While many people think of Bitcoin as a currency, Jaron Lukasiewicz, CEO and co-founder of Coinsetter, says Bitcoin should be thought of more as a payments infrastructure, allowing quick, inexpensive funds transfer. But for Bitcoin to thrive, banks must agree with this perspective.
"It's no surprise that banks are scared of Bitcoin," says Lukasiewicz at the Inside Bitcoins conference in New York on July 30. Because banks don't understand where the money goes after it's exchanged into bitcoins, banks are hesitant to make those transactions, he says.
"It's really worth focusing on Bitcoin as an IP address for money," he says. "There are so many closed payment networks and Bitcoin is an opportunity to allow them to open up and transfer money to each other."
But Bitcoin has a rocky relationship with banks today. Bitcoin exchanges and administrators are now categorized as money transmitters under the Financial Crimes Enforcement Network's guidance for virtual currency, issued in March. Several banks have closed Bitcoin business' bank accounts, forcing the businesses to halt operations.
If you "build a platform so that banks can digest what's going on in Bitcoin then you'll be a millionaire," he says.
For decades the payments system has remained stagnant, but there's no reason why sending money should be so difficult, Lukasiewicz says. "The current financial system is outdated," he says. "Bitcoin is an example of customers saying these products aren't good enough."
PayPal and other payment networks will start feeling the pressure to accept Bitcoin soon, he says. David Marcus, PayPal's president, said in an April interview with Bloomberg that PayPal is evaluating Bitcoin as a funding instrument.
Bitcoin's traits include speed, pseudonymity, public ledgers, irreversibility, network decentralization and personal control, says Lukasiewicz. The availability of these features in a digital currency has started a conversation in the broader payments industry about the need to change to catch up with the times, especially in a globalized world, he says.
The prospect of Bitcoin as a payment platform echoes that of OpenCoin Inc., which created the Ripple protocol to enable quick, inexpensive money transfer without regard to the currency being traded.
Ripple's CEO, Chris Larsen, tackled similar regulatory issues when he headed the P2P loan facilitator Prosper Marketplace. Larsen is a founder of the Committee for the Establishment of the Digital Asset Transfer Authority, which launched July 30 to act as a self-regulating body for virtual currency companies.
"It's definitely worth taking the 30 hours to understand Ripple and understand it well," Lukasiewicz says. While Ripple and Bitcoin are different, he says, Bitcoin needs the tools OpenCoin built into the Ripple protocol.