Close-Up: Bitcoin And Its Impact On The Financial Services Industry

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How could we imagine making transactions without banks? Bitcoin is a well-proven way of that. Today, we are talking about Bitcoin and its impact on the financial services industry.

Bitcoin is a new currency that was created in 2009 by Satoshi Nakamoto. Sure, it was a nickname only. Nobody knows the founder’s real name. This is something awesome!

Where can we use Bitcoins?

The sky is the limit! You can buy merchandise anonymously. As Bitcoins are not tied to any country, you can make payments internationally, and it is very easy. You can use it anywhere in the world without additional transaction fees, moreover, you do not need to give your real name, just like its founder.

Since the beginning, we have been talking about the advantages of Bitcoins. What about their impact on the financial services industry? Let’s walk into this topic and to see what is going on.

Challenges Users & Traditional Institutions Will Face

Bitcoin is a cryptocurrency, a digital alternative to traditional money relying on cryptography for its operation. While Bitcoin may have many benefits, there are several impacts that this crypto currency may have on financial services companies.

The first point is ‘trusting’… Combined with other software, anonymity can be used for illegal purposes. In this case, Bitcoins might become very dangerous for the industry and everyone who uses it. Moreover, a lack of trusted intermediaries to challenge fraud is also one of the reasons why we should think twice while spending Bitcoins.

We believe that everything is secret in the system. Sure? It has a high potential to expose a user’s transaction history to the public. We know that you don’t have to use your real name. Still, it is not nice to see all the transactions you made to be published in public. Right?

It is a currency. So, who is controlling the value of Bitcoin? Especially, when it increases very quickly, what is going to stop it? Nowadays it has volatile value. What is the next step? We have no idea. That’s why it could turn into a huge problem for the industry.

Bitcoin’s popularity carries important implications for financial services consumers. In addition to the natural education involved in adopting a new currency, customers will have to become comfortable with the use of their digital wallets, learn best practices for maintaining the security of their holdings and adjust to the inability to challenge transactions.

Bitcoin – A Threat To Banks & Governments?

Banks such as the Bank of England, however, do take hefty shares of the responsibility in maintaining stability and security within financial systems, which implies that they have a responsibility to monitor the evolution of Bitcoin. Given the huge amount of volatility that the crypto currency has experienced since its inception, it is naturally incumbent upon the central bank to ensure this doesn’t compromise the integrity of the financial system.

Why are bankers afraid of Bitcoin’s impact? Easy, it will lead to ripples across the financial sector, it will create new winners and losers, and it will likely decentralize banking services and create micro markets to an extent not seen since the advances of the barter economy and the market economy combined. In fact, this is what the Internet of Value is all about – erasing the distinction between bartering, money and service exchange in any market.

The adoption of Bitcoin may carry numerous tax and accounting implications, among them revenue recognition, mark-to-market valuation, the characterization of profits and losses for tax purposes, the applicability of barter transaction rules, basis tracking, and hedging considerations. Financial providers should consider reporting and withholding for cross-border transactions necessary.

Tax treatment will also be an issue for individuals. Differing treatments of Bitcoin by a jurisdiction may expose users to additional complexity, legal issues, and double taxation. As consumers wrestle with these issues, they may turn to traditional financial institutions for help.

In conclusion, as is typical for most new technologies, such as the Internet in the 1990s or mobile technology over the last decade, new and advanced features are being developed on top of the Bitcoin protocol and infrastructure. Regardless of Bitcoin’s trajectory, we can expect to see its influence live on in challenges, impacts, and opportunities posed by other crypto currencies to traditional financial services.

By the way, you need to pay 3.567,00 Euros to buy one Bitcoin, as of August 16th, 2017 (11am CET).
Just for your information.


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Photo credit: btckeychain via Visual Hunt / CC BY