Bitcoin and the Future of Blockchain in International Payments Systems, International Payment Methods and Solutions, American Express FX International Payments

Bitcoin and the Future of Blockchain in International Payments Systems ARTICLE

By Frances Coppola

In 2009, an anonymous coder using the pseudonym Satoshi Nakamoto created the world’s very first digital currency. It was underpinned by a revolutionary technology – the “Blockchain” – enabling near-instantaneous international payments to be made without using intermediaries. Bitcoin is the currency’s name: bitcoins are its units.

A bitcoin is a number associated with a particular Bitcoin address, which is assigned to a user by means of an encrypted electronic signature. Bitcoins are created as a prize for digital puzzle-solving: the process of creating them is called “mining.” As more bitcoins come in the international payment system, mining “undiscovered” ones becomes more difficult, requiring greater computing power. The energy cost of bitcoin mining is now considerable. Some miners locate themselves in places such as Iceland where energy is abundant and cheap, but many people question whether this energy could be more productively used.

Bitcoin – How Does This Online International Payments System Work?

When a Bitcoin user sends a bitcoin to another user, the bitcoin number is reassigned from the sending address to the receiving one. Bitcoin users “see” this as bitcoins “moving” from the sender’s wallet to the recipient’s, just as a dollar bill “moves” from the sender’s back pocket to the recipient’s in a physical cash transaction. Bitcoin’s distributed ledger records the switch in the balance in both “wallets.”

Because Bitcoin keeps a permanent record of bitcoin movements distributed across all computers in the Bitcoin system, it is not as anonymous as physical cash. It is more like an international payments system.

In the wake of the two thousand eight financial crisis, Bitcoin’s semitransparent peer-to-peer nature appealed to people weary of cracked banks. Computer-literate people adopted Bitcoin as the symbol of the fresh technology that would save a failing financial system. Investors worried about inflationary consequences of the central banks’ quantitative easing valued its gold-like nature: since no more than twenty one million bitcoins could ever be mined, there was no risk of value destruction through hyperinflation. And because Bitcoin is neither issued nor managed by governments, it attracted those who did not trust government – or wished to avoid government attention.

The uncontrolled and untraceable nature of Bitcoin quickly made it the currency of choice for online drug dealers and money launderers. Even after the Silk Road website was closed down by the FBI in two thousand thirteen 1 , Bitcoin’s reputation as the “criminals’ currency” proved hard to shift. In 2015, a examine showcased positive correlation inbetween Bitcoin use and criminal behaviour. Two

But Bitcoin is becoming more respectable, gaining acceptance in retail outlets as well as for legitimate online international payments. Physical bitcoins have been minted since September 2011, and the very first Bitcoin ATM went into service in Vancouver, Canada, in October 2013.

As more bitcoins entered circulation, exchanges such as the Tokyo-based Mt. Gox sprang up to enable users to buy and sell bitcoins. Bitcoin funds also appeared, some – such as Bitcoin Central – suggesting banking-like services. Online marketplaces accepting Bitcoin proliferated. Unluckily, the anonymity of Bitcoin made funds, exchanges and marketplaces targets for hackers: there were numerous thefts, often involving large quantities of bitcoins. Fraudulent investment schemes also appeared, suggesting fictitious comes back to unwary investors.

Inevitably, Bitcoin attracted the attention of regulators worried about money laundering, tax evasion and fraud. Three A few countries – like Iceland and Ecuador – have banned Bitcoin totally, while a larger number (China, India, many European countries) have restricted its use. Most countries now tax profits from Bitcoin trading and investment. So far, few countries recognize Bitcoin as “money”, however – significantly – the US does: in the US, Bitcoin exchanges must be registered as “money transmitting businesses”. Four

Challenges Faced By The Bitcoin

As an international payments system, Bitcoin faces a dilemma. Will it remain a niche technology, or could it challenge existing international payments providers? Under current protocols, Bitcoin has significant capacity thresholds. If it is to become a world-leading payments solution, the Bitcoin community must agree to increase the size of the blockchain, so that Bitcoin can treat larger volumes swift and efficiently. Five So far, no agreement has been reached.

Bitcoin also has its own challengers. The Ethereum virtual currency offers the same anonymous transaction capability as Bitcoin, but takes it a stage further, with “smart contracts” that enable consumers to set their own legal terms and conditions. Six Other banks are developing fresh international payments systems based on Ethereum blockchain technology. 7

The Takeaway

Bitcoin is still a long way from becoming an international settlement currency to rival the US dollar, let alone a substitute for government-issued fiat currencies. But governments are very interested in blockchain technology as a solution to central clearing problems. Eight In addition to competition from Ethereum and others, Bitcoin may soon be challenged by digital currencies issued by central banks.

But whether or not Bitcoin itself survives these storms, one thing is clear. Blockchain technology is set to revolutionise international payments.

The Author

With seventeen years practice in the financial industry, Frances is a very regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the Fresh York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the Big black cock and RT TV.

