Bitcoin remains an exciting prospect for virtually anyone in the financial world looking for a (relatively) quick and lucrative win. But the field of play could be about to change dramatically – with potentially huge consequences for ambitious FinTech start-ups and the organisations that power their innovation.
We all know that Bitcoin and its cryptocurrency brethren have always sat outside the environment of traditional banking. Independent of established currencies and traded anonymously, they’ve always sat at odds with the more regimented and formal way in which the ‘normal’ financial services industry has always operated.
That, combined with the comparatively small size of the Bitcoin landscape and market, kept the level of traditional banking involvement in the area pretty small in its early years.
But, suddenly, one development has made the establishment sit up and take notice: Bitcoin is worth quite a lot of money now. Its value against the US dollar has risen approximately sixfold in the first nine months of 2017, and the global cryptocurrency market in total is worth more than US$150billion.
As a result, some of the biggest names in finance now want to get involved. For example, Goldman Sachs is now exploring the possibilities of offering trading capabilities to its clients in various cryptocurrencies.
Now, it’d be easy to think that with the big boys rolling into town, the smaller FinTech enterprises that have made cryptocurrencies their forte are going to be muscled out of the way. But things aren’t quite as simple as that at the moment.
Anti-money-laundering legislation in the United States means banks handling a currency that’s traded anonymously like Bitcoin are likely to come under great scrutiny from regulators. China, meanwhile, has been clamping down on cryptocurrency exchanges.
To make real headway into cryptocurrencies, big banks and financial organisations have to navigate this worldwide minefield of legal concerns and delicate political relationships. And that’s where the smaller, more agile FinTech specialists have a key advantage. Comparatively speaking, they can offer trading and investing services across the whole cryptocurrency spectrum that big banks and finance firms simply can’t.
Well… at least not for the time being, they can’t.
While it’s always seemed that the much-valued anonymity of cryptocurrency trading couldn’t be reconciled with the need for banks to record who they’re dealing with, the solution to that thorny problem may be just around the corner. This October, a highly sophisticated upgrade based on a concept known as ‘zero-knowledge proof’ is set to be released for the blockchain that powers Ethereum, currently the world’s second-biggest cryptocurrency by market cap after Bitcoin.
It’s been cited by one leading computer science expert as “one of the biggest inventions in the last two decades of cryptography”. If it’s successful across more cryptocurrencies, it would remove the main barrier that’s stopping the biggest financial powerhouses on the planet from getting involved.
So what does this mean for the aspiring FinTech enterprise? Put simply, it’s a warning siren. If they have ideas about new innovations and services, it’s crucial to get those running and established in the marketplace as quickly as possible. That will give them the best chance of gaining an established and viable customer base before the big bank heavy artillery starts firing.
Whatever it takes – from dev teams burning the midnight oil, to bringing in external help from an ISV, systems integrator or service provider like you – they have no time to lose.
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