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What people need to understand as difference between Electronic Fiat and Cryptocurrency

With the advent of internet and electronic systems, payments and bank transfers for fiat currencies have gone completely digital. With cryptocurrencies like Bitcoin being advocated as simple, quick peer to peer transfer means, people have come to question how cryptocurrencies like Bitcoin and digital payments for fiat currencies are different. The difference lies in the issuance, means of validation, the speed of transfers and how the storage accounts are maintained. Let’s look into what exactly people need to understand as the differences between Electronic Fiat and cryptocurrencies:

Difference between fiat and cryptocurrency:

One major difference is the fact that cryptocurrency reserves are limited and their scarcity provides them with a deflationary outset. In cases like Bitcoin, the currency is set to produce only 21 million coins by 2040. Hence the programmed scarcity ensures that the currency’s journey is deflationary. In the case of fiat currencies, the purchasing power of the currency depends on how the country’s economy is doing. With traditional fiat reserves be it physical or digital, there is no way to tell how much money is circulating, Central Banks can print money on a whim without backing it up with stored Gold or standard reserves. Economists who are against this type of monetary practice believe that the world’s citizens are experiencing a silent robbery called inflation due to central planners unconditionally printing vast amounts of fiat reserves.

The digital payments system and push for a cashless society:

When it comes to physical currency, it becomes difficult to monitor the cash flow. The government has no way to know the amount of money in circulation. Hence there has been a constant push for cashless society amongst various countries of the world. Especially European countries have banned physical currency transfers over a thousand pounds. This has been taken as a step to proactively stop terrorism funding, to monitor the cash flow and be able to avoid transactions that might prove detrimental to the country.  The electronic fiat currencies have come to existence from 1975 and now constitute 92% of world’s fiat reserves.

What advantages does Bitcoin provide:

Fiat electronic transactions where major banks or transfer companies act as a custodian or intermediary, there is a chance of censorship. A very good example is the recent Bitfinex’s lawsuit against Wells Fargo where the bank intervened in the business operations by halting the deposits. By placing the power in the hands of a central bank, we are also bidding good bye to financial freedom. Since Bitcoin transactions are decentralized, they don’t depend on any central authority making it a clear tool for financial independence.

Banking problems hound Bitcoin exchanges, force few more exchanges to ban withdrawals

Bitcoin exchanges have been plagued by the problem of Commercial banks sometimes denying transfers affecting their functioning. Most of the times, the banks back up their actions by citing that with Bitcoin’s stature still being unregulated, they don’t want to get involved in anything that might turn out to be illegal. Most of the Bitcoin exchanges have great KYC and AML frameworks that allow them to put in the guardrails that prevent their customers from engaging in illicit activities. The question is are the banks really fearing regulation to put an end to transactions related to Bitcoin? Or is just an excuse to hamper the growth of the cryptocurrency that might outplay the banks. Whatever the case might be, the issue has escalated and is taking a toll on traditional Bitcoin exchanges. Let’s delve deeper into the dynamics of the problem and its effects:

Bitfinex’s lawsuit and the implications:

Bitfinex initially took Wells Fargo to the court for having reversed US Dollar cash deposits designated to their customer accounts coming from the exchange. The legal basis for the lawsuit lies in the fact that Bitfinex works with Taiwanese banks, including a bank called ‘Taishin’. Tashin is responsible for relaying the transfers to US customers using Wells Fargo, among others. Wells Fargo recently sent a letter to the Taiwanese bank informing them that they would no longer be accepting the deposits from these accounts until “further due diligence” was obtained.

However a week later Bitfinex withdrew the lawsuit as experts believed there was not enough legal standing for the case. However, they followed up with an announcement which announced that they would be banning withdrawals indefinitely.

Other Exchanges report the same issue:

A couple of days later major Bitcoin exchanges like BTCe and Okcoin reported the same issue. The bitcoin exchange Btc-e has announced on Twitter that it is not accepting U.S. dollar wire transfers until the end of the month. This has been attributed to a bank account problem.  Following this Okcoin has also suspended US dollar deposits have been suspended because of issues with intermediary banks. The exchange has also gone on to warn the customers against making any deposits as they might be rejected. The announcement cited that the deposits will resume as the exchange find alternatives for the complication.

Third party banks de-risking or putting up a fight with Bitcoin?

Intermediary banks like Wells Fargo are known as third party banks that are responsible for these transfers. They support international transactions and transaction settlements. Since Bitcoin businesses don’t have a defined regulation, what these major banks are doing can put them in a position of risk. Hence what they are doing can be defined as ‘de-risking’ to avoid any possible legal issues. However, this might also turn out to be a move to hamper Bitcoin’s growth and its growing reputation. How exchanges will circumvent the challenges to operating smoothly again is to be seen.

 

Wells Fargo and Bitfinex war escalates, Bitfinex shuts down fiat deposits

Cryptocurrencies are undoubtedly the future of transactions and Bitcoin is leading the way.  With increasing number of Bitcoin and cryptocurrency transactions, the commercial banks are fearing a near replacement. Added to their concerns, they are unsure about how the Bitcoin regulations would shape up in different geographies and are hesitant in aiding their development. Bitfinex that has recently redeemed the hack victims completely has been a victim of one such incident. This time the involved bank was Wells Fargo and the exchange moved on to a lawsuit to avoid any impending repercussions. Let’s dive deep into what exactly happened and how Bitfinex is proposing to tackle the issue:

Lawsuit over embargoed wire transfer:

Bitfinex is taking Wells Fargo to the court for having reversed US Dollar cash deposits designated to their customer accounts coming from the exchange. This is infact a very important law suit for the Bitcoin world as the legality of shutting down bank accounts merely for being related to the use of Bitcoin or cryptocurrency trading has been a grey area. The opening statement makes it clear enough for the court what the issue is:

“Wells Fargo has suspended U. S. dollar wire transfer operations needed to remit to plaintffs’ customers U. S. dollars that the customers deposited with plaintiffs to purchase digital currency, causing imminent and irreparable harm to plaintiffs.”

The legal basis for the lawsuit lies in the fact that Bitfinex works with Taiwanese banks, including a bank called ‘Taishin’. Tashin is responsible for relaying the transfers to US customers using Wells Fargo, among others. Wells Fargo recently sent a letter to the Taiwanese bank informing them that they would no longer be accepting the deposits from these accounts until “further due diligence” was obtained.

Withdrawal of Lawsuit:

Surprisingly, a week after filing, Bitfinex has withdrawn its lawsuit against Wells Fargo for suspending its U.S. dollar transfers. Many believed that Bitfinex had a chance against Wells Fargo, which acted as the company’s correspondent bank. The lawsuit became the cynosure of the cryptocurrency world as that would let everyone know about Bitcoin’s standing. While no statement was issued by Bitfinex, many believe that Bitfinex had no legal standing and banks are allowed to selectively block transactions at their own discretion. Hence Bitfinex would have eventually lost and it was an act to make a statement.

Bitfinex stops accepting Fiat deposits:

 

After the entire showdown about the lawsuit against Wells Fargo, Bitfinex has announced  yesterday that they would stop accepting fiat deposits. The exchange has sighted that the refusal on the part of the banks is one of the major reasons. They said:

“Beginning April 18, 2017, all incoming wires to Bitfinex will be blocked and refused by our Taiwan banks. This applies to all fiat currencies at the present time. Accordingly, we ask customers to avoid sending incoming wires to us until further notice, effective immediately.”

The exchange said this would be an expected delay till they find alternatives to process customer funds and put a framework in place.