, any time, anywhere. It would therefore be the largest fund distribution platform a fund management company could dream of. The potential reduction of the platform costs (fewer intermediaries and a shorter route to investors) and the increased speed of the investment process (in the crypto-currency world, the cash collected at the time of the subscription is simultaneously settled and available for investment) could further enhance the competitive advantage of funds using this technology.

Investors, meanwhile, could operate with increased flexibility and liquidity, safely selling shares at any time to other willing investors without any intermediary. The protocol can also handle delivery versus payment. Investment funds have a good chance of becoming one of the first real banking users of crypto-currencies, providing a standardised platform for international fund distribution.

USE OF THE PROTOCOL SCRIPTING FEATURE FOR INTERNATIONAL TRADES

International trading relies on trade finance to secure payments. Bitcoin transactions can be designed to mimic the characteristics of a letter of credit and bypass the banks that currently act as intermediaries. The scripting capabilities of Bitcoin allow complex transactions to be set up between two commercial partners. In this specific situation, a buyer importing goods into a country can make a time-limited deposit to prove that he is solvent at the time of the order.

Only the seller can unlock it – but this unlocking option is available to him only after the buyer acknowledges receipt of the goods. If the goods are not delivered in the defined timeframe, the buyer gets the deposit back.

Just like many articles published by those in the banking industry, the article mistakenly concludes that while Bitcoin is currently used for illegal activities including theft and drug dealing, there is an opportunity for banks to adopt the technology over the next ten years once regulators and politicians control and enable the continued development of Bitcoin, which is a humorous theory at best.

The full article is available here.

The post Five ways Bitcoin could shake up finance appeared first on Payments Cards & Mobile.

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