Cryptocurrencies have been part of the mainstream conversation for years now, but when it comes to using them to develop a full peer-to-peer bank, that’s still uncharted territory.
However, that’s exactly what BABB is plotting, so we took a look at its plans and how they’re likely to work out in the next few months – in plain English, we promise!
BABB stands for Bank Account Based Blockchain. The company was founded by Rushd Averroes, a Yemeni who moved to the UK and experienced the difficulties of opening a mainstream bank account as an expat. Averroes hopes to target the 2 billion people in the world who are still unbanked.
BABB is yet to launch, so everything we say about it will be updated in the coming months. But the basics are already quite clear.
BABB wants to become a decentralised bank. In order to understand what this means, you have to think about how a bank works at its most basic level: that is, by acting as an intermediary. For example, when I make a bank transfer to my landlord to pay the rent, I’m not actually giving my landlord the money. I’m giving money to my bank, which will then give it to its bank, which will then give it to my landlord.
BABB’s idea is to build a platform that allows people to skip this step, enabling them to rely on direct peer-to-peer transactions and to do it by using blockchain technology. Brace yourself because here comes the difficult part.
BABB uses blockchain technology and cryptocurrency. If you’re in need of a revision on either, Finder’s crypto page has got the basics covered for you.
BABB’s platform is part of the Ethereum network. Ethereum is basically a cryptocurrency platform: it allows people to create their own applications and platform (they’re called dapps or decentralised applications) using Ethereum’s cryptocurrency, Ether (ETH). Each application can then create its own cryptocurrency to be used inside the dapp (they’re called tokens). If you’re lost or you want to know more, here’s a complete explanation on Ethereum.
So BABB is basically a platform, built on another platform (Ethereum), in the crypto landscape. It has its own cryptocurrency, BAX, which you’re going to need in order to access the platform.
What’s new is that this whole structure is aimed at building a proper bank. BABB is planning on securing a banking licence and offering its customers a full UK bank account that is not so different from the one you’d get from Lloyds or Barclays, including account number and sort code.
BABB isn’t operative for now, but when it will be, you should be able to use it for a number of financial operations. Here’s what you’ll get when you register to BABB:
BABB’s black card won’t be a debit or a credit card in the regular sense of the word. It won’t have a chip and it will be issued directly by BABB, not by Mastercard or VISA as it usually is. The downside is, only retailers who download the BABB app can accept payment through the card, so the network needs to become quite well known and widespread to be actually useful. On the other hand, for the same reason, it makes accepting payments easier for businesses.
As we said, for now you can’t. But once everything is up and running, here’s how it should work:
BABB doesn’t have an official release date, and it may take a while.
BABB is planning to secure a UK banking licence, which will take quite a long time even if it does get it (and it’s quite a big if). Although BABB can function without it, it’d be necessary for some of its most advanced features.
What BABB’s done for now is to submit a banking licence application in the Cayman Islands and to prepare the applications to submit in Lithuania and in the UK.
BAX, BABB’s cryptocurrency, is in a somewhat more advanced stage. It’s already registered on the Ethereum network and a pre-sale was held in February 2018, during which BABB sold 20 billion BAX. BABB says there will be a second round once the app is live, “in 2019 at the earliest”.
BABB doesn’t have a fee system in place yet, but a good part of the whole point is to make it cheaper than most traditional banks or prepaid cards.
BABB says that they’re still working on it, but they’re looking at very small fees (“equivalent to cents of a dollar”) to open an account and to make transactions.
That’s the million dollar question. On one hand, since all transactions will be blockchain transactions, they’re extremely safe – they’ll be almost impossible to hack or falsify. Moreover, if BABB were to get a UK banking licence, it would automatically come with FSCS (Financial Services Compensation Scheme) protection on all deposits up to £85,000.
On the other hand, precisely because BABB will be based on BAX, there’s a high volatility risk that always comes with owning cryptocurrency: all currencies’ value can drop or rise, but with digital currencies, the risk is always higher.
You may be wondering what’s the point of such a complicated system. Here are some of the advantages (and disadvantages) that a blockchain-based bank would carry:
Finally, decentralisation can be both an advantage or a disadvantage: it’s a more equal and democratic way of doing finance, but it’s also true that a centralised authority, such as a bank, takes responsibility for what happens with its users in a much more direct way.
BABB’s idea of using blockchain to build a parallel, more equal banking system that also plugs into the mainstream one is somewhat visionary and very interesting. However, it’s also very difficult to put in practice.
The system is complicated, and it needs lots of people using it to actually make it work – otherwise users won’t have any retailers accepting the card or no one lending them the money they need.
It has potential, but we’ll have to wait and see if it actually works out.
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