• by William Mougayar
    Venture advisor, 4x entrepreneur, marketer & strategist. I live in Toronto, curate a lot, blog a bit, and help startups.

Why Isn’t There a Bitcoin Global Bank Today?

bitcoin globalThe Bitcoin vision is a global, yet decentralized money network with users at the edges of it.

So, I’m asking the question- Since Bitcoin is global and universal, why isn’t there a truly Global Bitcoin bank?

This is a tricky question, because Bitcoin’s philosophy is decentralization, and a bank is everything about central relationships. However, a global bank with no restrictions on borders or transactions would be interesting to users that want to conduct global transactions wherever they are in the world with the same ease as using a credit card.

But here’s the bad news: this fictitious Central Global Bank will never exist, because local regulatory hurdles are too high and too real. There is no existing startup or bank with the incentives to become that “UBER” bank. The hurdles that UBER is currently facing against the taxi cartels pale in comparison to the complexities and intricacies of the regulatory, compliance, and legal barriers that are intrinsic to each local financial services system around the world.

Do you know why HSBC is not really the world’s leading global bank, despite being in 72 countries? Do you know why Coinbase is not really the world’s leading Bitcoin Exchange, despite being the only exchange available in 27 countries?

There is a common answer to these two questions: regulatory restrictions. This means that, as a customer, your account is silo’ed inside the country you belong to. So, you don’t really get the feeling of being global. HSBC and Coinbase are global, but their customers are not, because they don’t have access to seamless global services.

So, here’s the good news in all this: the Global Bank is YOU, armed with a cryptocurrency wallet. A local cryptocurrency wallet skirts the legalities that existing banks and bank look-alikes (aka Bitcoin exchanges) need to adhere to, but without breaking any laws.

The challenge today with the current Bitcoin wallets is they are islands without terrestrial connections, meaning without fiat on-ramps and off-ramps.

The future of the cryptocurrency wallet is in your smartphone because it is already a gateway to a world of on-demand services. The weak link has been the on-ramps and off-ramps to the worlds of fiat currency and physical transactions.

Maybe we just need more on-ramps and off-ramps in order to make the cryptocurrency wallets come to life. The banks are part of those on-ramps and off-ramps, but they will not be the centers of your wallet, just as they are today the centers of online banking. In the future, the banks might be a backend or lateral window to your decentralized wallets.

Although a global bank or exchange is not happening any time soon, the feelings and behaviors of a global bank are needed.

There is a historical reminder that online banking does not make a global bank. There were several attempts from 1995-2000 to form Internet-only banks, starting with Security First Network Bank (SFNB), the world’s first Internet bank, but each one of these attempts was confined the jurisdiction that they were created in. SFNB, CompuBank, Net.B@nk, Netbank AG, Wingspan, E-LOAN, Bank One, VirtualBank and others are such examples, but none of them survived past the dot-com crash of 2000. The following image is a shot from the back of an SFNB T-shirt I was given in 1995, when they launched.

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Today, we are seeing a new flavor of online/mobile only banks and financial services startups such as Simple, Koho, ZenBanx, Wealthsimple, GoBank, Moven, and Weathfront, and they do offer a new generation of services that leapfrogs the traditional banking ones. But none of them has the potential to automatically become a global bank, because they still need to knock down the local financial regulatory barriers. 

At the heart of user engagement with a decentralized wallet, lies the various actions that we typically conduct on money:

  • Buy
  • Sell
  • Pay
  • Get paid
  • Transfer
  • Save
  • Borrow

 

Today, a cryptocurrency wallet doesn’t enable these functions, but I expect future generations of wallets will.

To spend Bitcoin, the conventional wisdom says we need more merchants and services accepting it. But although paying by Bitcoin is a cool thing, if you can’t do that, any other alternative is as good, and Bitcoin doesn’t really offer significant leapfrogging, except perhaps when it comes to micro-transactions. So, having more merchants accepting Bitcoin is not what will unlock its potential.

I would argue that the cryptocurrency networks (enabled by blockchains) are more important than the currency itself. In the old metaphor that Bitcoin is “money with wings”, the wings that give speed are more important than the money itself. You can put *any* money on wings whether crypto or not, and you’ve got something new that didn’t exist before.

