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Peter Hody: «Banks Need to Cope with Bitcoin»

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Bitcoin won’t be able to fulfill the manifold expectations being heaped upon it. What banks are doing on cryptocurrencies is the most interesting element of current hype, Peter Hody writes in a finews.first essay.

finews.first is a forum for renowned authors specialized on economic and financial topics. The texts are published in both German and English. The publishers of finews.com are responsible for the selection.

Bitcoin has found its place in the history books: the original cryptocurrency is the investment with the steepest appreciation of the decade. And, incidentally, bitcoin is also the financial expression of the year 2017, selected by a finews.com jury (in German).

However, whether bitcoin made it into the history books only – or their modern-day equivalent of Wikipedia – or whether it will actually spark a currency system revolution and eventually assume the place of the U.S. dollar, is an unanswerable question today.

The unbelievable hype about bitcoin bears all the hallmarks of creating a myth; not least because of the founder, who has maintained his anonymity under the alias of Satoshi Nakamoto. And the hype has kindled an extreme polarization of two sides.

«Change the world, or biggest fraud of all time?»

The black-and-white opinions about the cryptocurrency are based on economic sense in one corner and anti-system emotions in the other. They create a steady and daily stream of stories surrounding a phenomenon that in itself is still totally insignificant. That way, bitcoin has become the object of expectations and hopes that are impossible to be fulfilled – in a positive and negative sense.

Whether bitcoin will change the world or perish as the biggest fraud of all time, whether its value will tend to zero or reach $1 million – the options and scenarios vary widely and that’s what makes the coin so attractive and interesting.

Predictions for bitcoin to keep gaining in value aren’t just mere figments of imagination. The boom has prompted a substantial increase in the number of users of the bitcoin network, which in turn acts as a boost for its reach. Peer-to-peer networks and payment systems are making quick strides forward.

«Deep-seated mistrust in the establishment»

With the further reach of smartphone usage, banking becomes more easily accessible and bitcoin is one of the potential transaction currencies. In particular, transactions abroad could be replaced by bitcoin. Political uncertainties and distrust vis-à-vis monetary policy and central banks will also help the tokens to prosper.

Arguments in support of a massive loss in value and the demise of the bitcoin are well known: extremely high energy consumption by the bitcoin network, high transaction costs and low transaction speed are rendering the cryptocurrency unsuitable as a replacement for fiat currency.

And yet, bitcoin is making the established and regulated financial market extremely nervous, which shows in the way it is being rejected, a way that at times seems a little irrational, very much like the bitcoin anarchists’ dream of a world revolution.

It is no surprise that bitcoin isn’t the darling of leading bankers. Bitcoin is the result of a deep-seated mistrust in the established financial and banking system. Satoshi Nakamoto, the founder of bitcoin, aimed to create a decentralized currency, with which he could circumvent centrally-governed monetary policy, and the banks as intermediaries.

«Dimon and Axel Weber’s stance isn’t tenable»

While financial institutions struggle to cope with the flood of regulation, a whole new parallel world of cryptocurrencies keeps evolving, a world that is (still) largely unregulated. People who used to speculate on exchanges and earn banks their commissions now live in this parallel universe.

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