Apart from investing heavily in blockchain research, banks have been wary of dealing with bitcoin-related companies. The anonymity and potential illegality of some of the transactions, as well as the generally unregulated nature of bitcoin as a “currency”, have led banks to close down accounts that they suspect of dealing in bitcoin, and to deny accounts to new bitcoin startups. Although the banks themselves would not be holding bitcoins for their clients, the (generally unfounded) fear of being caught without verifiable transaction records in the event of an audit has been stronger than the desire to capture new business.
This may be about to change.
Technically, Bitcoin is not anonymous, it is pseudonymous, and transactions are often traceable. It can be anonymous with extra effort, re-routings and mixing solutions, but for most Bitcoin businesses, that’s not an issue. Often it’s not even a feature that they offer their clients. It’s the possibility of untraceable transactions that spooks the official institutions, although they are reluctant to publicly admit this. The Bitcoin sector, and regulators, are starting to openly protest. Just last week Australia’s Competition and Consumer Commission launched an official investigation into banks’ policies regarding digital currency clients. Their findings will most likely be totally confusing.
Enter the Bitcoin forensics. Chainalysis offers the service of Bitcoin transaction tracking. Their website declares that “We built Chainalysis to spot connections between digital identities”, which means that they use transaction data to link addresses and to thus decipher the originators of certain bitcoin transactions.
Chainalysis is, as far as I know, the first to publicly offer this service, attracting considerable controversy. Its tracking methods have been accused of distorting network latency, and its de-anonymization purpose is rubbing freedom decentralists the wrong way. But, it is a service that will end up being necessary if official banks are to start opening their doors and their credibility to Bitcoin startups.
Just over a week ago Chainalysis signed a collaboration agreement with British bank Barclays, to add a layer of compliance onto digital currency transactions. This could pave the way to Barclays becoming the first large commercial bank to officially accept Bitcoin clients. This would not only be very good news for the startup sector, but it would also enforce Barclays’ reputation as being quite “with it” when it comes to Bitcoin. In June it signed a collaboration deal with bitcoin exchange Safello to try out various bitcoin-related services. And earlier this month it signed a contract with blockchain trade finance facilitator Wave.
This does not mean that Barclays will necessarily be holding bitcoins for its clients. But back in September they did say that they were looking into the possibility of helping their charity clients to collect and disburse bitcoin donations. Until bitcoin is officially declared a “bankable” currency, it is unlikely that we’ll be able to open a bitcoin-denominated account at our local branch. But regulators do seem to be heading towards declaring bitcoin official tender. Just a few days ago the European Court of Justice ruled that, for tax purposes at least, Bitcoin should be considered as money.
Hopefully, with Barclays scooping up the potentially lucrative market of Bitcoin businesses eager for respectability, other banks will take a similarly progressive stance and realize that Bitcoin is not about illegal activity, any more than cash is. And from what I gather, banks have never had any problem accepting and storing cash.