Several central banks, including the Federal Reserve, the Bank of Canada and the Bank of England, have launched investigations into digital currencies. According to a February 2015 Bank of England research report, “Further research would also be required to devise a system which could utilize distributed ledger technology without compromising a central bank’s ability to control its currency and secure the system against systemic attack.”
2.) Pseudonymous: Neither transactions or accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real world identity of users with those addresses.
Anti-money laundering (AML) and know your customer (KYC) practices have a strong potential for being adapted to the blockchain. Currently, financial institutions must perform a labour intensive multi-step process for each new customer. KYC costs could be reduced through cross-institution client verification, and at the same time increase monitoring and analysis effectiveness.
In the past when a claim is made, all checks would be carried out by humans, which can be time-consuming and leaves room for human error. This will become unnecessary, as checks to ensure that all criteria have been met, and can be done automatically using the Blockchain. Once all obligations are fulfilled, the resulting payout is automatic. This can all be done using minimum human involvement.
Given the size of the sums involved, even the few days that the money is in transit can carry significant costs and risks for banks. Santander, a European bank, put the potential savings at $20 billion a year. Capgemini, a French consultancy, estimates that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications.
Disclaimer: Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopediamakes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns less than 1 BTC, and no positions in any of the other companies mentioned in this piece. Investopedia does not make recommendations about particular stocks.
The receiver of the first bitcoin transaction was cypherpunk Hal Finney, who created the first reusable proof-of-work system (RPOW) in 2004. Finney downloaded the bitcoin software on its release date, and on 12 January 2009 received ten bitcoins from Nakamoto. Other early cypherpunk supporters were creators of bitcoin predecessors: Wei Dai, creator of b-money, and Nick Szabo, creator of bit gold. In 2010, the first known commercial transaction using bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John's pizzas for 10,000 bitcoin.