Is Goldman Sachs Flirting with Bitcoin or the Blockchain?

Bitcoin Magazine
Is Goldman Sachs Flirting with Bitcoin or the Blockchain?

The New York Times technology and finance reporter Nathaniel Popper’s new book “Digital Gold: Bitcoin and the inside story of the misfits and millionaires trying to reinvent money” has been praised as one of the best Bitcoin books to date. Popper tells the story of Bitcoin from its geeky, libertarian early days to the beginnings of the current phase marked by significant venture capital investments and growing adoption by the financial community.

Popper’s book contributes to the ongoing Bitcoin versus blockchain debate. Once a bitcoin-like crypto-currency is adopted by banks and governments, will it still be recognizable as bitcoin, or rather become a sanitized blockchain controlled by central banks, with all the troublesome features of bitcoin removed?

“A company like Goldman Sachs or JPMorgan is hesitant to rely or work with a financial network in which the people keeping it alive are essentially anonymous,” says Popper in a Forbes interview. “Banks have to know who’s transacting and flag it if someone suspicious is involved in the transaction. But it’s quite easy in Bitcoin to have an identity tied to an address in a way that would make a bank feel comfortable.”

Popper released previously undisclosed information in a section of his book, re-published by American Banker magazine with the title “When Goldman Sachs Began Flirting with Bitcoin.”

Goldman Sachs is one of the most respected financial companies in the world, often considered as epitome of the best – and the worst – of today’s financial system. Therefore, Goldman Sachs’ take on bitcoin can be considered as representative of the financial industry as a whole.

Recently, after stating in a report that Bitcoin could shape the future of finance, Goldman Sachs participated as lead investor in a $50 million funding round for startup “Bitcoin bank” Circle in one of the highest profile investments in a Bitcoin company to date.

Financial operators are attracted by blockchain-based financial networks with no single point of failure, which could keep running even if one of the participating nodes stops working or is taken out. They are also attracted by the relative speed and low cost of blockchain transactions.

It currently takes the bank three or so days to settle stock trades, says Popper. “What if that could happen instantly and be recorded on a blockchain for everyone to see?”

But, according to Popper, Bitcoin remains a thorny issue for Goldman Sachs, JP Morgan and other top financial players. The problems are Bitcoin’s potential for anonymity, and the fact that the Bitcoin blockchain is “powered by thousands of unvetted computers around the world, all of which could stop supporting the blockchain at any moment.”

Popper reports that JPMorgan and other major banks envisaged a new blockchain that would be jointly run by the computers of the largest banks and serve as the backbone for a new, instant payment system without a single point of failure. The new blockchain, decentralized but closed, would offer the benefits of the current Bitcoin network without relying on end-users for its operations.

IBM has recently developed a similar concept for a non-Bitcoin, closed blockchain for central banks. Even governments are warming up to the idea, with rumors of “Fedcoin” in the United States and some kind of “Eurocoin” in Europe, especially in financially troubled economies such as Greece’s.

In a research paper titled “One Bank Research Agenda,” the Bank of England called for further research to devise a system that could use distributed ledger technology without compromising a central bank’s ability to control its currency.

It appears that financial institutions, central bank and governments are, indeed, flirting with the blockchain but determined to leave the open, pseudonymous and peer-to-peer (P2P) features of Bitcoin out. If so, Goldman Sachs’ investment in Circle could be seen as an intermediate, preparatory step to test the waters before implementing a non-Bitcoin blockchain.


Photo by Laslovarga / CC SA 3.0

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BitGold Inc. Acquires for CAD $51.9 Million

Gold payment startup BitGold acquired the operations and intellectual property of the leading consumer gold storage company

The acquisition of the company will be in exchange for 1,169,794 common shares in BitGold, a public company trading on the Toronto Stock Exchange. GoldMoney, since its founding in 2001, has amassed 20,000 customers, 135,000 user sign ups and manages more than $1 billion in assets.

In a BitGold press release, the startup said the acquisition will lower its operating cost and give them a ready-made vault storage operation for the company’s in-beta gold payment system. BitGold is currently developing and testing a payment service that will use blockchain technology to facilitate digital gold payments.

As part of the acquisition, GoldMoney founder James Turk, alongside company directors Mahendra Naik and Hector Fleming, will join BitGold’s board of directors.

“We created GoldMoney with the vision of making gold accessible for savings and payments, a vision that BitGold is rapidly expanding in a new era of cloud computing and mobile technology,” said Turk.

Roy Sebag, BitGold CEO added, “with the technology of the BitGold platform we can expand the GoldMoney legacy of trust, security and a client-centric purpose to new markets, growing from a much stronger base and benefiting all stakeholders. Combining the first global e-marketplace for gold with the latest and most innovative, we instantly become the world’s largest and most active bullion money service.”

Gold 2.0?

GoldMoney will continue to operate as usual, operating its vault service as well as various media products, but new features and products will be added in the coming months. According to Turk, users can expect a gold debit card, expanded payment options, as well as “the many applications and features being developed by this innovative team.”

However, BitGold was very hush-hush about how — and if — the blockchain startup’s payment network would be implemented into GoldMoney.

Founded in 2014, BitGold launched with the mission to make gold payments practical by digitizing them through Bitcoin’s payment network. Since then, the startup has received a lot of attention, as well as investment. The gold payment network has raised several million dollars from large players in the gold and financial industries, including Alex and Gregory Soros’ fund ,Soros Brothers Investments, and Eric Sprott’s Sprott Inc.

Despite the attention, the company has been secretive about the company’s product, which has been loosely described as a payment network for gold using the blockchain (though recently all mentions of blockchain and bitcoin have been removed from BitGold’s marketing copy). BitGold launched a private beta for select persons in Zurich, London, Hong Kong and several other cities late last year. The beta was supposed to end in early February, but has continued. The product is still unavailable to the public.

According to a video produced by the startup, the payment network will serve three main use cases: greater gold functionality for gold investors, online payments and international money transfers (remittances). In the video, Sebag said users will be able to send gold to any other BitGold user for free, no matter where that user is (after an initial cost of one percent to get the gold into the network). The founders of the company envision a future where migrants would avoid fees charged by remittance providers by sending gold through the startup.

It is unclear how BitGold would deal with compliance requirements for operating a global payment system. The startup has failed to shed any light so far on how BitGold will comply with know-your-customer (KYC) regulations around the world. That is a huge question, since every single “digital gold” company that has come before BitGold has either been charged by law enforcement or shut down on its onw volition due to financial regulations.

Up until 2012, GoldMoney ran its own gold payment service that allowed users to send gold to each other. But the company shut it down citing the regulatory costs of compliance as too high for the “insignificant demand.” Also, in contrast to the now defunct E-Gold, whose founders were arrested, GoldMoney’s digital gold network did not allow for independent agents to exchange the virtual gold for real gold. The tactic heavily limited the product’s potential but helped it avoid being a den of black market activity that E-Gold became.

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