Bitcoin and banks: Competition? Collaboration!

April 2021 – Cryptocurrencies and especially Bitcoin are currently soaring. What does this mean for the future of the financial system and in particular the role of banks? HCOB's Chief Economist Dr. Cyrus de la Rubia has now responded in detail in the finance-scene podcast "Bitcoin, Fiat und Rock’n Roll".

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"Is it money, or is it a passing phenomenon?" asked Cyrus de la Rubia at the start of 2021, somewhat heretically, in his regular guest commentary for manager-magazin.de. His immediate answer: "no, this is not a passing phenomenon." Even if some currencies may disappear from the market again, de la Rubia is sure that cryptocurrencies are here to stay. "Bitcoin, or more specifically the technology it has brought into being, has a disruptive potential to a high degree," he says.

Bitcoin has also already arrived in the "real economy". Electric car pioneer Elon Musk announced at the beginning of 2021 that he would invest billions in cryptocurrency. And car company Tesla in the future will also accept customer payments in digital coinage for newly delivered vehicles. A few days ago, Coinbase, a trading platform for digital currencies, ventured onto the floor of the New York Stock Exchange – and it is already more valuable than the US technology exchange Nasdaq and the London Stock Exchange combined.

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Digital currencies offer many advantages

The advantages of digital currency are obvious: Bitcoin can be transferred directly from one user to another. Unlike existing payment systems, there is no intermediary such as a bank. "Far more revolutionary now, however, is the idea behind the Ethereum blockchain: Instead of the Bitcoin-Blockchain being specialized on payments Ethereum is a so called general purpose Blockchain, where all kinds of data can be stored, including digital contracts and assets, so-called Smart Contracts," says the Chief Economist at HCOB. Financial services from the old world – loans, payment transactions, stock exchange trading and identity management – are carried over to the new blockchain world. The promise is that the processes will become largely automated, more error-resistant and less labor-intensive. "Despite the abundance of projects, what is still missing is the catalyst to give the sector the impetus to get out of the niche. The planned digital euro could be such a catalyst," says de la Rubia.

De la Rubia has been working with Bitcoin since 2013. "Initially amazed to confused, then increasingly interested and impressed," says de la Rubia. He is one of the few who knows both worlds very well: that of traditional finance and that of digital currencies. Until now these two sectors have talked more about each other than with each other. For Cyrus de la Rubia it is different – and, due to his extensive knowledge of both worlds, he also has reassuring messages for all involved. "Bitcoin will become established in the long run – and could even take on an important role in international payments, for example. However, I do not believe that Bitcoin poses a threat for the business model of banks." Rather, the Chief Economist sees a great opportunity for banks to create an interface between the traditional finance and business world and the world of cryptocurrencies. One example being, that banks crypto-assets from their customers in secure custody.

In the "Bitcoin, Fiat und Rock’n Roll" podcast, de la Rubia speaks about this and more with digital money experts, Alexander Bechtel and Jonas Gross. And also on the subject of the enormously high energy consumption of cryptocurrencies. According to the "Cambridge Bitcoin Electricity Consumption Index" from the University of Cambridge, the Bitcoin system now consumes more electricity per year than all of Sweden. In mid-April 2021, that amounted to around 0.6 percent of global electricity consumption.

Alongside the energy consumption of Bitcoin, the episode also discusses blockchain technology in general and what role banks could play in the crypto-ecosystem. Is the blockchain a danger or an opportunity for banks? What potential does this technology have for the banking landscape?

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Dr. Cyrus de la Rubia

Economics

Phone: +49 40 3333-15260
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