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Don't think of it just as currency or a new set of payment rails. To get a full sense of Bitcoin and its implications for banking, you have to think bigger than that.
February 25 -
Digital money like Bitcoin opens up possibilities for banking without central planners or a lender of last resort, where interest rates and reserve requirements are driven purely by the market.
March 15 -
A payment and currency exchange system called the Ripple protocol makes dollars, yen, euros, Bitcoins, gold and even frequent flyer miles virtually interchangeable.
July 1
The hype about cryptocurrencies and their potential to reshape our financial system is justifiedbut not in the way most people would expect.
Outside of tech-forward circles of
This population spends
Among the most exciting innovations in cryptocurrency are applications that leverage Bitcoins distributed trust network to create faster, more secure platforms for currency exchange. So-called crypto rails like the Ripple network allow currencies and payments to flow cheaply, rapidly and smoothly as information on the internet. (Disclaimermy venture capital firm, Core Innovation Capital, is invested in Ripple Labs.)
Platforms like Ripple and other cryptocurrency features can benefit everyday people in four primary areas: remittances, liquidity, access to cash and access to credit.
Global remittance flows top
Crypto rails can help provide relief from such costly fees. Numerous digital currency startups already make it easier to buy Bitcoin with cash (
Emerging middle class consumers can also benefit from the liquidity and speed offered by crypto rails. People who lack access to traditional bank accounts pay $1.8 billion in check cashing and $700 million in bill pay fees
Crypto rails enable these consumers to receive funds sent by peers, employers, or lenders in a digital wallet in minutes or seconds. Users can also use their digital wallets to pay bills or send money to family members at a rapid speed and minimal cost. Meanwhile, companies like
Customers who prefer to use cash can load money onto digital wallets at thousands of participating merchant locations thanks to
Finally, crytpocurrencies will eventually help creditworthy but overlooked customers to gain access to affordable loans. Customers who regularly pay bills through alternative channels can struggle to establish credit history. Because cryptocurrencies have common, public ledgers that log all transactions, they can offer lenders a clear view into an individuals payment history as revealed by a public wallet address. Just as analytics companies like
The cryptocurrency ecosystem is steadily maturing. Bitcoin is evolving from a speculative asset to a medium of exchange, while mainstream companies are starting to build essential infrastructure to support digital currencies. Bad actors will increasingly be screened out by anti-money laundering and know your customer compliance gateways, and major industry players are joining the revolution, as demonstrated by the lineup for American Bankers
But we have a long way to go before cryptocurrency powers everyday transactions for most Americans. By building solutions for the emerging middle class, entrepreneurs will use cryptocurrency for good and accelerate widespread adoption of these powerful tools. And that will benefit all of us.
Arjan Schutte is the founder of and a managing partner at Core Innovation Capital, a venture capital firm targeting financial technology companies for the emerging middle class. He is based in Los Angeles.