Bitcoin Exchange Seeks To Become Bank: Bitcoin Dies A Little Inside
Click to View Cartoon. Source: JoyOfTech.com
Today Reuter’s reports that New York Bitcoin exchange itBit has applied for a banking license and that “approval for the license may come in the next couple of weeks.”
The Benefits of a Bitcoin Exchange Becoming a Bank
There can be no doubt, I suppose, that gaining the status of a bank would help itBit to expand the services it is able to offer its customers, as well as making it easier for the firm to do business with other financial services companies.
Following a seemingly endless series of thefts from Bitcoin exchanges, the seal of approval from financial authorities and additional oversight which goes with it may also help potential customers to feel that they can trust itBit with their money.
As David Berger, CEO of the Digital Currency Council, points out:
“Whether fairly or not, companies that work within the regulatory framework are more trusted by customers and partners.”
Bitcoin Dies A Little Inside
But does ‘bank’ status really benefit an exchange’s users? Personally, I can’t help thinking that it is an costly distraction.
Bitcoin exchanges have been hacked and stolen from because they are centralized entities on an open and decentralized network. The whole point in Bitcoin is that it removes the need for central authorities who can confiscate or lose your money — or require huge bailouts and insurance backing from government (which your taxes have pay for) in order to survive.
And does ‘bank’ status really imply that an exchange is secure? A look at the stats for bank fraud suggests otherwise. For example, the UK Card Association seem pleased to report that card fraud in the UK only represents 0.75% of all money spent on cards, whilst noting that deception fraud and hacking continue to represent a major threat. The fact is, banks lose a massive amount of money to hackers and thieves every day. If you are looking for security, the coming wave of decentralized exchanges seem to me to represent a better bet than a centralized exchange with the stamp of approval from the regulators who brought you the 2008 global financial crisis.
For a Bitcoin exchange to become a bank would seem to many like a betrayal of everything Bitcoin was supposed to achieve, and to many others as if it simply misses the point — counteracting any advantage to be gained from using Bitcoin in the first place.
Please share your opinions — is this development a good thing? Should more exchanges seek to become Banks? Would this make you more or less likely to use itBit?
Originally published at cryptonewsday.com on April 24, 2015.