Bitcoin could destroy the global financial system, one of world’s biggest banks admits
Bitcoin, the electronic payment system, could create a “total disruption” in the financial
world that could render much of it “redundant”, according to one of the world’s biggest banks.
The technology underlying the cryptocurrency — the blockchain, which allows people to pay with and receive bitcoin safely — “should be considered as an invention like the steam or combustion engine”, according to an article in BNP Paribas’s magazine. Bitcoin is called the “internet of money” and should be thought of as a “disruptive open source technology for the financial world”, argues Johann Palychata, a research analyst at the bank, in the magazine Quintessence.
One scenario, if the technology were integrated into the way banks work, is “total disruption”, argues Palychata. This is only one of the possible scenarios — but if it happened “then existing industry players might be redundant”, he says.
At the moment, a large and complex system is required to transfer the money and goods that are moved around during a trade — and banks make much of their money from providing the “post trade infrastructure” that allows such trades to happen safely. But if the blockchain technology were integrated into securities trading — the huge business that allows people to buy and sell shares and debt — then it could destroy all of that business, Palychata warns.
“In its purest form, a distributed blockchain system allows all market participants direct access” to the infrastructure underlying the trades, the article says. “If this setup develops then existing industry players might be redundant.”
But Palychata says that even in that totally disruptive scenario, people might still want to trust banks. To send bitcoin around, users have to keep a private key — and banks might still be needed to look after them.
“However, given the challenge of keeping the private key of the account safe, it is possible that investors will entrust an authority to safe keep the private keys,” he writes. He also notes that banks themselves might be required to look after the application layer that is used with the blockchain, or that they might opt to launch their own network using the same technology.
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