Credit unions may one day find some of their core functions replicated by bitcoin, a new report suggests.

According to Mercator Advisory Group, a global consultancy for the payments industry, such an evolution would only occur should bitcoin’s market volatility lessen and security mechanisms develop further.

The report, entitled Understanding Bitcoin’s Implications for Credit Unions, largely serves as a vehicle for understanding the fundamentals of bitcoin and its distributed ledger, the blockchain.

Not until the last page does the report turn to the implications of the technology on credit unions, noting:

“Assuming the volatility of bitcoin drops considerably to what is considered normal for currencies, and that security concerns around how best to secure private keys are resolved, we could see the proliferation of a host of new financial services backed by bitcoin, many of which are directly associated with the core businesses of credit unions today.”

Mercator posits that credit unions that primarily serve the remittance market could benefit from working with bitcoin exchanges, naming CoinX and Coinbase specifically, to “explore the possibility of offering a competitive international remittance product to their customers”.

However, the report stops short of saying that credit unions should jump at the chance to integrate bitcoin. According to Mercator, the benefits of operating bitcoin wallets for customers may not outweigh the costs of securing those holdings sufficiently.

Mainstream traction

The report asserts that bitcoin’s primary use case is to buy and sell speculatively and, as a result, “is unlikely to find much traction among the broader mainstream of CU account holders”.

Mercator also questions whether or not bitcoin can vehicle for consumers payments, and as a replacement for credit and debit cards in particular.

“[Transaction irreversibility] is undeniably beneficial to merchants (assuming they have a way to hedge away all the foreign exchange risk), but, for the most important stakeholders in the ecosystem – consumers – the benefit is unclear.”

Mercator closes the report by acknowledging the impact cryptocurrency will likely have on mainstream financial services, adding that the exact impact is difficult to foresee at this time.

“Predicting what exactly these implications will be, however, is a bit like
trying to grasp the significance of the Internet would have been in 1995 – these are early days still,” the report concludes.

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