Changes Coming, Bit by Bit

Bitcoin makes moves for greater legitimacy

The alternative currency did gain rapid traction in limited circles, but never really hit the mainstream. Finance is a serious issue, and rebels are usually not welcome. That’s just one reason why the reality could never match the hype, and Bitcoin stayed on the fringes.

Until now. . .maybe.

In late January, Coinbase, which bills itself as the ‘world’s most popular Bitcoin wallet,’ made moves to gain greater legitimacy by launching the first licensed U.S. exchange for the currency. Coinbase already claims full support for operations in 19 countries, with more than two million wallets, 38,000 merchants and 7,000 developer apps, and it now adds some 24 jurisdictions around the country.

This is a big deal. The number of wallets aside, Coinbase is a brokerage like many others, but the new incarnation has a level of legitimacy that deserves attention, and perhaps respect. Most importantly, far from the fly-by-night nature of some of its competitors, Coinbase has the backing of the New York Stock Exchange, USAA and other financial services institutions to the tune of some $106 million. Getting regulatory approval in those jurisdictions was a struggle, but it did come eventually.

Sure, all this can seem minuscule by conventional standards, and Coinbase plans to take only a 0.25 percent slice of most transactions. But we’d do well to remember that many technology-driven startups have caused a lot more disruption with a lot less.

Actually, there’s a larger picture here that’s even more important. The basic component we refer to as money—currency, coin of the realm, the foundation for every transaction—is issued by governments. It’s legitimate, credible and real. We all know exactly what it is and mostly what it’s worth. Bitcoins, meanwhile, are generated by server farms in far-off data centers running complex algorithms.

This makes for a strange dichotomy. On one hand, the fact that it’s all done by machines crunching numbers and retaining records forever gives it a comforting trustworthiness. However, it’s actually far from stable—five years ago each Bitcoin was worth just about nothing, a little more than a year ago the price reached a $1,000 apiece and today they’re hovering somewhere around the $250 mark. Very few companies—Microsoft and Dell among them—currently accept payment with Bitcoins, and the list isn’t growing very fast.

The biggest X-factor in the whole Bitcoin scenario is that it’s entirely technology-driven, which puts it far outside the financial mainstream. In our industry changes happen incrementally, with legitimate concerns that too much too soon with roil the markets and cause turmoil in every other line of business. Technologists, meanwhile, delight in upending norms constantly—today’s killer app is tomorrow’s legacy, and that’s considered a good thing.

In that sense Bitcoin is just another in a long line of outside forces threatening to undermine the foundations of the banking industry. We’re all aware of Facebook Credits, Apple Pay, EMV and countless other trends. Each has made an impact, and institutions have accommodated them, but none has completely replaced existing processes.

Bitcoin isn’t likely to either, certainly not anytime soon. But it is yet another change agent, and a potentially critical one. As the Coinbase launch makes clear, it is gradually moving from the fringes to the mainstream, and where there’s one there will be others. Right now it’s hard to for many to even understand how it works, let alone build it into existing operations. But if and when that happens anyway, we’d better be ready.

Written by Jack Dougal