Jeff Sprecher – New York Stock Exchange founder and CEO – has teamed up with his wife Kelly Loeffler to conceptualize a method of bringing Bitcoin to institutional investors. In order to do this, Sprecher and Loeffler have had to overcome some major hurdles, but given their extensive history in taking outdated exchanges and modernizing them, these hurdles seem to be a drop in the ocean for the stock exchange power couple. The Intercontinental Exchange (ICE) is the parent company of the NYSE, and it has teamed up with Microsoft, Starbucks, and a handful of other large corporations to create Bakkt. Bakkt is the brainchild of Sprecher, with it set to enable Bitcoin to be bought, sold, and spent through a centralized layer added to the blockchain.
How Will Bakkt Work?
Bakkt would work similarly to the Lightning Network, should it be crossed with a digital version of Fort Knox. When Bakkt goes live – roughly estimated to be November 2018, but is waiting for US Commodity Futures Trading Commission (CFTC) approval – it will give institutional investors and wealth managers the ability to purchase, hodl, and sell Bitcoin in its marketplace. However, in order to avoid Bitcoin’s lengthy transaction times, it will take this entire process off-chain and onto its own layer – so to speak. Bakkt will have its own supply of Bitcoin kept in cold storage that can be simply moved from one institutional account to another, without the need to connect to the Bitcoin network. It has been created in this way to avoid certain “issues” that the Bitcoin network supposedly has, as well as helping to reduce the volatility in price.
This is the primary situation that Bakkt will be faced with once it is up and running. Bakkt also doubles up as a custodian service – similarly to Coinbase and Gemini. It can be used to store large sums of Bitcoin for institutional investors that are required by law to store client funds in a custodial bank. This can be used to secure pension funds, investment funds, or any other financial investment vehicle. While Bakkt isn’t the first to implement this kind of service, it will most likely appeal more to institutional investors given the reputable names behind it.
Bakkt Could Be Used for Payments
Possibly one of the most interesting names joining the Bakkt movement is Starbucks. A lot of media outlets have misconstrued the true purpose behind Starbucks joining the project, reporting that Starbucks will let you pay for your coffee in Bitcoin. This is simply “fake news” – for now at least. Instead, Starbucks is simply on-board to help Bakkt work its way into the retail payments industry – currently costing consumers $25 trillion yearly – to help alleviate the cost burden on consumers.
Bakkt could be used in the payments industry by developing its own consumer wallet app and merchant wallet, whereby consumers would deposit funds into a Bakkt wallet. This could then be stored on a phone and – if NFC enabled – a user could then simply tap the phone on a merchants NFC enabled payment device, instantly transferring funds from consumer account to merchant. By taking the entire payment process off-chain, the transaction time can be sped up and general costs reduced. This would go a long way in helping Bitcoin become scalable – one of its largest pitfalls to date.
It’s Un-Bitcoin at its Core
While many crypto fanatics are calling this the idea of the century and the saving grace of Bitcoin – others aren’t so happy. It is simply creating a super-centralized Bitcoin exchange for institutional money. Bakkt will be a regulated exchange with a custodian in the middle charging fees. This is diametric opposite of what Bitcoin was meant to be – a peer-to-peer payments network. While this is what is required for institutional money to begin flowing into the Bitcoin ecosystem, Bakkt is seeking to remove the peer-to-peer system and replace it with a more traditional financial system – almost turning Bitcoin into a commodity akin to orange juice or oil.
Abhishek Punia – a crypto-currency analyst with venture capital firm Draper Associates – said, “Bitcoin was designed to be decentralized, without intermediaries taking fees. A regulated exchange may be popular for a short period of time, but it’s not the future. The future will be the original idea of a peer-to-peer network.” In early July, Vitalik Buterin slammed centralized exchanges, saying he hopes they “burn in hell as much as possible,” which shows that Bakkt might not be the great answer that some believe it to be.
Seeing its Flaws
It appears as if the crypto community can see the negatives of Bakkt and its potential flaws. The price of Bitcoin has remained bearish throughout the breaking news and continues to remain in the red. Usually with such news the price spikes, and with news of this magnitude the crypto community is beginning to question why it hasn’t.
When Bitcoin Futures were announced and released, the Bitcoin price climbed to its all-time high of $20,000. Perhaps the news of a regulated centralized exchange is only good for institutional investors looking to increase portfolio performance. While Bakkt would make it considerably easier to create a Bitcoin ETF, it is only a matter of time before the SEC issues America’s first Bitcoin ETF anyway.