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Remember the days (about six months ago) when bitcoin was going to revolutionize banking and disintermediate the mean nasty “banksters?”
Well, a funny thing happened on the way to the revolution. Bitcoin itself has hit an air pocket with a 50% price drop since December. Meanwhile, the banks that were supposed to be so dramatically disrupted by bitcoin are taking over the blockchain.
This is not surprising. Disruptive technology does come along from time to time, but established franchises have a way of either fighting back or co-opting the new technology just by buying it.
Uber is disruptive, but London taxi drivers (the best in the world, by the way) have organized to get Uber’s license there revoked. In the same spirit, it was naïve to expect that banks would just sit there and let blockchain technology eat their lunch. All of the major banks have blockchain research and development projects underway.
Japan is the first major economy to declare bitcoin “legal tender” in payment for goods and services. This does not fix a value for bitcoin, and it does not force anyone to use bitcoin, it just keeps bitcoin transactions safe from counterfeiting charges.
The Japanese banks are taking that opening and driving an armored car through it. Japan’s largest bank is creating its own crypto-currency. Valuation won’t be an issue because each coin will be worth exactly one yen. It’s really just an alternative payment system like PayPal.
What it does is allow bank customers to make and receive payments on the blockchain with a yen equivalent, but with much lower costs. Also, because this is a “permissioned” system (customers only may participate with bank approval) verification does not require the clunky proof-of-work of the original bitcoin blockchain.
Distributed ledgers and blockchain are here to stay, but bitcoin is not. The banks will see to that.
Another major argument bitcoin advocates made was that it was invisible to the IRS.
Well, not really. I’m reminded of a story from about 15 years ago…
A Swiss banker loaded all of the confidential information on Americans with Swiss bank accounts that he could find onto a CD-ROM. He then flew to the United States and handed the information over to the U.S. Treasury and the FBI.
The banker was in trouble for helping Americans evade taxes and this was his play to avoid prosecution. He blew the whistle on his clients. What ensued was a 10-year manhunt by U.S. tax authorities to find the tax evaders and many more whose information was not included on the original CD.
The U.S. played rough not by chasing the inpiduals, but by putting pressure on the Swiss banks themselves. The big Swiss banks like UBS, and Credit Suisse have huge capital markets and wealth management operations in the U.S. The U.S. told those banks they could either hand over the information or we would shut down their U.S. operations.
They handed it over.
Some of the tax evaders got lawyers, turned …read more
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