Whereas today we are using traditional banking networks to transfer any type of money, I can see a future where we are using a Bitcoin infrastructure to transfer any money, including cryptocurrency and fiat. This means that fiat is coming to cryptocurrency wallets faster than cryptocurrency will come to traditional online banking accounts. Anything traditional will be slower.

Maybe we could each one day become our own virtual bank. Cryptocurrency wallets could subsume existing banking relationships, and are that new entry point.

A crypto wallet is to the world of crypto-finance networks what the browser was to the world wide web.

  • “The Wings on the money are more important than the money itself”

    Now this is an astoundingly brilliant point.

    Bitcoin is acting as wings on every form of money, weather it be fiat cash or digital currencies like Amazon Gift card credits or open look Visa credits.
    The peer to peer marketplaces like Paxful are putting wings on Bitcoin itself, with each trader in the market being a feather. It is absolutely astounding to have an inside view of what goes on. People are not only buying and selling bitcoin for nearly everything else but they are also borrowing and lending bitcoin amongst themselves with the reputation and trust systems that have been built up within these marketplaces.

    There will be many of these marketplaces springing up in the very near future, each focused on a particular payment method and or industry. These will be the “banks” of the future and they will resemble the hawalah system far more than they do traditional fractional reserve banks. The future is very bright as people wake up to what “money actually is” they begin to realize that as long as they can work they have all the money they need. These marketplaces will be unlocking the vastness of human potential by giving wings to wings and setting money free on multiple levels.

    • I’ve heard good things about the hawalah and hundi system too.

      • The hawalah and hundi systems were the first wings put on money that expanded into a global network.

        Hawalah came to be because Roman merchant law did not recognize anything other than direct trade, which made transporting sum across borders impossible unless you lugged it yourself. Our problem today is that we are trying to bypass a certain agent, namely the central banks SWIFT system and deal in a direct peer to peer transaction. The blockchain allows us to bypass a central ledger on the currency level but marketplaces and escrow services are still needed to recreate the core of what Hawalah provides. What is interesting about bitcoin is how it prevents the fabrication of money via cryptography, Hawalah being bound to islamic law by it’s very nature marked usury, called ribba in Islam, as one of the greatest crimes. The fabrication of money without work is considered to be the greatest form of this crime. An interesting similarity between bitcoin and Hawalah and one that the hundi system does not share.

        A very deep topic that holds many secrets for those not afraid to dive down the rabbit hole.

  • Companies like UBER or Coinbase will always be subject to regulation as they are tangable centralized entities and as long they are responsible for users funds or in future much more important – users private data – they are for good reasons subject to regulation and monitoring from an independent entity which is controlled (ideally) by the community. Of course reality is different and regulation is often used to create high entry barrier to protect cartels from competition.
    The only way to get rid of regulation is to be decentralized and anonymous. We have the infrastructure and working examples (Bitcoin, Bittorrent, Tor,…) available, but it is still early days and changing peoples behaviour is a slow process, at least much slower as technological progress.

    I also think that Bitcoin fulfills already the core functions of a bank and let you be your own bank. To have multi-currency is also not fulfilled by most of the banks (or the costs are so high that it is not a services used frequently). But of course if and when Cryptocurrency wallets become multi-currency enabled, that will be a huge improvement.

    I think also that lending is not a natural element of a “bank” but rather a service like insurance or services for counsel and investment. The banks just added that feature to their core services as it fits so good to the business model of fractional banking. With a money system like Bitcoin where you cannot create money out of air, that will be very different. Reputation and auditing services need to be in place first to make lending with Bitcoin safe.
    Social relationships or alternative value tokens might become interesting as a kind of collateral to get credit in future.
    That might open up new opportunities that community contribution (working for the commons like open source development, voluntary work for charity,…) would become transferable to classical money.
    Basic income in another light might become more feasible. It will not be an unconditional basic income, but with any activity which represents value to any community you could collect tokens and those will be exchangable to other currencies (in replacement for todays liens to get a credit).

