Exchange Any bank USD to Bitcoin (BTC). Time for Bitcoin banks? Reputation of exchange offices

The Swiss Bank for International Settlements (BIS) published its annual economic report on June 17, which included a 24-page text entitled “Cryptocurrencies: An attempt to look beyond the surface hype.” In a highly critical article, BIS staff said that Bitcoin and its peers have a number of shortcomings that prevent cryptocurrencies from meeting the expectations that have sparked an explosion of interest in them and led to an influx of investment in this potential asset class.

As the bank’s experts write, cryptocurrencies are too unstable, consume too much electricity, are subject to manipulation and are vulnerable to fraud, which in general is unlikely to allow them to ever become a means of payment within the global economy. The authors of the article believe that the decentralized nature of cryptocurrencies is their fundamental flaw rather than their advantage.

Perhaps one of the most bitter discoveries of the bank’s specialists was the conclusion they came to as a result of trying to figure out what power blockchains would need to process retail transactions that are currently handled by national payment systems. It turns out that as the size of numerous ledgers increases, blockchains will eventually take over everything from smartphones to servers.

The report says:

An increase in the volume of transmitted information can cause the collapse of the Internet.

The researchers also note that the competition between miners for the opportunity to be the first to process transactions “eats” the same amount of electricity as the whole of Switzerland:

To put it as simply as possible, the desire for decentralized trust very quickly degenerated into a natural disaster.

BIS representatives acknowledge that blockchain and distributed ledger technology bring certain benefits to the global financial system. For example, they can improve the efficiency of international payments. In addition, in their opinion, settlements for international trade transactions within the framework of export and import, where photo telegrams and letters of credit are still relevant, are ripe for the introduction of blockchain-related software.

Ultimately, however, the report's authors conclude that Bitcoin's revolutionary feature - the ability to transfer value from person to person as easily as emails - also serves as its Achilles heel. They believe that making the global economy dependent on a decentralized network is too risky for many reasons.

Trust can end at any time due to the fragility of the decentralized consensus through which transactions are recorded. This not only calls into question the final nature of payments, but also raises the threat that the cryptocurrency may simply cease to function, leading to a complete loss of value.

The Bank for International Settlements was created in Basel, Switzerland in 1930. It is an international financial organization whose functions include promoting cooperation between central banks and facilitating international financial settlements.

Bitcoin, a digital currency created and existing solely in electronic form, is increasingly attracting companies and banks as a possible currency of the future that will replace traditional money. Bitcoin is already used for trading on the Internet.

Despite the growing popularity of cryptocurrencies in the commercial sphere, in the banking sector this technology is still in the early stages of its development. Let's look at how banks can benefit from this technology and what challenges may arise.

Benefits of using Bitcoin

Payment data is protected from theft

This is one of the main highlights. The problem with credit cards used today is that they were invented before the Internet and therefore are not designed to be secure for online use. The user has to constantly enter his card details and PIN code into the web form.

In the case of Bitcoin, no secret information needs to be provided. Only two keys are used - public and personal. The user's address is visible to everyone, but the personal key is kept secret. To complete a transaction, it is necessary to solve a mathematical equation that combines the public and private keys, thus confirming that the operation is performed by an authorized user.

Bitcoin is not subject to inflation

After the banking crisis of 2007-2008, some governments began to actively print money to pay off government debts and strengthen the economy through monetary easing. The main problem with this approach is the reduction in the value of the national currency. This leads to inflation and rising prices for goods and services. Bitcoin is designed in such a way that the number of its coins cannot exceed 21 million pieces, which has its advantages and disadvantages. This limitation on the issue of coins means that they are not threatened with inflation, but deflation is quite likely.

How banks can use Bitcoin

Low commissions

Most banking transactions involve the payment of commissions both by the banks themselves and by their clients, since, for example, correspondent banks are used for international payments. In general, a bank in any country undertakes to accept and transfer funds, acting on behalf of buyers and sellers.

These transactions incur fees that are usually paid by the buyer. The peer-to-peer technology used in the Bitcoin network allows funds to be transferred faster and cheaper. The fact is that a decentralized registry does not need intermediaries to make a payment, so the buyer and seller's banks can work directly. This allows you not only to do without correspondent banks, but also to make payments in real time.

Smart contracts

Forty major banks around the world recently conducted cloud testing, which forms the basis of Bitcoin. The purpose of testing was to understand how this technology works and how it can be used for smart contracts.

Recently, newspapers have been full of headlines about how millennials have lost interest in traditional banks. However, Bitcoin exchange BTC.sx has launched a new service "Magnr" which "provides the first Bitcoin savings accounts." The company promises 2.18% profit for six months from the deposit. The most important thing the company representatives noted was the ability for investors to check the safety of their funds through the Bitcoin blockchain:

One key feature that sets our deposit system apart from the traditional one is that we conduct all transactions via the blockchain. This makes working with our Bitcoin wallets as transparent as possible, and clients can view the movement of their funds. Traditional financial institutions do not provide transparent record keeping or auditing.

