Tag Archives: bitcoin

The History and Future of the Telegraphic Transfer

The word telegraphic transfer is a nostalgic term in banking and finance because it refers to a time when sending money in any way electronic was unusual. In the early history of banking all bookkeeping was done manually, money transfers were done in cash or cheque and transactions were accounted for on paper ledgers. Then came electricity, cable communication and telegraphic transfers were born.

Telegraphic transfer is when one party remits to another electronically. It was first done using cables and now get used to identify any electronic funds transfer. In many parts of the world, it is said as a form sarcasm toward the reminiscence of aristocratic society, as a sort of snub. Prior to the internet, transferring money electronically was reserved to the elite in large important transactions but today more and more people are accessing it. Electronic payments still being relatively new, we have yet to witness the bulk of it historical societal change. Money was electronic and now is digitizing.

The first idea of electronic money came in 1880 when renown American scientist Edward Bellamy suggested accounting for transactions on a card but technology was not yet mature enough to support the application. It wasn’t until Diners Club International issued the first universal payment card that the movement developed steam. In 1957 came Americard (better known as Visa), then in 1966 came Master Charge (known as MasterCard) and in 1968 came the Electronic Data Interchange (EDI) which allowed for what is known today as EFT (Electronic Funds Transfer).  Up until the mid 1990s, the developed world gradually transitioned over to electronic payment systems. Pop culture started depicting electronic payments as more mainstream and mass adoption to root.

1981 sparked the official beginning of the digital revolution with the first use of internet protocol. Large financial institutions at this time started implementing digital payment networks and international settlement became faster. This is when securitization began, the cabal of large institutions started not only digitizing money but investments and all forms of economic value. In turning these formally illiquid values transactable, the established financial community increased trade and became more interwoven but this did not stop the digitizing of assets.

Despite large regular financial market panics, money has continued to move faster and faster while markets digitized. Long gone are the days of physical stock exchanges and trading is mostly done on computer and often through the use of algorithm (within developed centres). The Internet being peer to peer, one would think that markets would have decentralized with increasing use but we are yet to see this on a large scale. Even today, much of the worlds exchange of money and securities is done on proprietary networks that are centrally owned. Innovations in payment networks has been made and the technology is now existent to start decentralizing financial markets.

Transaction authentication has long been the primary obstacle to removing third parties to individual transactions. By the very nature of a financial exchange you need to confirm that an exchange of value has been made and in early times this was done with a unique and hard to replicate physical token (a currency). When electronic ledgers appeared, a settling agent and clearing house was required to confirm that a unit of trade was not spent twice and was in fact transferred.

Since the introduction of HasCash in 1997 and the latter expansion into Bitcoin in 2009, encryption has successfully solved this issue. No longer do you need any witness to you transactions as they are automatically accounted for in a public ledger and authenticated by the entire network using cryptology. This has sprung a entirely new sub sector within finance that revolves around peer to peer trade based on encryption as enthenticators to trust. Entire markets such as Coinffein have sprung up to exchange digital currencies without a third party.

Many insiders today, are referring to the underlining technology of Bitcoin (the blockchain) in the same light as Linux was viewed. Many suggest that it has the potential to impact financial markets in the very way that many aspects of the Linux OS has impacted electronics. The Linux architecture is present in some way, shape or form in just about every computerized devise and has been built upon to serve a wide variety applications in just about every industry. Linux changed computers forever because it was a base an architecture that could be improved upon. The blockchain shares that commonality with Linux.

Telegraphic transfers are simply electronic transfers. To know where we are going it’s important to know where we have been. We have come from a place exclusive use to a more and more open economy. I would anticipate this continue and the only logical directory would be to have a larger number of people take more control over their units of trade and thus their measurement of wealth. The exchange of value is becoming more peer to peer and this has the potential to empower money people. We are currently witnessing a turning point in our economic history and spotting the opportunity is often half the battle.

Bitcoins $430 Billion Remittance Opportunity

The rise to prominence of bitcoin has produced a lot of talk around the world for its supposed potential to transform the global remittance industry. This is no small feat, having a potential of $430 billion in global trade. Given that this online currency is almost as easy to implement as sending mail is, it’s hard to believe that only fringe attention has been given. There has been tremendous talk of it’s growing potential,  however, despite all the promise, the platform for the use of bitcoin and other digital currencies is yet to be adopted on a wide international scale.

Looking at the figures

Looking at the Philippines as example, a country that receives the third highest amount of remittances in the world. The figures are quite interesting. In 2013, the Philippines received $26 billion worth in remittances. In 2014, the figure rose to $27.5 billion. At the moment, the annual growth of the remittance industry in the country is between 1 and 2 billion dollars annually. Behind Philippines comes Mexico, which enjoyed a $23 billion windfall in 2013. However, Mexico’s stake in the remittance has been on the decline since the beginning slowing of main street in the US starting in 2008.

