Coins and paper money are passé. In the new reality, money consists only of digital letter and number sequences, or ‘cryptocurrency’. There will soon be no bank involved. At least, that’s what some people would have us believe. Is it really going in that direction? And what is the role of the bank if cryptocurrency gets a larger share in the money traffic?
Opportunities and threats of virtual money
Bitcoin is probably the best-known form of cryptocurrency. The basis of this new money system consists of a giant ledger in which special software automatically keeps track of all transactions. The accounting, so to speak. A copy of this accounting is on every computer that is part of the bitcoin network. That’s thousands. Six times an hour, the system adds a file or ‘block’ to the accounting, in which all new payments are listed. These blocks together form a chain or ‘chain’, which is why this technology bears the name ‘blockchain’. Every computer has to agree to a new payment, the technique blocks in advance every transaction that something is not right. As a result, inspectors are no longer needed and the question of whether or not someone can be trusted no longer plays a role. After all, technology takes over the human role of supervisor. Furthermore, every transaction is public and verifiable, but anonymous, which guarantees privacy. Payment is only possible with the unique digital signature that each bitcoin owner has.
The intermediary disappears
‘In fact, with crypto technology you exclude the intermediary – banks and governments’, says Roel Steenbergen, who works at the innovation branch of Rabobank IT. ‘The participants rely entirely on the technology instead of on people and institutions. There is no central issuer. Ownership and value transfer are completely anonymous and by definition evade supervision by parties such as the government and the Netherlands Authority for the Financial Markets (AFM). Cryptocurrency entails serious risks, some of which have not yet been mapped out, for example in the field of security and legislation. For Rabobank, we only choose applications that are 100 percent reliable and honest. But it is of great importance that as a bank you continue to be involved in the rapid and promising developments in the IT field.’ The currency and the technology
Bitcoin is one of those promising developments. Steenbergen: ‘We often use the term bitcoin to refer to both the currency and the underlying technology (the blockchain). However, the blockchain technology can be seen completely separate from the bitcoin. That virtual currency is actually no more than an application of the blockchain. In practice, it appears that the blockchain also makes many other applications possible. A promising development is, for example, ‘smart contracts’. The contracts for issuing a bank guarantee or verifying data now go through countless hands. People of flesh and blood put the checkmarks for agreement on every form. That is a time-consuming activity. Such processes can be much faster, more efficient and smarter, if you can embed them in a blockchain. All checks will then take place completely automatically.’ More chance than threat
Should the bank be afraid of the new, virtual money? ‘Thanks to the new technology, the need for trusted third parties, such as banks or notaries, disappears,’ says Steenbergen. ‘Instead of the current payment system in which people play a major role, there will be a fully automated system based on a smart mathematical model that makes transactions verifiable and indisputable. Whether that will be the only payment system in the future remains to be seen. We are only at the beginning of a new phenomenon, according to experts and investors similar to the mid-90s, when the internet became fashionable. More and more user-friendly applications are being added. We experience them as opportunities rather than threats. Lately, you see more and more parties from the current financial sector and regulators experimenting with this technique. The old and new world must and want to find each other – parties from all sides are actively looking at this. In the meantime, paper and coins will continue to exist. I don’t see that going away either. Cryptocurrency will coexist with the other forms of money we know.’ Numbers and letters
Accounts for bitcoins consist of ‘addresses’ that are composed of a random series of numbers and letters, for example 5Bt7vbKL8WsFtGcvbER8f5EmUI63oiuu78R. Anyone who wants to can immediately open an account anonymously. The security of the account consists of a digital signature.