Is The Bitcoin Poised To Bring Down The House Of Medici?
Why did the Medici family invent the double-entry accounting system? Where is the Bitcoin positioned in the banking sector?
What are the contributions of the Medici family?
The Medici family back in the 14th century used the power of its newly invented double-entry accounting system to build a cross-border banking empire that banks still use today. It has been more than 600 years as the cross border payments total more than $ 22 trillion. While these transactions are the essentials to conduct international business it is increasingly important as global commerce continuing to expand above the 14th-century process which was simply not good enough. Using Medici’s system the Nostro and Vostro accounts, wherein English translates to ours and yours. A two-column spreadsheet with who owns what the Bitcoin ledger is simply the 21st-century version whereby 12million rows, with one for each person who owns Bitcoin as also the second column shows how many they own and that column totals14 a million bitcoins today which is the very clear public record of who owns what whereas one that does not require paying a third party keeping those accounts.
Presenting a web of challenges the legacy cross-border payment process is nearly impossible to untangle without having one accepted ubiquitous global payment system. Typically a cross border payment for a small to medium-sized business where payments are typically on the order of $ 1,000 to $ 10,000 takes several days and costs up to 5 percent of total transaction where let us pull back the curtain on the process. In case a business can make a large purchase from a supplier, the buyer provides a letter of credit from a financial institution to the supplier acting as a guarantee of payment. Here there is non- trivial fee for acquiring this taking day for bank to produce.
Whereby once the letter of credit is provided by a US business looking to buy from a Brazilian supplier, it sends an invoice for an amount due. Imitating a money transfer the US at its primary bank for amounts greater than what is due on the invoice, to cover the many fees required along the payment’s journey. The buyer’s bank throughout several business days first charges a money transfer initiation fee eventually moving the money along to its US correspondent bank. In the scenario of the payment hitting the first correspondent banks, it grants the buyer’s primary bank a rebate with the finder’s fee of a sort to incentivize the perpetuation of the 600-year-old process. Thereby the correspondent bank deducts yet another fee for processing the buyer’s payment moving the buyer’s payment along to a second correspondent bank in Brazil. Taking another couple of business days to complete is this relay.
The second correspondent bank upon receiving the payment converts the buyer's USD denominated payment into Brazilian reals with a foreign exchange spread. This comes as able to exchange currencies at a wholesale rate whereby savings from doing so are not passed onto the customer but withheld as additional profit for the correspondent bank. Thereby another processing fee for the payment is taken by the second correspondent bank before the payment moves onto the supplier’s primary business bank. Thereafter the currency exchange and subsequent relay of the payment take an additional couple of days to complete. The rest comes as the fees, transaction times, and opacity considered business as usual for the legacy cross-border payments system that’s stifling for business especially for fast-paced internet age commerce.
Here comes the good news that the fix is under our noses as it’s not a new process for moving money whereas it’s a whole new approach Bitcoin as a payment rail has the potential to revolutionize the cross border money flows. There comes a way to conduct global and secure commerce with Bitcoin efficiently. Bitcoin by design is a global and secure payment network arguably greater reach and greater security than the legacy payment systems or the myriad players. Much more difficult to establish is a bank branch in a remote foreign country than it is to access the internet. Being a much less secure payment forms to be filled out by several mistake-prone humans as the payment moves from bank to bank than the digital establishment of worldwide consensus over what cryptographically secure ledger positions are to be swapped.
The Final Words Before Bidding A Goodbye
It comes to be much easier to change data values within the Bitcoin protocol than it is to lug a suitcase across borders sending checks over snail mail or wait for quite a several days for the correspondent banking industry to get through.
There comes a very little need for middlemen in a Bitcoin enabled cross border payments world with no need for any additional fees or processing times moving payment but those inherent to us in the Bitcoin network. Virtually free and virtually instantaneous are the Bitcoin transactions as it does everything that the legacy payments middlemen individually do better, faster, cheaper with real-time wires for half the price.