Bitcoin similar to forex exchanges. Unfortunately, due

Bitcoin is a virtualcurrency, or technically known as cryptocurrency,which is not controlled by any centralized system and is not subject to anyrules or regulations of a central banking authority or any national government.There are numerous cryptocurrencies in active use today, but Bitcoin is byfar the most popular and massively used. It is also used as payment forservices performed or to pay outstanding debts. It is exchanged for othercurrencies, both traditional and virtual, on electronic exchanges similar toforex exchanges. Unfortunately, due anonymity attached to holder’s information,it is also being used for illegal activities, such as buying and selling ofillegal drugs on “dark web” marketplaces. It has a very robust and sophisticatedsystem (code) in place for its security. Anyhow, since it is a currency, itaffects the banking system.

Through this paper we will analyse the pro’s and consof Bitcoin for banking system.Over the past fewyears Bit coin has been gaining a lot of attention of world. By the end of2015, this cryptocurrency turned out to be the world’s best performing currencyby gaining 35% in just 12 months. Conventionally, transactions between twoparties have functioned under a centralised system, meaning that an independentintermediary body sits between two parties (usually the banks of the twoparties) to securely process the payment. Unvaryingly, this intermediary bodyis a central bank. The technology behind bitcoin operates via decentralisedsystem. This means that a transaction between two parties is direct and counton multiple reliable copies of the ledger that is distributed to a huge networkof bitcoin users around the globe, who are witness to any changes.

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This makesthe ledger undoubtedly more secure and less prone to nefarious manipulationwhich is difficult to control in a centralised system, in which there is onlyone central agency which securely records all the transactions. As digitalcurrencies are emerging, the predilection for a decentralised system of paymentis increasing and would eventually make bankredundant as an intermediary body. Since no body controls the informationrelated to transactions in bitcoin, it can be used to illegally launder moneyout of the country. Central banks can nottrack all the economic activities. With no surcharge on bitcointransactions, it is pushing for lowering the credit/debit card transactioncharges which would be a direct hit tobanks revenue.

As the volatility of Bitcoin increases, transactions in nationalisedcurrencies decreases affecting the operations of banks. With the increase inuse of bitcoins it portrays the declining trust of people in regulatedcurrencies. Bitcoin transactions are irreversible,and no alteration can be made once the transaction has been done. This makes itimpossible to correct or reverse any mistaken transaction. As transaction isrecorded when a copy of it reaches every user. Now imagine everyone usingbitcoin and all of them receiving reports of all transactions happening in theworld, which seems like impossible! It does not stand the test of scalability.Bitcoinis beneficial for banking industry in several ways. Bitcoin is beneficial forbanks when used as an investment service,similar to an ETF, provided they are allowed to trade bitcoins legally.

 this will help reduce bitcoin’svolatility and provide banks a source of fee revenue. Bitcoin according to its creators and supporters caneliminate the issue of inflation asit will adjust according to the demand and supply. If banks are legally allowedto trade or to make transactions in bitcoins, then banks can use the speed and cost efficiency of bitcoinsand save on its input cost of working. Bitcoin provides better accessibility with secure terminal fortransactions in those part of world where banking system is not robust enough.The anonymity associated with the user is boon as well as bane. It gives itscustomer privacy of transactions It performs.

It also eliminates the exchange rate problem between variouscurrencies of country. As the economies of the world are not fully integrated,currencies continually fluctuate making it difficult to trade in commoditiesoverseas. Bitcoin is also leading a new era of banking with technological revolution in the methodof transactions occur around the world. This puts forward future to the bankingindustry which is more integrated, comprehensive, secure and efficient.

TheBank for International Settlements (BIS), jointly owned by the world’s leadingcentral banks, noted in November that bitcoin could disrupt the ability ofcentral banks to exert control over the economy, as well as issue money.Although such concern was explicitly based on the assumption that “widespreadadoption” would first be required, the BIS warned that digital currencies couldpresent “a hypothetical challenge to central banks, not through replacing acentral bank with some other kind of central body but mainly because it reducesthe functions of a central body and, in an extreme case, may obviate the needfor a central body entirely for certain functions”. Banks such as the US Federal Reserve and Bank of Englandare taking measures to maintain stability and security within financialsystems. Although banks are the foremost critic of cryptocurrencies, they areones who are investing the most in block chain transactions which is makingcryptocurrency stronger. It shows even though cyber currency poses a possiblethreat to banks, banks know where the future of banking industry lies. They areworking together towards replacing this unauthorised and unregulated currencywith their own cyber currency. Will this venture of their be successful or not,only time will tell.    International Banker.

(2018). The Impact ofBitcoin on Central Banks. online Available at:https://internationalbanker.com/banking/impact-bitcoin-central-banks/ Accessed10 Jan. 2018.

Jain, Y. (2018). 5 Impacts of Bitcoin onEconomy, Banking & Finance.

online Newgenapps.com. Available at:https://www.newgenapps.com/blog/impact-of-bitcoins-on-the-economy-banks-financeAccessed 5 Jan.

2018.Coin Desk. (2018). UBS: Banks Could ‘Absorbthe Benefits’ of Bitcoin. online Available at:https://www.coindesk.com/swiss-bank-ubs-banks-absorb-benefits-bitcoin/Accessed 5 Jan. 2018.

Anon, (2018). online Available at:https://openaccess.leidenuniv.nl/bitstream/handle/1887/42104/Bitcoin%2C%20The%20Pros%20and%20Cons%20of%20Regulation.

pdf?sequence=1Accessed 5 Jan. 2018. 

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