CoinTelegraph correspondents interviewed Joseph Blatchford, Marketing Director at Magnr, and he talked about the basic principles of the system.

CT: Do you use deposits to make loans and do you make loans from fractional reserves?

Josh Blatchford: Currently, deposit assets are not used to issue loans. The trading platform "BTC.sx" works with its own funds, and this will not change with the launch of the Magnr service. However, we plan to use part of client deposits to optimize trading on our platform. We plan to launch this in the near future.

We have analyzed all possible risks and calculated the amount of income that we can guarantee for our clients. This allows us to create a stable business model.

CT: How can customers benefit from the 2.18% deposit rate if Magnr does not provide deposit funds for lending? Is the company profiting from the rise in Bitcoin's value?

JB: We work under the supervision of a cash management business structure. Clients create Bitcoin deposits in the Magnr system, and thereby allow us to securely manage their funds. Our business model works on a system such that a client can withdraw one Bitcoin from the account for every one Bitcoin deposited.

We conducted a thorough analysis before creating our business model, and also calculated all the possible risks associated with it. Thus, we have received a guaranteed income of 2.18%, which we can offer to our clients in the next six months. This advertising rate is the first. After six months, we will recalculate interest rates and determine the appropriate size of the further rate. This process will be repeated at the end of each cycle, which will maintain an adequate level of deposit income for our clients.

Our earnings are denominated in Bitcoin only, which means we do not face exchange rate risk when dealing with "BTC.sx" and Magnr. We earn income in Bitcoin and we also pay interest in Bitcoin. Thus, we do not profit from the increase in the value of Bitcoin.

CT: What is the difference between Magnr and a regular bank?

JB: Traditional financial institutions use assets to make loans or to invest in other asset classes. This ensures high income for themselves, and part of the income is passed on to the client. We work according to a similar scheme, only in the cryptocurrency system. So our system is not suitable for traditional markets.

One key feature distinguishes our deposit system from the traditional one - we conduct all transactions via the blockchain. This makes working with our Bitcoin wallets as transparent as possible for our customers. Traditional financial institutions do not provide such conditions for transparent reporting and auditing.

We use deposited funds on our trading platform "BTC.sx" and traders use these funds as a loan to invest. Currently, the company has sufficient assets to cover any loan. The market is evolving and we may consider other types of assets to provide additional loans. However, we must maintain high liquidity for these assets. This will allow us to meet the requirements of our customers.

CT: Let's assume the user wishes to withdraw his funds. Will he receive his funds along with interest in Bitcoin or in dollars?

JB: Our company only uses Bitcoin. If the user wants to withdraw his funds, he will receive the deposit amount and interest in Bitcoin.

CT: You ensure the safety of deposits. What tools do you use for this?

JB: Fund security is our priority. We use cold storage, conduct audits of financial transactions, and also use multi-signature technology from BitGo. We manage personal keys on behalf of clients offline.

CT: Do you provide any other traditional banking products? For example, direct payment platforms? Users cannot withdraw deposit funds from their account during the active period of the deposit agreement?

JB: We are considering opportunities to expand the range of traditional banking services. Deposit money is available, however withdrawals can only be made once per day for security reasons. Please remember that Magnr savings accounts are not Bitcoin wallets. We plan to create two levels of accounts. At one of the levels, money will not be available while the deposit is active. However, customers will receive higher interest rates for this.

Recently, a rather remarkable event occurred in the world of Bitcoin. A block was mined in which premium 12.5 BTC per block turned out to be less than transaction premiums 13.4 BTC. Of course, such situations have happened before as a result of mistakes, generosity, or various experiments on the Blockchain, but this is the first time such a situation has arisen as a result of a trend in transaction costs.

Perhaps Bitcoin requires banks or their analogues?

Background

It is important that the main reason for the increase in transaction costs is not the increase in the cost of Bitcion, because when comparing blocks we see that the price per byte increased in BTC, from 50 to 1250 satoshi (during the rush period). That is, if we take the tenfold increase in Bitcoin in $, we get that the transaction price increased from $0.15 to $21.7. Obviously, this growth was speculative and there were those who could afford to pay such a price for the transaction. But what about those who expected to pay Bitcoin in a store or use it for micropayments? Even those who would happily switch to other cryptocurrencies were trapped: in order to trade on the exchange, they would need to make at least 1 transaction.

Transaction size and price

Let's look at a simple payment transaction and think about where you can save money.

The minimum size is about 220 bytes. Please note that if we want to pay 1000 people at the same time, then the size of “1 payment” tends to 38 bytes, which is 5 times more profitable. It is also important to try to avoid receiving money from many sources or, if possible, combining them into one transaction. An aggregation of 5000 Inputs = 1 MB is a whole block and costs about $50,000. The question of what to do for a store that accepts 1,000,000 payments per month and then pays off with 100 suppliers remains open.

An interesting point is that the Bitcoin transaction economy is closed: if you want to conduct a transaction, you pay a commission in Bitcoin. Therefore, it is worth studying not the transaction cost in $, which depends on the market rate, but the cost in BTC. The value in BTC increases, 10 times in 1 year, because the volume of transactions increases.

