Slammed doors and legacy flaws
Despite Bitcoin (BTC)’s promise of a peer-to-peer world, building a first Bitcoin business in 2022 still requires third-party intermediaries. Whether it’s seed capital, using fiat currency, or simply operating fiat payment rails, bitcoin activity means interaction with the legacy financial system.
For the vast majority of bitcoin-based businesses, that means they probably need a bank.
Cointelegraph spoke to Bitcoin-only businesses about their experiences working with banks, given that Bitcoin ultimately gets a lot of bad press in the mainstream media. Additionally, some of the banking industry’s biggest proponents love minting Bitcoin. Ben Price, founder of the Bitcoin Company, recently shared that the company has lost “dozens upon dozens of banking partnership opportunities just because we are a Bitcoin company.”
We’ve lost dozens of banking partnership opportunities just because we’re a bitcoin company.
We lost even more for simply following the law and fighting to minimize required user data and renormalize financial privacy.
Most companies simply sell users for convenience.
— abitcoinperson (@abitcoinperson) June 8, 2022
Price was a product manager at Visa for years before founding the Bitcoin Company. He told Cointelegraph that “the goal of the Bitcoin Society is to bring Bitcoin to the world” as it is “a real catalyst for the betterment of our civilization.”
Price became frustrated while working at Visa – not because he was a “hardcore Bitcoin maxi”, but because of the slow progress. According to him, projects related to payments, central bank digital currencies (CBDC), non-custodial wallets and others have been regularly shut down or mothballed. Additionally, the inner workings of the legacy financial system have been called into question. Carman told Cointelegraph:
“And, at the end of the day, Visa kind of serves the banks. They do not serve consumers.
The Bitcoin Company is part of a new line of Bitcoin “neobanks” – banks that treat Bitcoin as a native currency alongside fiat. From The Bitcoin Company in the US to Xapo in Gibraltar to CoinCorner in the UK, Bitcoin neobanks are flexing their financial muscles. In short, they allow people to live on a bitcoin standard and easily interact with the legacy financial system.
Carman explains that Bitcoin neobanks derive from a desire to “hyperbitcoinize” – that is, to drive the mass adoption of Bitcoin – while admitting that only a smaller group of people will adopt Bitcoin like the cypherpunks the had originally planned. He divides Bitcoin users into two groups: cypherpunks who prioritize privacy, bury their seed phrases in the yard, mix their coins, and run Bitcoin nodes; and the remaining 95% of people — like his mother and sister, he explains — who will likely need access to a Bitcoin neobank. According to Carma
“Bringing Bitcoin to most people around the world will likely require a gradual transition from legacy fiat systems to a Bitcoin standard. And to do that, you need to provide both pools.
However, why can’t banks integrate Bitcoin and capitalize on the new technology and profit from Bitcoin’s success? Christian Ander, founder of Swedish bitcoin exchange BTCX, told Cointelegraph, “Many banks have a policy of not engaging with or integrating bitcoin and crypto companies. It doesn’t matter whether or not the company complies with the regulations.
Danny Brewster, CEO of bitcoin trading platform FastBitcoins, told Cointelegraph that bitcoin-only banking firms, such as FastBitcoins, have persisted since 2013. However, banks were initially unwilling to do business with bitcoin due to a ” lack of understanding,” Brewster told Cointelegraph.
Fast forward to 2022, and “Despite regulatory clarification and extensive scrutiny, the broader crypto market is a mess with companies like LUNA, 3AC, and more.” Brewster explained that due to the Terra implosion and subsequent crypto contagion, banks are even more risk averse. He said:
“Banks see this, combined with payment fraud issues, as a huge red flag and headache that they want to avoid. […] I used to naively think it was because they were afraid of being replaced by bitcoin, and time has proven that thesis wrong.
Brewster said crypto scams, wash trade and the darker side of crypto are tarnishing Bitcoin’s reputation: “In one case at a bank, over 90% of all payment fraud cases hit the “crypto” at some point in the flow, it is obvious why as the resulting transaction gives the criminal irreversible funds at the end of the transaction. The constant recurrence is likely to color one’s opinion of Bitcoin , he explains, because Bitcoin and crypto are considered one and the same:
“As you spend your days dealing with this, it will impact your perspective on all things space, and these people also have a say in who the bank chooses to do business with.”
Anders explained that there are many reasons behind banks’ reluctance to integrate bitcoin businesses, from “incompetent anti-money laundering staff and routines regarding bitcoin and crypto assets” to “old money versus new.” [money]debate. However, he suggested that it is wrong to think that Bitcoin is a threat to the bank’s core business model. “In fact, it is not, but the central bank’s digital currency ballast.”
Brewster argued that “CBDCs will follow the path of every announced shitcoin partnership,” suggesting their eventual demise. But if CBDCs are successful, commercial banks could face some competition from an unlikely source.
Related: Bank uses 56 times more energy than Bitcoin: Value Chain Report
Finally, Hal Finney, the first person to mine Bitcoin after Satoshi Nakamoto, predicted the existence of Bitcoin-backed banks in 2010. Finney pointed to scalability issues as the reason for these banks, although the Lightning Network evolved to allow Bitcoin to process infinitely more. transactions. In the meantime, although workarounds exist, companies that favor Bitcoin may be forced to continue to “partner” with banks.
Additionally, Carman conceded that while partnering with banks is a headache, “many merchant partners refuse to work with us (i.e., let us sell their gift cards) because we allow users to buy with bitcoin. […] So it’s not all on the banking side. Indeed, while there are encouraging signs of payment adoption by Bitcoin merchants, fiat is king while FUD reigns almighty.