Has it really been months since I last wrote an update on the bitcoin industry? Gather ’round, forex folks, and lemme get y’all up to speed on how bitcoin technology has been making waves in the financial markets.
Major global banks team up in blockchain initiative
From being scorned as the medium of exchange typically used by hackers or criminals seeking to cover their tracks, bitcoin is now being closely studied by governments and large financial institutions in well-funded innovation labs for its more practical applications. In particular, the blockchain or the distributed public ledger of bitcoin transactions is being tapped for its uses in record-keeping, smart contracts, and trade settlement.
Last month, nine major global banks announced their plans to make a collaborative effort in terms of blockchain research, experimentation, design, and testing. These include the hot shots over at JPMorgan, Goldman Sachs, Credit Suisse, and Barclays. A week later, the group was joined by 13 other large financial institutions such as Citi, Morgan Stanley, HSBC, and Bank of America. Heck, even a large Chinese conglomerate has invested roughly $50 million dedicated to exploring the blockchain. If that doesn’t say legit, then I don’t know what will!
The rise of “cryptosecurities”
Now if you’re wondering what this might have to do with forex trading or financial markets in general, then you should know that companies are already starting to tinker with “cryptosecurities” or bonds that are based on the bitcoin blockchain. Now this could have the potential to transform securities markets into decentralized ones similar to forex!
Overstock, an online retailer, has been working on its Medici project which aims to revolutionize financial trading. The company has even acquired SpeedRoute, a broker-dealer that buys and sells stocks, bonds, mutual funds, and other investment products on behalf of its customers, which happen to be no less than the major asset management companies in Wall Street.
With that, Overstock CEO Patrick Byrne says that the need for middlemen and the hefty costs or time delays associated with trade clearing will be eliminated. Bitcoin enthusiasts say that this is just the tip of the iceberg when it comes to leveraging the potential of blockchain in terms of disrupting the financial industry.
CFTC rules that cryptocurrencies are commodities
When it comes to bitcoin itself, U.S. financial regulator CFTC has ruled that virtual currencies are actually commodities. This is based on the watchdog’s order filing against bitcoin exchange Coinflip, which had offered bitcoin options on its Derivabit platform.
This means that bitcoin and other digital currencies are officially under the jurisdiction of the CFTC, more specifically their Commodity Exchange Act. Bitcoin exchanges and brokers have to register as a swap execution facility or designated contract market like the CME Group if they are offering virtual currency derivatives or futures on their platforms. But hey, regulation could be considered a point in favor of legitimacy too, right?
The block size debate
Of course all these bitcoin industry developments aren’t without challenges, as the latest issue being hotly debated by developers these days is that of the block size limit. The current version of the bitcoin software limits the block size to a maximum of 1MB, which some say is slowing down the amount of transactions that can be processed at a time.
Since there is no central authority governing bitcoin, the entire industry is unsure how to proceed from here. A number of suggestions such as increasing the limit to 8MB or coming up with off-chain solutions have been discussed at length but no actual consensus has been reached just yet. Now this could have ramifications on the industry developments (see above) so y’all better keep close tabs on how it all turns out. Stay tuned ’til my next update!