For both Philippines and Mexico, the bulk of this money seems to originate from the United States. 98% of Mexico’s remittances come from the States while the Philippines obtains 30% of its total from the same source. Taking a closer look on the other hand, tells you that over $10 billion of the Philippines’ totals does not actually come from the US; it is simply re-routed there from countries in Europe, Australia and Asia.

What this tells us is that despite seeing a slow down the US economy, financial services in the US remained healthy. The United State having the world reserve currency is still the financial hub of the world. Many of the world financial institutions funnel economic trade through its American financial centres and this is a factor when transferring money. Not only does this make put transactions under US regulation it also increases transactional fees. The current monetary and economic system is still fairly centralized and lacks commercial diversity. The industry is ripe for innovation.

Putting the argument in perspective

It is not easy to imagine a bitcoin company starting from scratch and beating established money transfer services like Money Gram or Western Union. However, it is very possible to start a bitcoin transfer service to serve a small, targeted clientele. Establishing yourself if you do not have the financial wherewithal to open branches around the world can be an issue but through global collaboration, peer networks can be created? Independent businesses will have to work together to build a divers money transfer landscape. You will also have to assume that most of the migrant populations in many countries do not understand or care about the machinations of crypto currency, but this will slowly evolve.

The solution

Rebit (Philippines), Bitpesa (Africa) and Airbit (Indonesia) are some of the services that receive and convert bitcoins into currency ,sending them out to recipients at the end . There are no risks here because the final user is never gets to handle any part of the transaction.

The snag here is that to make a transfer, a client has to first convert currency to bitcoins. This technicality allows for the inclusion of an informal intermediary, a strategy that could potentially put a different business out of work. From the outset, this assertion seems laughable, but it is far from it. An in-depth look will give you an exact picture.

How it works

Bitcoin companies do not keep a supply all the time. They find sources of the crypto currency mostly when there is demand. Once they get a hold of a batch, they will try to sell enough to make payouts to the beneficiaries of their customers. A trader who knows their way around can manage to sell a decent amount of bitcoins for cash and make a decent profit. Though in harsher times, breaking even is always appreciated.

Whether the operation is on or off ramp, there will always be a need to integrate technologies that make transacting in bitcoins easier.  The problem however, is that only the countries with the best banking infrastructures will benefit from a setup like this. Sample this: in the Philippines, there is a markedly higher number of pawnshops than there are ATM machines while in India, money transfer services are very informal in approach. Dealers will have to integrate within these existing systems.

Legal aspects of the transfer of BTC’s

Some countries around the world will require that any business wishing to trade in bitcoins to obtain a license, and even then, the procedures are not exactly straightforward. In the United States, very few companies have managed to obtain licensing in every state because the costs are simply outrageous. In the ASEAN region, the costs will be in the tens of thousands of dollars while authorities in the Middle East will ask for between one and two billion dollars. Apart from financial implications, these start ups have to comply with anti-laundering rules that complicate everything all over again.

At this point, we are about to start a race, with $42 billion worth of global savings at stake. The good thing is that after all, we do not need a central authority to trade in bitcoins. The nature of the currency will make it easier for decentralized brokerages to exist in each country. This strategy may not topple giants like Western union, but it will make such transfer entities stand up and take notice.

That Third of the World that Never had Access to Banking

When was the last time you bought something with cash?

The difference between being fortunate and challenged has long depended on geography but today with growing communication capacity, global markets are at peoples disposal and prosperity is seeing less physical boundaries. Over one third of the world on the other hand, still does not have access to banking. In terms of essential services, I agree that banking is no more important than postal services , but maybe the reason with there’s no postal service is because there is no bank. Hey let’s be honest here, some places also just don’t want postal service.

In the case of those villages who want postal service, if we were to build a bank, would they then have the prosperity to have postal services? Obviously not and that’s why there aren’t bank everywhere. Of course, I am writing in allegory where the postal services signifies prosperity. People in these villages do have mobile phone though and with Moors Law and electronics continuously getting cheaper, entire generations are leap-frogging in technology. Imagine someone only ever have called someone using a cellphone or even voip. Those people are a growing number.

In saying that, cellphones and the internet have now become the ultimate postal service and what is banking if not a postal service for money. Well at it’s core, that’s what it should be…

People are now increasingly getting access to banking not through traditional brick and mortar but through technological platforms such as mobile banking and even bitcoin. I think what is particularly interesting is that some of these technologies make current established models obsolete. I think that it is definitely fitting that the third world usher in these new technologies of trade.

As seen by the World Bank Global Findex, the reaches of banking are spreading in all sorts of ways. One comes to wonder how this leap-frog in technological platforms will influence their prosperity…