Australian banks are opening up to cryptocurrency: what does it mean for you? | Commonwealth Bank

The Commonwealth Bank announced last week that it plans to allow users of its CommBank app to trade cryptocurrencies – the first of Australia’s Big Four to do so.

Cryptocurrencies are known for their extremely unpredictable price fluctuations, damage to the environment, and use by criminals to try to cover up illegal activities, such as money laundering.

A number of countries, including China, Turkey, and Vietnam, have banned or restricted the use of cryptocurrencies in their jurisdictions.

So why is ABC doing this?

Based on the account data, CBA believes that around 500,000 of its clients are already engaged in crypto trading.

CBA Managing Director Matt Comyn said in a statement, “We believe we can play an important role in crypto to meet what is clearly a growing customer need and provide capabilities, security and confidence in a crypto trading platform. “

The bank will invite 2,000 customers in a few weeks to join a pilot program where they will be able to buy, hold and sell cryptocurrencies through the CBA phone application.

The bank will initially offer 10 of the most popular coins, including bitcoin. (This will not include the parody turned into a market cap dogecoin of US $ 35 billion).

What users won’t be able to do is transfer cryptocurrencies to other people – all transactions will involve buying or selling coins for real money. This is because the crypto transfer is difficult to trace, which makes it attractive to criminals and a nightmare for the bank when it comes to complying with anti-money laundering and anti-money laundering laws. terrorism – something that banks find quite difficult with regular money transfers.

Instead, all crypto entry and exit movements must take place through the client’s own accounts, allowing the bank to better keep track of what is going on.

What are the environmental issues?

Cryptocurrencies are typically created by computers solving difficult mathematical problems, a process called “mining” that uses a lot of electricity.

Bitcoin mining alone currently uses more electricity than Argentina, the majority of which comes from fossil fuels, and is on track to use more than Australia.

Burning fossil fuels to generate electricity is a major source of global heat.

Aren’t cryptocurrencies unstable?

Yes, the price of bitcoin, for example, can halve or double in the space of a month or two.

This volatility is one of the reasons why it is not suitable for use as a real world currency.

Transactions are also very slow and transaction fees are very high. Fees fluctuate a lot but currently represent just over 1% of the transaction value.

This may not seem like much because it is about the same as what you will be charged for using a credit card in a store. But when you use a card, the bank lends you money.

In contrast, transferring your own money between two Australian bank accounts is free, as is using eftpos.

Bitcoin payments are also much, much slower than the almost instantaneous transactions available through credit cards and eftpos.

Even traditional transfers between accounts are getting much faster thanks to something called the New Payment Platform, a system all banks are putting in place where all transfers take less than a minute.

Bitcoin transactions currently take more than six minutes to be confirmed. In July, it was closer to 20 minutes – far too long for use in retail transactions. At this speed, no one will be using bitcoin to buy overpriced pizza, as it will have gotten cold and soggy before the transaction is settled.

Some of the other cryptocurrencies CBA plans to offer aren’t much better. According to data from crypto.com, the average “gas fee” – transaction cost – of an Ethereum transaction is between US $ 85 and US $ 156. This is good for large transactions but not very useful for small ones.

Much of the enthusiasm for cryptocurrencies as real currency comes from the United States, where the banking technology infrastructure is poor by developed world standards. They still regularly use paper checks, for example, which have been largely abandoned in Australia.

What is cryptocurrency used for?

Due to these issues, there are few legitimate uses for coins as currency. Most people who buy cryptocurrencies do so to speculate on their value.

However, since it is difficult to trace, crypto is the preferred payment method demanded by ransomware gangs who hold organizations’ data hostage.

This also makes it good for buying and selling illegal goods and services, such as drugs and even, according to some reports, murder for account.

People accused of unrelated crimes often tend to have bitcoins on hand when authorities rush – in a number of recent cases the Australian Securities and Investments Commission has requested freeze orders on large amounts of bitcoins in the possession of the accused.

Among its main uses are investment scams and money laundering.

Money launderers are willing to take some volatility risk to clean up dirty money and pay high fees along the way. Despite the occasional sudden drop, crypto in general is a rising market, so there is even a chance to make money while laundering.

Many crypto exchanges that currently operate in the mostly unregulated offshore world have suffered attacks that have resulted in customers losing some or all of their money.

What are regulators doing about this?

US regulators have stepped up their surveillance of the sector. Last month, the Commodity Futures Trading Commission accused the owners of the Bitmex trading platform of operating an unregistered trading platform and other violations, including failing to implement procedures for trading. anti-money laundering required.

Regulators are also very concerned about so-called “stablecoins,” the value of which is believed to be tied to real-world currencies such as the US dollar or the euro.

Central banks around the world are increasingly alarmed by the threat posed by stablecoins. In a joint document last month, the Bank for International Settlements, which is the central bank of central banks, warned that they posed a series of risks that would increase if any of them were able to achieve a global scale.

In the past, a stablecoin issuer, Tether, claimed that its coin was 100% backed by US dollars; However, this was not true and as a result, last month CTFC fined Tether and a related exchange operator iFinex $ 42.5 million.

How does Australia regulate it?

Australia has been slow to regulate crypto. The Australian Securities and Investments Commission does not exercise regulatory oversight over most coins because they do not meet its definition of a security.

However, the threat to consumers from crypto scams is a priority area this year, for the first time.

And last week, Asic updated its fact sheet on crypto assets, warning coin makers that a range of Australian laws could apply to them.

Meanwhile, a parliamentary inquiry led by Liberal Senator Andrew Bragg has proposed that the crypto industry be subject to a lighter regulatory regime than normal financial products.

In a report released last month, Bragg’s investigation recommended changes, including giving crypto tax relief to encourage its growth here.