  • We’re doing a lot of the things you are discussing here in the Philippines right now using Bitcoin tech and the blockchain (except for borrowing/loans). Our company (www.Sci.ph) has over a year of on-the-ground experience in using Bitcoin purely as a rail (I like how you put it better though, as wings) for fiat. We’ve processed tens of thousands of bitcoins in remittances without receivers even knowing it was used.

    A lot of the partnerships with financial institutions are loose and unofficial though. None of the banks here except maybe for the Central Bank itself has actually looked into the technology seriously. We’ve been working hard on changing that and have made big steps forward with it too. We recently just convinced the biggest payout center / pawnshop network to allow us to automate our payouts nationwide. They don’t need to know anything about bitcoin because we handle the crypto part with our service.

    “Maybe we could each one day become our own virtual bank. Cryptocurrency wallets could subsume existing banking relationships, and are that new entry point.” –

    Agree with this totally. We’re currently building http://www.bitbit.cash which will be a mobile money wallet that use blockchain tech in the background and will tie all our other services together in one package, and be inter-operable with other crypto-wallets globally.

    In a perfect world, everyone will just have a wallet on their phone, but I think it will depend a lot on how well transitional services do in ushering new users in to the world of blockchain tech. One day, if the service we provide becomes obsolete, then we would know we succeeded in doing our jobs.

  • The problem with Bitcoin right now is there is no advantage to using it. The tech is just cool and we see LOTS of use cases. But, there are existing systems that take care of the problems that Bitcoin is “solving”. This is why Bitcoin needs to get some people with gray hair into development that understand where bodies are buried in existing systems and write code to solve for them.

    • yes, some of the best applications are yet to come.
      but as i said, the Bitcoin network is real, and it’s there to be used not just for currency.

      • 100% agree. The sooner we get away from thinking of in terms of currency, the better. Instead, I think it’s better to think about Bitcoin in terms of transparency.

      • bruno cecchini

        Proof-of-Work is not an universal consensus protocol, is a great one for commodityzation and that it. Think about it, if our brain would interact the same way of the Bitcoin network we will be the dumbest creature on the planet. Building on top of Bitcoin is just insane like securization market was insane before 2008.

        • well, it’s too early to label the bitcoin network as insane.
          it needs to grow and develop further, yes.

          • bruno cecchini

            Agnostic approach

            Still, while Nasdaq has decided to build on top of the bitcoin blockchain, Ludwin suggested that Chain, and by extension, Nasdaq, are taking an agnostic approach to the technology.

            “We believe that there will be an Internet of chains, there will be many, many interoperable blockchains,” he continued. “As that innovation moves forward, one of the things that Nasdaq andFirst Data have selected us to do is make that transition very simple, starting with Open Assets but over time [maybe] moving that to a sidechain without interrupting the service.”

            Ludwin said that Chain is currently exploring all blockchain technologies and decentralized ledgers, but that it made the decision to build on top of bitcoin as he believes it was the “best tool for the job today”.

          • bruno cecchini

            For today is maybe true like for Netscape,AOL,Explorer,Yahoo in 1995.

      • Twain Twain
        • It doesn’t have an identity crisis. It has multiple identities, but it’s not a crisis. It’s a good thing. I already wrote about that last year :)
          http://startupmanagement.org/2014/02/01/the-8-identities-of-bitcoin/

          • Twain Twain

            Da Vinci: “Learn how to see. Realize that everything is connected to everything else.”

            One of the issues with Descartes and Aristotle was their ideas of linear, discrete thinking. According to their model, Bitcoin can only be either a crypto-currency OR a P2P network and it can’t be, super-positionally and simultaneously, perceived as all your 8 definitions.

            Me, I’m with Da Vinci more than I am with Descartes.

            I saw Da Vinci’s Vitruvian Man when I was a kid and it was a case of, “Wow, a square and a sphere at the same time! How’d he do that so simply?!” When I became old enough to travel by myself, my first trip was to the Accademia which houses a number of Da Vinci’s works.

            Da Vinci had an “8 winds” model for how he architected systems.

            You know what happens when we do a rotational transform on 8? We get ∞ permutations and utility. That applies to Blockchain+Bitcoin as much as it does to my little system and to Quantum Physics & the DNA of data intelligence.