Bitcoin and the Future of Blockchain in International Payments Systems, International Payment Methods and Solutions, American Express FX International Payments

Bitcoin and the Future of Blockchain in International Payments Systems ARTICLE

By Frances Coppola

In 2009, an anonymous coder using the pseudonym Satoshi Nakamoto created the world’s very first digital currency. It was underpinned by a revolutionary technology – the “Blockchain” – enabling near-instantaneous international payments to be made without using intermediaries. Bitcoin is the currency’s name: bitcoins are its units.

A bitcoin is a number associated with a particular Bitcoin address, which is assigned to a user by means of an encrypted electronic signature. Bitcoins are created as a prize for digital puzzle-solving: the process of creating them is called “mining.” As more bitcoins come in the international payment system, mining “undiscovered” ones becomes more difficult, requiring greater computing power. The energy cost of bitcoin mining is now considerable. Some miners locate themselves in places such as Iceland where energy is abundant and cheap, but many people question whether this energy could be more productively used.

Bitcoin – How Does This Online International Payments System Work?

When a Bitcoin user sends a bitcoin to another user, the bitcoin number is reassigned from the sending address to the receiving one. Bitcoin users “see” this as bitcoins “moving” from the sender’s wallet to the recipient’s, just as a dollar bill “moves” from the sender’s back pocket to the recipient’s in a physical cash transaction. Bitcoin’s distributed ledger records the switch in the balance in both “wallets.”

Because Bitcoin keeps a permanent record of bitcoin movements distributed across all computers in the Bitcoin system, it is not as anonymous as physical cash. It is more like an international payments system.

In the wake of the two thousand eight financial crisis, Bitcoin’s semitransparent peer-to-peer nature appealed to people weary of violated banks. Computer-literate people adopted Bitcoin as the symbol of the fresh technology that would save a failing financial system. Investors worried about inflationary consequences of the central banks’ quantitative easing valued its gold-like nature: since no more than twenty one million bitcoins could ever be mined, there was no risk of value destruction through hyperinflation. And because Bitcoin is neither issued nor managed by governments, it attracted those who did not trust government – or wished to avoid government attention.

The uncontrolled and untraceable nature of Bitcoin quickly made it the currency of choice for online drug dealers and money launderers. Even after the Silk Road website was closed down by the FBI in two thousand thirteen 1 , Bitcoin’s reputation as the “criminals’ currency” proved hard to shift. In 2015, a investigate showcased positive correlation inbetween Bitcoin use and criminal behaviour. Two

But Bitcoin is becoming more respectable, gaining acceptance in retail outlets as well as for legitimate online international payments. Physical bitcoins have been minted since September 2011, and the very first Bitcoin ATM went into service in Vancouver, Canada, in October 2013.

As more bitcoins entered circulation, exchanges such as the Tokyo-based Mt. Gox sprang up to enable users to buy and sell bitcoins. Bitcoin funds also appeared, some – such as Bitcoin Central – suggesting banking-like services. Online marketplaces accepting Bitcoin proliferated. Unluckily, the anonymity of Bitcoin made funds, exchanges and marketplaces targets for hackers: there were numerous thefts, often involving large quantities of bitcoins. Fraudulent investment schemes also appeared, suggesting fictitious comebacks to unwary investors.

Inevitably, Bitcoin attracted the attention of regulators worried about money laundering, tax evasion and fraud. Three A few countries – like Iceland and Ecuador – have banned Bitcoin downright, while a larger number (China, India, many European countries) have restricted its use. Most countries now tax profits from Bitcoin trading and investment. So far, few countries recognize Bitcoin as “money”, tho’ – significantly – the US does: in the US, Bitcoin exchanges must be registered as “money transmitting businesses”. Four

Challenges Faced By The Bitcoin

As an international payments system, Bitcoin faces a dilemma. Will it remain a niche technology, or could it challenge existing international payments providers? Under current protocols, Bitcoin has significant capacity boundaries. If it is to become a world-leading payments solution, the Bitcoin community must agree to increase the size of the blockchain, so that Bitcoin can treat larger volumes swift and efficiently. Five So far, no agreement has been reached.

Bitcoin also has its own challengers. The Ethereum virtual currency offers the same anonymous transaction capability as Bitcoin, but takes it a stage further, with “smart contracts” that enable consumers to set their own legal terms and conditions. Six Other banks are developing fresh international payments systems based on Ethereum blockchain technology. 7

The Takeaway

Bitcoin is still a long way from becoming an international settlement currency to rival the US dollar, let alone a substitute for government-issued fiat currencies. But governments are very interested in blockchain technology as a solution to central clearing problems. Eight In addition to competition from Ethereum and others, Bitcoin may soon be challenged by digital currencies issued by central banks.

But whether or not Bitcoin itself survives these storms, one thing is clear. Blockchain technology is set to revolutionise international payments.

The Author

With seventeen years practice in the financial industry, Frances is a very regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the Fresh York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the Big black cock and RT TV.

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