Citigroup is apparently planning to issue IoU like certificates that have a claim over crypto assets according to the unnamed sources of Business Insider.
They say the crypto would be held by an unnamed custodian, with Citigroup then providing a paper or digital certificate saying something like John Smith owns one bitcoin.
Our fictitious John Smith wouldn’t have possession of the bitcoins, wouldn’t have the private keys, and wouldn’t easily know if his one bitcoin is actually owned by ten people.
There are of course mechanisms to prevent “double spending” or 100x spending of one such IoUs, but banks aren’t very well known for being transparent.
One therefore would give up that certainty of ownership for the convenience of others managing the possession and the security of the cryptocurrency.
Something which can be fine if times are good, but if banks go under as they do now and then, you might get a haircut or you might get nothing at all since ultimately this is in a way a contractual arrangement, which means at most you only have a civil claim and if they are bankrupt then there isn’t much to claim.
The trick may be that the paper itself is eventually considered a bitcoin, but this time the transparency of public blockchains means we know exactly how many bitcoins there are. If therefore it is 100 people that the paper says own John Smith’s bitcoin, we’d know.
With gold that transparency wasn’t available, so banks could give ownership of the same gold to 100 people without anyone knowing until the bank overextended itself and went bankrupt.
In addition, monarchs used to devalue gold, lowering its weight or decreasing how much gold a paper IoU was worth. With public blockchains, no one can change the rules.
People do however keep their coins on exchanges and a number of banks are now planning to offer custody services which basically means they have ownership of the crypto and give you a paper IoU as a claim to parts of it.
As an alternative, hardware wallets are also becoming more and more popular, with paper wallets being an addition alternative as is of course memorizing the private key.
The latter is not too easy, but a further option is shared ownership. That basically uses two or x keys that control an address, with permission for its movement required both by the custodian as well as the owner in addition to someone else if desired.
Such service has been provided by a number of custodian providers, such as BitGo, with banks really being very much outsiders and quite late to the game as far as cryptos are concerned.
So they’ll face and are facing competition from cryptonians, which means banks may have to utilize the additional qualities of cryptos, rather than going back to their old tricks whereby we have to trust them, a trust they have often abused, but need not technically be able to do so where it comes to cryptocurrencies due to code constraints that can be implemented.