Bitcoin Scalability

There are 3 obvious ways to increase productivity:

Increase block size
- Increase block mining speed
- Reduce transaction size

The first two directions are closely related to each other, because validating 1 MB can take one minute or more + time is still needed to distribute the block throughout the network to prevent the occurrence of a fork. At the moment, work is underway to speed up validation and distribution in the network, but the possible acceleration here is only 2-4 times, given that Bitcoin already has 4 MB Segwit blocks.

Reducing the transaction size is the most promising piece. The principle of the Lightning Network is to exchange debt off-chain and commit it much less frequently. Unfortunately, this principle only applies if you constantly interact online with one agent. This principle has a nice mathematical basis, but in practice, if you make a large number of transactions with someone, you can use similar approaches without the Lightning Network. The most successful approach would be if the transaction cost tends to 0. Because even the smallest entry in the blockchain is already 65 bytes, taking into account Segwit this is 4-8 times more.

Help from other blockchains

The main disadvantage is that people want to use Bitcoin, and this can only be guaranteed by the Bitcoin Blockchain. Exchanging coin during a transaction leads to the fact that transactions will still have to be carried out in the Bitcoin system. You can try to collect money in Bitcoin, as Mastercoin did, and be an independent blockchain by recording your transactions in the Bitcoin blockchain, but even here, the growing transaction fees threaten big troubles.
Today, Plasma offers an interesting solution with a sub-blockchain and an arbitration system, but it is not without its drawbacks.

Time for Bitcoin Banks?

Nobody likes the word “bank” in the crypto world because it is inevitably associated with fiat money and draconian loans. The interesting thing is that in the real world, banks face similar scalability problems. By giving our money to the bank and using a plastic card for payments, the bank does not immediately transfer the money to another bank, but issues a promissory note and makes mutual settlements later.

This scheme scales perfectly, but, of course, we have no desire to apply it directly to Bitcoin. The main problem: if the bank’s debit and credit do not match and the bank expects a collapse, then we will no longer receive any Bitcoin from it. And this is exactly what we want to avoid when using Bitcoin. Our money must remain with us and be securely stored.

Loan for operating expenses

Cashing out and receiving salaries

6ank networks

In fact, it is much more correct if this blockchain network is provided by the state, because this is the primary basis for calculating taxes: VAT, income tax, turnover tax. Of course, this is unlikely to happen, because Bitcoin in this case will be a supranational currency and literally an ideal offshore zone.

Subscription fee

In a network of banks, the most important thing is the reputation that a certain bank will be able to pay off its debts to other banks, and, of course, we will have to pay for this. Otherwise, any collapse of one bank will inevitably affect the balance of accounts of other banks.

P.S. I think that banks are not a relic of the old financial system, but also the locomotive of the new system. True, banks will have to go a long way to become a Bitcoin bank.

Bitcoin is the most popular virtual currency. Electronic payment between two parties takes place without intermediaries. The commission is either very small or non-existent. Information about all transactions in the system is recorded in a single open register.

Transactions in electronic currency systems are often very difficult to track. No personal information is required for Bitcoin transactions. According to the Central Bank of Russia, the Bitcoin system can become a tool for money laundering and terrorist financing.

Bitcoin Bank

Bitcoin-Bank was opened by a small Berlin startup company, Bit Trust Services. There, clients can receive full consultation about cryptocurrency and register in the system. And owners of a virtual wallet can exchange their bitcoins for euros or vice versa.

Photo: Austrian public broadcaster.

Austria is one of the few countries that does not prevent the circulation of cryptocurrency in the economic system. The first Bitcoin ATM appeared there three years ago. And in the capital, Vienna, about 20 companies and establishments accept bitcoins for payment.

Cryptocurrency exchanger

The project gained clearer prospects after Russian President Vladimir Putin recommended that legislators work on the status of blockchain and cryptocurrencies in the country.

The main task of such a structure will be to guarantee transparency for investors who want to invest in blockchain projects. The depository will settle transactions using blockchain and traditional assets, serving as a kind of cryptocurrency exchange for businesses.

The National Settlement Depository is a subsidiary of the Moscow Exchange, which, in turn, is owned by both state and private entities.

On October 24, it became known that Putin instructed the government and the Central Bank to establish requirements for the organization of cryptocurrency mining, as well as organize the registration of business entities carrying out such activities. In addition, he proposed creating a regulatory platform based on the Central Bank.

Bitcoin exchange machine in Boston. Photo: Bitcoin Teller SIBOS Boston 2014 / Wikimedia Commons / CC-BY-SA-3.0

According to Vladimir Putin, digital money should be legalized, but with restrictions. It is important not to create unnecessary barriers, but to create conditions for improving the financial system, as he believes. Regulation should protect the interests of citizens and businesses, the head of state emphasized.

On October 11, the head of the Ministry of Finance, Anton Siluanov, announced that the authorities were going to take control of the issue and circulation of cryptocurrencies. A bill on their regulation will be developed by the end of the year.

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