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 banks to do so.
Cryptocurrencies are known for their wildly unpredictable price fluctuations, damage to the environment and use by criminals to try to disguise 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 the CBA doing this?
Based on account data, CBA thinks about 500,000 of its customers already engage in crypto trading.
CBA’s chief executive, Matt Comyn, said in a statement: “We believe we can play an important role in crypto to address what’s clearly a growing customer need and provide capability, security and confidence in a crypto trading platform.”
The bank will in a few weeks invite 2,000 customers to join a pilot program where they will be able to buy, hold, and sell cryptocurrencies through the CBA phone app.
The bank will initially offer 10 of the most popular coins, including bitcoin. (It will not include the parody-turned-US$35bn-market-cap dogecoin).
What users won’t be able to do is transfer cryptocurrencies to other people – all transactions will involve either buying or selling the coins for real money. This is because crypto transfer is difficult to trace making it attractive to criminals and a nightmare for the bank when it comes to complying with anti-money laundering and counter-terrorism finance laws – something banks find hard enough with regular money transfers.
Instead, all movements in and out of crypto are to take place through the customer’s own accounts, allowing the bank to better keep track of what’s going on.
What are the environmental issues?
Cryptocurrencies are generally created by computers solving difficult maths 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 make electricity is a major source of global heating.
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 reason why it’s 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 are currently a little over 1% of transaction value.
This may not sound a lot as it is about the same as what you’…….