One of the most captivating panels on the final day of last week’s Blockchain Agenda San Diego was Bitcoin 2.0 and Blockchain Startups: What Really Matters? This panel featured a variety of Bitcoin startup founders, and the main focus of the conversation was disintermediation.
Bitwage Founder and COO Jonathan Chester was one of the speakers featured on this panel, and he explained how Bitcoin and Bitwage are disrupting the legacy banking system via the blockchain. He stated:
“[One] side of the disintermediation comes down to trust, so the side that we are disrupting is the corresponding banking system and how things move from one country to another.”
As Chester noted in his own presentation on day two of the conference, international payments are a key area of disruption for Bitcoin.
Bitcoin Can Disrupt Intermediary Banks
One of the first topics of discussion during the Bitcoin startups panel had to do with the specific industry or business each startup is attempting to disrupt. In Chester’s response, he provided an example of the issues with international payments between specific countries today. He explained:
“A bank in South Africa is sending payments to a bank in Argentina. They send $10,000 to the bank in Argentina. Well, how does the bank in Argentina know that these $10,000 are sent. How does it know that bank in South Africa actually had that $10,000 to begin with? There’s a lack of trust. A long time ago, they maybe put a bunch of gold on a boat and shipped it over. Luckily, we don’t have to do that anymore, but an email doesn’t quite suffice.”
Because bitcoin is digital cash, there are no IOUs involved in the system. When someone sends someone else a Bitcoin payment, that bitcoin is “as good as gold”.
[Read More: Nick Szabo: Bitcoin More Secure Than Gold]
The Correspondent Banking System Has High Costs
Due to all of the intermediaries involved with certain banking relationships, money transfers between some countries can be slow and costly. Chester made sure to hit on the point of regulatory costs associated with international money transfers during his remarks:
“They’ve created a lot of rules and regulations and people have to help maintain these rules and regulations, which has created a lot of costs and delays. The most perfect system they’ve created is this thing called the correspondent banking system, which involves five, six, or seven intermediaries.”
The Bitwage COO then went back to his example of a bank in South Africa sending money to a bank in Argentina. Although this is not exactly how this transfer happens in reality, the idea is that the bank in South Africa would send money to a bank in Dubai, who would send money to a bank in Europe, who would send money to a bank in the United States, who would then finally send the money to a bank in Argentina. It’s obvious that there’s something wrong when there are that many intermediaries involved in a simple transfer of funds.
A New Trust Layer for Banks
In Jonathan Chester’s view, the Bitcoin network can act as an alternative to the current system of intermediary banks. He explained:
“This is all because these banks don’t trust each other. They have private ledgers; they’re not showing each other their ledgers. So what Bitcoin is doing by having this public ledger is inserting a level of trust that just did not exist before. And by inserting that trust you are now disintermediating the [intermediary] banks.”
By using Bitcoin, anyone from an individual to a financial institution can confirm the legitimacy of a payment they receive within roughly ten minutes. In the case where an asset or currency other than bitcoin is desired, the bitcoin can be exchanged for any other asset after it has been received. In such a scenario, Bitcoin is essentially acting as a trust layer between two parties who do not know each other.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.