            Da Vinci was a complete genius!

    • vortex

      “The problem with Bitcoin right now is there is no advantage to using it.”

      This is very relative to where you are in the world. In the Philippines, Africa and south america there are places where only 5-10% of people have bank accounts and at same time 90% have cell phones. Bitcoin is growing like crazy in these types of environments and solving real world problems today.

      It is only a matter of time to where more useful services get developed for first world country use besides remittance. A big factor that will drive this migration are companies like augur and ethereum.

    • Twain Twain

      Bitcoin founders are mostly young Turk former traders or junior analysts who never interacted with the Gray Hairs in Corp Strategy, Ops, Risk Mgmt and Client Services or with the business managers advising those Gray Hairs.

      So those young Turks have a limited view of how to sell their Bitcoin startups back into the banks.

  • Sharp

    Maybe one day we’ll become our own virtual bank? William, we’re already there. If you have a wallet, you own the access to your funds (through your keys, which is why a wallet isn’t the right terminology but we’re stuck with it, it should be called a keychain because it actually contains the public and private keys needed to access your slice of the blockchain). This is opposed to your bank owning your funds in your account.

    As far as a global Bitcoin bank, the system is already a global bank. It keeps the transactional records on a decentralised database (the blockchain) and provides a way of securely allocating those transactions and balances (bitcoins). This is the core function of a bank (record keeping), but for historical reasons they have disparate databases scattered around the world, with pipes going through lots of institutions that have to be reconciled just like each block is reconciled on the Blockchain.

    William, we’re already there, and there will be a time in the not too distant future when we won’t need fiat at all.

    As Andreas Antonopolous stated, the Sovereign State of the People of the Internet now has its own currency

    • Thanks. I would say we’re “almost there” . true, it works that way already if you have a client wallet, but we’ll need 2 more things:
      1/ many more users actively using these wallets
      2/ more features in these wallets.
      That said, I don’t think that will replace central banking. Rather it will be an alternative form of decentralized banking.

      • Sharp

        Thanks William. Agreed, it will be an alternative form of decentralised banking, but I submit that it will be much favoured over centralised, permissioned blockchain systems being proposed in banking circles right now, particularly when the public truly come to realise how much their finances are subject to censorship, monitoring, bail-ins etc. With Bitcoin, crucially, there is no counterparty risk, only risk to the overall system. As long as the system is secured (via mining, which is just hosting + reconciliation) then you own your own funds. This is a huge concept, and one that people are taking for granted with the current banking system. Incidentally you need bitcoin the currency to reward the miners to keep the system secure. This is why you can’t separate the Blockchain from Bitcoin. Banks are naturally resistant since this takes away their 500+ year network/ledger monopolies, so they’re going through the grief stages – first denial/ridicule (2013 – it’s just nerd money) then aggression (2014 – only criminals use it, it’s dangerous etc) and now bargaining (“we like the technology just not Bitcoin the currency, we’re still relevant as institutions it’s fine”).

        In terms of our current stage, depends on the perspective I think, from within the Bitcoin system itself (i.e. excluding the fiat gateways like Coinbase and Bitpay) we’re there in terms of the technicalities of the banking system. There are people living entirely within the ecosystem right now, earning and spending Bitcoin with little touching the fiat world.

        Your point 1 will be taken care of by the exponential network effect. Many people said they’d never use email because they didn’t know anyone using it for them to send one to. Point 2 will be very interesting. There will be features we can’t even imagine right now, the possibilities for peer to peer, programmable money are massive, and go way beyond the basics you listed out (good base list though). Micropayments, metered subscriptions, smart multi-partied escrow, smart P2P lending, off the shelf business banking, automatic accounting and reporting, decentralised protocols displacing centralised server monopolies (Amazon, Facebook etc), decentralised governance and organisations, the list is endless! It’s very exciting….

        Chris

  • XMLGold

    Companies like XMLGold.eu works as an exchanger and a supplier for bitcoin needs as well. They’ve also processed millions of transactions throughout the years of service. You can easily buy bitcoin with them.

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