ICE or the Intercontinental Exchange, which is the owner of 23 exchanges in total, including the largest one in the world, the New York Stock Exchange, is now opening a Bitcoin platform which is called Bakkt. And many are now heralding the venture as the saving grace of the cryptocurrency.
Bakkt wants to open the door to institutional investors
Is this a moment which people waited for? The moment when Bitcoin goes mainstream? The ICE or Intercontinental Exchange, which owns 23 exchanges, which include the biggest one in the world, the New York Stock Exchange, open a Bitcoin platform called Bakkt. And, many are now heralding the venture as the saving grace of the cryptocurrency.
The primary aim of Bakkt in its launch in November is to open the door to institutional investors. Those investors are the same institutional investors who were supposed to save Bitcoin when CME has launched Bitcoin futures. But, maybe this time is different.
The vision that is behind the project is a big one – a fully regulated exchange which involves real Bitcoin in pension funds, as well as mutual funds, ETFs and more – but it does not stop here.
ICE also teamed up with Microsoft and with Starbucks, to bring Bakkt into the real world, leveraging the Azure cloud of Microsoft, and the abundant source of caffeine of Starbucks, Bakkt is looking to facilitate the transfer of Bitcoin in day-to-day transactions.
The head of digital assets and the upcoming CEO of Bakkt, named Kelly Loeffler, said that they are collaborating to build an open platform which will help them to unlock the transformative potential of digital assets all over the global markets and commerce.
How is Bakkt going to work?
The exchange is going to operate similarly to the current cash market. Bitcoin is going to be traded in ‘one-day futures’ contracts. The broker or dealer merely is going to place an order for their client, and by the end of the trading day, the ICE clearinghouse is going to send the cash or Bitcoin to where it has to be addressed.
Such clients can be anyone, from money managers or institutions that control mutual funds to retail investors that look for gaining exposure to Bitcoin.
Clients are going to entrust their private keys to the exchange, which is going to store them in a heavily guarded warehouse. This is probably their secret weapon to combat the rampant hacking that has cost other exchanges billions.
However, the real innovation is in a new architecture which is built explicitly for Bakkt. Operating in a similar way as the Lightning Network, Bakkt created an off-chain system which is going to permit trades to happen on an institutional scale, meaning any transactions are happening inside the warehouse are not going to be settled on the blockchain. The only time when any transaction will hit the blockchain is when it is coming into or leaving the warehouse.
Loeffler explained that their system is going to operate on a layer above the blockchain, and they are going to keep their own omnibus ledger apart from the blockchain.
The system is the core feature of the larger-scale ambitions of the project. Bakkt could also act as a solution for merchants, as well as global businesses, permitting them to bypass brokers and banks, and in turn, the fees connected with credit card processing or currency exchange, as it has its own lighting network solution and the liquidity provided by Wall Street investors.
Jeff Sprecher, who is quite excited about the idea, said that Bitcoin is considerably going to simplify the movement of global money, as it has the potential to become the first currency around the world.
Is Bakkt too centralized?
The need for decentralization is actually one of the most essential beliefs in the cryptocurrency community, and it is essentially what the whole system was built upon.
One crypto analyst with Draper Associates, named Abhishek Punia, explained that a regulated exchange with a custodian in the middle contradicts the basic idea of Bitcoin. He also added that Bitcoin was designed to be decentralized, without any intermediaries taking fees. One regulated exchange may be popular for a short time period, but it is not the future. The future is going to be the original idea of a peer-to-peer network.
Fees, as well as custodians put aside, the bottom line is that people just do not trust the current system. Sprecher said that millennials do not trust traditional financial institutions. That was said for good reason too.
Some traditional financial institutions paid billions in fines in only the last few years for defrauding, as well as abusing customers.
The NYSE is most certainly a traditional, as well as financial institution and it has paid the penalties for its missteps to prove it.
This year, the NYSE and its sister exchanges were fined about $14 million by the SEC for different infractions, which include practices that favored floor brokers over customers. Over the course of 7 years, brokers could identify liquidity in two order types that were not disclosed to customers.
The official statement of ICE on the matter was that they believe this settlement is in the best interest of the NYSE Exchanges. They will take their regulatory obligations seriously and will remain focused on building, as well as maintaining industry-leading technology and ensuring that their markets are operating with the utmost integrity.
So, is this really the moment that we have waited for?
This time, there will for sure be Bitcoin changing hands. This time, commercial retailers are going to have the ability to accept Bitcoin, maybe. This time, they are also going to follow the rules, hopefully.
The entry of ICE into the Bitcoin world is for sure poised to make waves, but there is still skepticism running high. Even the partner in the venture of the company, Starbucks, is not going to be accepting Bitcoin any time soon.
Ideally, the implementation of the new services connected with Bitcoin should bring more interest into space, but if the announcements from previously hold any weight, investors, as well as enthusiasts should hold their breath.