Citibank's latest Bitcoin report: Bitcoin is an opportunity for banks, not a threat (download the full report)

Citigroup has released a new research report (download the full report) that asserts that Bitcoin and other digital currencies should not be seen as a disruptive threat to banks, credit card networks or traditional remittance providers, but rather as a complement to existing services.

The 56-page report argues that Bitcoin and other digital currencies can better open up new markets and enable banks to acquire new consumers, and that the current centralized payment system is no longer sufficient to cope with today's business scale.

At the same time, Citibank also sees the potential of using public blockchains.

The report states:

“The power behind an open network like Bitcoin enables real innovation when combined with other technologies, such as applications that underpin the Internet of Things (machine-to-machine payments).”

Notably, the report found that Bitcoin and other digital currencies could also impact emerging markets where payment systems are underdeveloped.

The report says:

“In countries without good payment infrastructure, we think open decentralized networks like Bitcoin can find some opportunities in these countries.”

Elsewhere, the report gets a bit fussy about whether bitcoin’s characteristics are good for payments. For example, the report’s authors say they don’t necessarily believe that the immutability or incorruptibility of the bitcoin blockchain is well suited for transferring money.

A number of specific blockchain and bitcoin startups are also mentioned in the report, along with an overview of their digital currencies and blockchain networks, including Ripple, Bitcoin and Ethereum.

TranserWise has more advantages in transfer

The remittance sector was identified as one of the areas most susceptible to enthusiasts, with the report finding that UK money transfer service TransferWise currently makes cross-border payments cheaper than Bitcoin.

Notably, Bitcoin was found to have the lowest cost for transferring funds from the United States to New Zealand, according to the report’s ranking comparison of Bitcoin against TransferWise and account-to-account money transfer options across 10 remittance corridors.

In the remittance channel from the United States, the cost of transferring Bitcoin from the United States to China is cheaper than the account-to-account remittance option.

The report estimates that the transaction fee for the account-to-account remittance option is 3.86%, while Bitcoin is 3.38%. In comparison, TransferWise's payment costs are only 1.48%, which is a clear advantage over Bitcoin.

More criticism

The researchers pointed out that the high cost of converting Bitcoin into fiat currency and the low liquidity of Bitcoin's existing market are challenges that Bitcoin needs to overcome.

More broadly, the report seeks to challenge common perceptions about the bitcoin network, including its use within existing financial business models.

The report states:

“We believe that open networks like Bitcoin, when combined with mobile, machine learning, big data and the Internet of Things, will have the potential to create entirely new business models.”

For example, Citigroup says there is a "misunderstanding" about Bitcoin: that it provides a frictionless transaction system, while questioning whether Bitcoin payments can remain low-cost in the long term.

The report states:

“Given the large amount of energy costs incurred by the Bitcoin network for proof of work, we believe that these costs will eventually translate into high transaction fees borne by users, making Bitcoin more expensive than centralized networks.”

In other areas, such as speed, scalability and resilience, the report argues that Bitcoin and other digital currencies do not necessarily have an advantage.

The report says the bitcoin payment network is 'resilient', but questions whether the network can scale to support more transactions.