Noelle Acheson is a 10-year veteran of company analysis, corporate finance and fund management, and a member of CoinDesk’s product team.
The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday, exclusively to our subscribers.
Two unrelated news items this week could, when looked at together, point to where bitcoin development is heading.
The first is that bitcoin’s price breached its previous annual high on relatively strong volume, and more or less held its position.
The digital currency has managed to recover not only from the Bitfinex hack earlier this year, but also from the Mt Gox debacle in 2013. This sends a clear message of resilience.
The support shows that governance and scalability problems are not enough to make a significant dent in interest in the cryptocurrency. And the relatively narrow trading band must reassure skeptics concerned about volatility.
With this performance, bitcoin is taking steps towards dispelling financial institutions’ fears that it is an unsuitable blockchain. While work will no doubt continue on private blockchains (as it should), this is likely to lead to an increase in banks’ interest in public blockchains over the next few months.
Changing attitudes?
The second item is that bitcoin wallet startup Blockchain has signed ex-Barclays CEO Antony Jenkins to its board.
As far as I know, this is the first time a previous chief of a big bank has joined a bitcoin-related startup. Is it a sign of bankers starting to engage with bitcoin? Or are bitcoin startups becoming interested in banks, the very entities the currency was created to circumvent?
Let’s face it, bitcoin wallet providers are already similar to banks. Most of us choose to leave our holdings in accounts at exchanges or with services like Blockchain, knowing that they are not the most secure or decentralized option. Why? For convenience, just as we choose to keep our fiat money in a bank account rather than in wads of cash under mattresses.
But banks are not like bitcoin wallet providers. They are not simple custodians or app builders. They are complex financial networks, powered by a wide array of users with different needs and priorities.
There you have it. That is what wallet companies such as Blockchain most likely want to be: complex institutions with a range of services that will not only bring resilience to the business model, but will also be instrumental in pushing bitcoin closer towards mainstream use.
Relationships between bitcoin startups and bankers will set both on a steep learning curve that will most likely end in a transformation of each.
The year ahead
So here are my predictions for bitcoin in 2017:
1) Banks will be less afraid of associating with the cryptocurrency. Bitcoin has proven itself to be not nearly as volatile and fragile as they anticipated. They will be more open to collaborations, willing to test bitcoin-related functions and eager to engage with the community.
Private blockchains will earn their place in the banking structure. But the scope and security of the public bitcoin network will open up easy connectivity and new use cases, provide a relatively low-cost sandbox for testing new applications and help existing institutions adapt to new environments.
2) Major cryptocurrency wallet businesses will focus on developing more complex services in order to appeal to a wider base of users and to offer an increasingly attractive alternative to fiat banking.
In some cases, they will do this by leveraging relationships with fiat banks. In others, they will embellish the custodian services already on offer, joining forces with other startups to reinforce innovation.
Who the main players will end up being, I don’t know. But I am certain that the end of 2016 will come to be seen as a tipping point, the moment when the bitcoin and fiat banking worlds began to think about how to collaborate instead of compete.
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