Federal Bank VP claims bitcoin will force banks to "Adapt or die"

Home » Federal Bank VP claims bitcoin will force banks to "Adapt or die"
Image: http://www.flickr.com/photos/zcopley/

Image: http://www.flickr.com/photos/zcopley/

Yesterday, the Federal Reserve Bank of St. Louis hosted a talk by David Andolfatto titled “Bitcoin and Beyond: The Possibilities and the Pitfalls of Virtual Currencies.” In addition to his role as Vice President of the bank, Andolfatto is a professor at Simon Fraser University.

One of the key perspectives in the presentation was the growing distrust in the banking sector, and the potential of bitcoin to shake up the status quo and provide desperately needed solutions to the current problems.

The greatest promise of bitcoin, Andolfatto argues, comes down to two key elemnts:

“The hope is to basically slay the inflation dragon. And to drive transactions costs down to zero. That’s the vision.”

Andolfatto noted that the Federal Reserve has little to fear from bitcoin as a form of currency, but that the central bank has almost no ability to compete with virtual currencies in payment technology. What’s more, he claims that the Fed’s policies may ultimately have little impact, as “enforcing an outright ban [on bitcoin] is close to impossible.”

“How do you regulate something that has no central head?” Andolfatto said in his presentation. “It’s like trying to slay the Hydra.”

While Andolfatto had plenty of skeptical things to say about bitcoin as an investment and as a currency, he noted that the innovations of bitcoin will fundamentally change the economic system. Unless banks and other financial institutions are prepared for these changes, they’ll struggle as mainstream virtual currency adoption takes place.

“The threat of entry into the money and payments system,” he noted, “forces traditional institutions to adapt or die.”

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