Bitcoin Banks as Monetary Utilities Want to Shut It Down

Developing countries are waking up to the opportunities presented by Bitcoin and blockchain technology, bringing opportunities to the world’s poorest places and those left behind by the financial industry, yet banks appear to be suppressing this awareness while developing their own private blockchain ledgers. It is not too much to explain the banks’ behavior by saying that private ledgers benefit themselves at the expense of public facilities.

Part of daily life

On February 26, 2015, the Federal Communications Commission (FCC) announced for the first time that broadband Internet would be classified as a public utility. The FCC prohibits "paying for priority lines", that is, prohibiting Internet service providers (ISPs) from charging websites for better access, and prohibiting limiting the speed of specific users. These monopoly measures threaten public goods, just as President Obama said, "This (Internet broadband) has become a part of daily communication and life." In the words of FCC Chairman Tom Wheeler, "The Internet is too important to let broadband providers make agreed rules."

Tom Wheeler, FCC Chairman

This is an example of ISPs trying to make money by monopolizing public goods, which is obvious in antitrust rules and economic theory. In The Wealth of Nations, Adam Smith famously said, "Men of the same trade seldom meet, and when they do, they end the conversation by conspiring against the public to raise prices." For Smith, collusion among the leaders of dominant industries is the norm in capitalism, not the anomaly.

Currently, Bitcoin is still a long way from being "part of daily life". However, Bitcoin is developing rapidly, and the transaction volume of blockchain merchants is also rising. Regulators on this planet are working hard to introduce various bills for this emerging technology. New York, as one such place, has adopted strict regulations similar to those of banks, while regulators in other places mostly take a "wait-and-see" attitude, studying and waiting for the moment when it becomes "part of daily life".

Private blockchain

Private companies such as JPMorgan Chase and Citigroup have already thought about what to do with Bitcoin.

Banks have cut off their commercial banking services to US startups as long as they are involved in Bitcoin. These banks have developed their own private blockchains to compete with Bitcoin's "public ledger". In July 2015, Citigroup announced the development of "Citi Coin", a currency issued by the bank on a private proprietary blockchain that is maintained by the bank.

Not coincidentally, this restriction of competition has angered some regulators. On October 19, 2015, the Australian Consumers Association launched an investigation into whether banks had "colluded with each other to hinder emerging competitors." In February 2016, it concluded that there was no collusion between banks, but whether they acted independently is still an open question. This represents the beginning of a debate between Bitcoin and banks, the former as a utility of currency and the latter as an outdated financial service provider.

The difference between an “open blockchain” like the Bitcoin blockchain and a private blockchain that handles “Citicoin” is similar to the difference between a public water utility and a private bottling machine. The Bitcoin blockchain is not owned by anyone, and every transaction in Bitcoin is public. Transactions are fast and fees are low. This novel transaction record system is maintained by miners, who contribute computing power to record transactions and receive algorithmically allocated rewards.

It can be assumed that the Citicoin blockchain will be directly funded by Citigroup, the ledger will remain private and proprietary to Citigroup, and the fee structure will be determined by the interests of Citigroup shareholders. In other words, Bitcoin is designed as a public utility, and private blockchains exist to increase the returns of their owners.

It's like the water market. If private bottlers are responsible for the water market, then there will be no public water to take their market share.

Nestlé Chairman Peter Brabeck-Letmathe once said, “Taking water is not a public right.” In the Michigan Citizens’ Water Protection Campaign against Nestlé, the company twisted the facts to gain the right to protect public water facilities against the public who had caused irreparable damage to public water facilities.

In September 2013, despite an obvious conflict of interest and a 10% petition signed by Maine residents protesting the resolution, Nestlé was awarded a 25-year contract to extract water from the Maine River for profit. The contract was unanimously approved by three members of the Maine Public Utilities Commission, who were either former Nestlé executives or its lobbyists.

This is the situation faced by utilities all over the world, especially in developing countries where financial transactions and monetary policies are synonymous with monopoly and usury. For example, in Brazil, The Economist magazine speculated that Bolivians who want to send money earned in this country to Bolivia are charged 14% in fees. This is a huge difference compared to Bitcoin's fees, which is why big banks and financial institutions see Bitcoin as a threat.

The utility of money

In the Caribbean, they have been severely affected by “de-risking”, which is caused by North American and European banks cutting off their customers in these countries from their correspondent banks in order to prevent the rise of money laundering risks. This behavior undermines financial inclusion and financial stability in these regions. In these regions, 75% of international banks have cut off local correspondent banks. Caribbean countries have been hit the hardest globally and they find themselves isolated like Bitcoin startups in developed countries.

In Belize (Caribbean country), the Bank of America closed the correspondent business of five banks, including Belize City Bank, the largest bank in Belize. As a result, the Central Bank of Barbados (Latin country) released a 2015 document drafted by economists Jeremy Stephen and Winston Moore, which supports the central banks of Caribbean countries holding Bitcoin as part of their asset portfolios. The region seems to be in urgent need of commercial banking services, international currency exchange services, decentralized stable currency reserves, etc. These are exactly what the Bitcoin blockchain has.

Central Bank of Barbados

Lake water and aquifers do not need bonuses like bitcoin miners do, it is a freshwater resource that exists forever, just like the bitcoin protocol maintained by bitcoin miners, it is a public utility. Caribbean countries have companies like Bitt, which provides bitcoin exchanges and mobile wallets, allowing the unbanked and underbanked areas of the world to have cheap financial transactions and settlement system services, which is done through the public utility of the bitcoin blockchain.

Unfortunately, however, Bitcoin is far from becoming part of “daily life” in developing countries, and until that moment comes, big corporations will keep expensive financial services to extract profits, and private companies will do anything they can to stifle the true global economic potential of blockchain.