In February, Mt. Gox, one of the world’s largest Bitcoin exchanges, was forced to shut down due to cyber-attacks against their system. While the cause of these attacks remains unclear, the Bitcoin ecosystem has been exposed to potential problems that may irreversibly hurt the currency. However, whether Bitcoin collapses or can regain its momentum and thrive again, financial technologists should be less focused on the strength and legitimacy of the currency, and instead on the technological innovations Bitcoin has produced.
After completing a detailed analysis of the sites and digital resources that make the Bitcoin ecosystem work, Corporate Insight has identified three noteworthy innovations that Bitcoin has made to the financial world that could benefit the banking industry:
#1 The Network’s Ability to Send Bitcoins Instantly
One of the most widely discussed features of Bitcoin is the system’s ability to send a payment across the globe in a matter of seconds. In today’s world, the physical transfer of money from one bank account to another can take up to 3-4 days through an Automated Clearing House (ACH) or Popmoney transaction. The Bitcoin network is instantaneous through the use of a world-wide system of computers that act as a decentralized clearing house, responsible for transacting Bitcoins between each the users. Furthermore, there is a clear demand from consumers for instant transfer capabilities, as seen by the growing popularity of instant person-to-person transfer services such as Venmo.
#2 Innovative Personal Security
While security might seem like a major flaw of the Bitcoin system, given the devastating cyber-attacks against Mt. Gox, it’s important to consider Mt. Gox as an isolated incident and not indicative of the Bitcoin system at large. Though Mt. Gox exposed weaknesses within the fledgling Bitcoin network, there are still innovative consumer-based security measures (i.e. added passwords, security questions, etc.) that other Bitcoin websites have adopted to ensure robust personal security.
Two noteworthy security features that were seen from online “hot wallet” sites, Coinbase and Blockchain, included the use of a mnemonic (easily remembered series of words) and security token to login. When first signing up for the Blockchain service, the firm provides customers with a mnemonic that they are asked to write down in the event of losing their password. If customers do lose their password, the service asks the customers to enter the mnemonic they were originally provided to recover the account. If they are unable to do so, the customer is locked out of the account.
The second innovation is Coinbase’s use of Authy, a mobile security token service. The Authy service provides what a traditional security token does on a massive scale, and for no cost to the customer. When first signing up for the service, Coinbase asks customers to download the free Authy service and verify their mobile phone number by entering a code provided by the application. Furthermore, if customers are accessing their account from another computer, Coinbase asks customers to enter in their Authy security token that appears in the mobile application.
#3 Silicon Valley Style Navigation
One of the main problems with many online banking sites is that they are not intuitive and tend to be difficult to navigate, even for those who use computers daily. Conversely, the large and successful websites out of Silicon Valley (i.e. Facebook, Amazon, etc.) are incredibly intuitive and easy to use. Bitcoin entrepreneurs have applied this intuitive concept into the navigation of their sites, resulting in an incredibly easy-to-use platform that challenges many banks’ online platforms. They do so by simplifying the navigation and reducing clutter in key portions of the site by filtering the pages less visited into larger sections. For example, the Coinbase site uses a left-hand navigational menu that clearly labels where customers can find the services/tools they need to manage their Bitcoins. Additionally, in the right-hand corner of the page the firm displays the customers email address and a dropdown menu where customers can access their profile information; a feature that is commonly seen in other popular services such as Gmail.
Coinbase Homepage (Truncated)
Whether or not Bitcoin becomes a major currency, financial technologists can learn from the innovations that have come out of the system. The need for instant transactions between customers is very apparent as payment habits begin to shift from physical to digital transactions. Furthermore, financial institutions can consider adopting innovative security measures utilized by Bitcoin systems and apply it to their systems. Finally, the design of Bitcoin sites provides a nice combination of Silicon Valley and finance, resulting in a very modern “Bitcoin banking” experience. The Bitcoin system has acted as a catalyst for financial innovation due to the lack of red-tape that surrounds traditional currency (i.e. the dollar). While built for Bitcoin, these innovations can be beneficial in enhancing the digital platforms offered by traditional banking institutions.
To learn more about Bitcoin and the world of virtual currencies, please download CI’s Bitcoin and Virtual Currency Basics Whitepaper or our comprehensive study The Bitcoin User Experience: Mining, Exchanges, Wallets and Beyond.