Bitcoin is Dead. Long Live the Bitcoin!

With an impeccable sense of timing, last Tuesday I gave a presentation on the future of virtual currency at a chapter event in which I proclaimed that the technology is going to fundamentally change the way banking is carried out only to read headlines the next morning detailing how investors are running for the exit when it comes to virtual currency. 

A colleague of mine who was at the event even emailed me to ask me if I wanted to change my opinion: my answer is a resounding No.  To be clear, many virtual currencies will go the way of the tulip in 17^th century Holland, but the technology makes so much sense that in the coming years, financial institutions will either have to adopt it as their own or be left behind. 

When we talk about virtual currency, it’s important that we all agree on the terms to be used, particularly in the absence of regulatory definitions.  When I’m referring to virtual currency, I am talking about an electronic store of value which is traded electronically using Distributed Ledger Technology (DLT).  By DLT, I am referring to a system of network computers which validates transactions involving virtual currencies using advanced cryptography without the use of a third-party intermediary.

I have no idea what the bitcoin is going to be worth a week from now; but I do know that, as we speak, companies large and small are thinking of ways to apply DLT.  For example, imagine a world in which the job of the county clerk to record home purchases and liens is usurped by DLT which creates a chain, which everyone can access, recording every single transaction involving that piece of property. Imagine a world in which overdraft transactions are a vestige of a bygone era because transactions are executed immediately. 

This is also a world in which there is less and less need for third party intermediaries such as credit unions.  Remember, a DLT network validates and records transactions. 

But this is not one of those “credit unions are obsolete” blogs.  Instead, for those of you who understand the technology, there are many things you can do to integrate your institution into this new technology and benefit your members along the way.  For example, the OCC has already authorized banks to act as electronic wallets– effectively, safety deposit boxes – for consumers who want a central place to store those passwords and electronic keys they need to access all those transactions recorded on those distributed ledger chains.  In addition, this technology will make the NACHA network about as antiquated as rabbit ears on a black and white television. 

The bottom line is: even as you chuckle at that crazy cousin who just lost all that money investing in a virtual currency which exists only in cyberspace, keep on planning for a world in which the technology that powers that, currency changes the way virtually all important financial mediation is done.