It's been a big week for changes in the world of financial technology, and particularly for those of us working in the digital currency space. Circle, a pay-app, was granted an e-money issuer licence by the Financial Conduct Authority (FCA). This is despite the fact that we're still waiting on the Treasury to opine on its regulations for the digital currency market, they were supposed to have done this by the end of last year, but still we've heard nothing.
Why does this matter you may ask. It matters because this is the start of the process of normalizing a technology that until recently was seen as the 'reserve of cyber criminals'. In essence the FCA have just given the green light to the sort of technological step that not long ago was seen as pure science fiction.
Circle started out three years ago as a bitcoin 'wallet' and has since expanded into broader currency payments. It uses blockchain technology to make international payments from one currency to another, transferring into bitcoin en route then turning back into fiat currency at the other end. Still with me? Basically it means you could transfer British Pounds to Russian Rubles via a momentary conversion to bitcoin. Importantly that means you also skip out the government regulation and international currency bureaucracy.
Now Circle are taking the same instant service that we have come to expect from facebook messenger and Whatsapp and applied it to cash payment, with the emojis and all too. The concept of being able to text your friend money securely was fanciful not long ago; and doing it with a licence from Government would have been unthinkable. But that's the world we're now starting to live in.
What makes this development all the more interesting is that it's not just some young entrepreneurial upstarts taking it to market, it's actually backed by one of the world's largest banks, Barclays.
Barclays' involvement is intriguing because, not least of all, blockchain technology has been regularly cited (by people like me) as one of the biggest threats to the financial status quo. The reason why blockchain could be a threat is because, used properly, it takes out the middleman; and what are banks if not middlemen.
To reiterate, blockchain technology itself is nothing new, it's just an encrypted database that's distributed across a computer network. What makes it possibly revolutionary is it can only be updated when everyone on that network agrees (an automated process using algorithms), and once entered the information can't be overwritten. That's why people are looking at it for purposes such as electronic voting and healthcare records. The collective responsibility and encryption makes it incredibly secure and reliable.
Banks have dined out for centuries on being that reliable secure connection for our money, take that away from them and make it an instant automated process and, at least in theory, you're taking away their reason to exist.
Perhaps then that's why it should be no surprise that nine of the world's biggest banks joined forces to create a framework for using blockchain last year. This group of banks, including Goldman Sachs and, you guessed it, Barclays, have come together with New York-based financial tech firm R3 in the hope of utilising the technology to strip out processing costs and save money. Governments are looking at ways they can utilise it too - the cynically minded might say that banks and governments are doing this to gain some control of the technology. But I'll leave you to be the judge of that.