Banks Want to Turn Off Bitcoin as a 'Public Utility' for Money
Developing nations are waking up to the opportunities that Bitcoin and open blockchain technology can provide to the world’s poorest and financially excluded citizens, while banks appear to stifle their efforts and simultaneously develop their own privatized blockchain ledgers. Is it fair to explain private ledgers as another way to profit at the expense of a public utility?
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Disclaimer: The author of this article is an employee of Bitt.
‘Part of Everyday Life’
On February 26, 2015 the Federal Communications Commission (FCC) of the United States announced, for the first time, the classification of broadband internet as a public utility. The FCC banned “paid-for priority lanes”—where cable companies and other internet service providers (ISPs) charge fees to websites for faster access—and “throttling,” i.e. the intentional slowing of internet speed to specific users. These monopolistic practices threaten a public good which, according to President Barack Obama, “has become an essential part of everyday communication and everyday life.” To FCC Chairman Tom Wheeler, “the internet has become too important to let broadband providers be the ones making the rules.”
This example of ISPs attempting to monetize their monopoly on a public good is axiomatic to the history of antitrust regulation and economic theory. In The Wealth of Nations, Adam Smith famously quips “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” To Smith, collusion and cartelization amongst dominant industry leaders are features—not aberrations—of capitalism.
At the moment, Bitcoin (BTC) and the Blockchain technology that supports it are far from “an essential part of everyday life.” However, as BTC proliferates and the volume of transactions handled on the blockchain rises, regulators across the planet struggle to develop rules to regulate the emerging technology. New York, for its part, has taken a stringent approach similar to bank regulation, whereas most regulators appear to adopt a “wait-and-see” approach, studying and awaiting an “essential part of everyday life” moment.
Privatizing the Blockchain
Private sector giants like JP Morgan Chase and Citigroup have already made up their minds on how Bitcoin should be treated.
Banks have been cutting off the commercial banking services of nearly every U.S.-based start up at the mention of the word “Bitcoin.” Many such banks are developing their own private blockchains to compete with Bitcoin’s “public ledger.” In July of 2015, Citigroup announced the development of “Citicoin,” a private currency issued by the bank on a private exclusive blockchain that it maintains.
This familiar pattern of anticompetitive behavior has drawn the ire of some regulators. On October 19th, 2015 the Australian Competition and Consumer Commission (ACCC) launched an investigation into whether banks developing blockchain technology are “colluding to block emerging competitors” through these bank account closures. In February of 2016, however, it concluded that no collusion occurred between the banks, but left open the question of whether they were acting independently. This may represent the beginning of a contentious battle between Bitcoin, which is essentially a public utility for money, and the providers of financial services this technology is designed to outmode.
The distinction between an ‘open blockchain’ like the Bitcoin blockchain and the private blockchain designed to run Citicoin is a lot like the distinction between a public water utility and a private bottler. The Bitcoin blockchain is not owned by anyone and all of the information for every transaction ever to occur in bitcoin is publicly available. Transactions are rapid, and their costs are negligible; usually a tiny fraction of a percent. This novel transaction recording system is maintained by rewarding “miners” with a share of a predetermined daily allotment of bitcoins for contributing computing power to the recording and transmission process.
Presumably, the Citicoin blockchain will be funded directly by Citigroup, with the ledger remaining private and proprietary to Citigroup, and fee structures set according to the interest of Citigroup’s shareholders. In other words, the Bitcoin blockchain is designed to promote public utility, whereas any private blockchain would promote private profit for its sole owner.
Much like their counterparts in the financial sphere, if it were up to the private bottlers there would be no public water available to massively undercut their market share.
According to Nestlé Chairman Peter Brabeck-Letmathe “access to water is not a public right.” In Michigan Citizens for Water Conservation v. Nestlé, the company wrested the right to protect against irreparable damage to the state’s public water supply from the public.
Then, in September of 2013—despite obvious conflicts of interest and a collection of signatures of nearly 10% of the state protesting the decision—the company received a 25-year contract to extract water in Maine by a unanimous three-member Maine Public Utility Commission (MPUC) decision where all three members were former Nestlé executives and lobbyists.
The situation faced by the global public, particularly in developing nations, regarding access to ‘fresh and clean’ financial transactions and money is even more anticompetitive and usurious. The Economist determined that in Brazil, for example, it costs resident Bolivians 14% to send money home to Bolivia. Contrast this to the >0.1% transaction costs on the Bitcoin blockchain, and it is clear why big banks and financial companies see Bitcoin as a threat to their profit margins.
Public Utility for Money
In Caribbean nations, the impact of “de-risking”—North American and European banks severing ties with customers and correspondent banks in less affluent countries due to perceived money laundering risks—is throttling financial inclusion and threatening the economic stability of the region. In a world where seventy five percent (75%) of international banks report terminating correspondent banking ties, Caribbean Nations—widely considered the hardest hit region globally—find themselves in the same position as the marooned Bitcoin start-ups in the developed world.
In Belize, for example, U.S. banks have terminated correspondent relationships with five of the seven domestic banks, including the largest, Bank of Belize. To this end, the Central Bank of Barbados published a 2015 paper by economists Jeremy Stephen and Winston Moore arguing for central banks in the Caribbean to hold Bitcoins as a part of their asset portfolio. It seems the region is sorely in need of commercial banking services, money transmission services, and decentralized stable currency reserves, all of which can be uniquely provided by the Bitcoin blockchain.
Lakes and aquifers do not require the same financial incentives as Bitcoin miners, and it took the Bitcoin protocol to create a similar utility for money as that which has always existed in fresh water sources. Companies like Bitt—a Caribbean bitcoin exchange and mobile money provider designed to “empower everyone” with low cost financial services—harness this new public utility to provide inexpensive financial transactions and settlement systems to the unbanked and underbanked citizens of the world.
Unfortunately, Bitcoin is not yet part of “everyday life” in the developing world, and until it is, the groups extracting large profits by keeping access to financial services expensive and private will do everything they can to keep the true potential of the global economy underwater.
Do you think money should be treated as a public utility? Is Bitcoin a way to ensure that financial services are available to everyone? Let us know in the comments below!
Images courtesy of forbes.com, deadline.com, samaritanspurse.org, wiki