Filed Under: Money, Payment systems

I'm not keeping an open mind about Bitcoin, and nor is the government

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I saw a number of excited, and entirely mistaken, tweets saying that the British government are supporting Bitcoin, when they are doing nothing of the sort. In fact, the relevant UK Minister merely said that they government are keeping an “open mind” about Bitcoin. They’re not: they are keeping an open mind about the blockchain, and that’s much more interesting.

Before I say anything more about Bitcoin, let me make it quite clear that Consult Hyperion is carrying out paid professional services work for financial institutions in connection with Bitcoin. Hence, my interest in the topic is not academic, but commercial: how can our clients exploit Bitcoin for fun and profit. Let’s start with the big picture: Bitcoin is undoubtedly very, very important.

If history is a guide, it is here that bitcoin’s real potential lies: in its hybrid payments technology. As Europe’s medieval merchant-bankers proved, a brilliant new means of recording and verifying money transfers can indeed be a revolutionary event — not just in economic, but in political terms.

[From Bitcoin Is Pointless as a Currency, But It Could Change the World Anyway | Enterprise | WIRED]

Wow. That does sound amazing. But is it true? Naturally, I turn to our government for guidance in these matters, and I note that man of the people and Minister for the Digital Economy, the St. Paul’s-educated art historian, member of the aristocracy the Honourable Edward Vaizey MP (a lawyer), says that he is keeping an “open mind” on Bitcoin, although he did not say with respect to what — e.g, untraceable transactions, money supply beyond Bank of England control or assets beyond the reach of Her Majesty’s Revenue and Customs — in the interview that I read. He did say, however, that the government sees potential for e-payments to bring multiple benefits to businesses and consumers. And I am sure we can all agree with the Minister on that.

Who can blame Lord Vaizey for being cautious on the topic of cryptocurrency, monetary reform or the nature of an economy based on the trading of digital assets, which is what I imagine the digital economy to be. His position is quite understandable.

Dave Birch, a director for IT advisory firm Consult Hyperion, remarked that governments remain cautious about passing definitive legislation about bitcoin because they both lack understanding of its underlying technology and fear missing out on future tax revenue. However, he predicted that governments will eventually see bitcoin’s potential to create “a dynamic and efficient economy”.

[From Innopay Report: Is Bitcoin Fad or Future of Payments?]

I did indeed say this. I might even have said a dynamic and efficient digital economy, and that was before I knew that there was a Minister for it. What I did not say, though, is that I thought that Bitcoin’s potential is as either a currency or a payment system where, as far as I am concerned, neither the Honourable Mr. Vaizey nor anyone else in government has put forward any set of requirements as to what a new currency or payment system should do in order to help the digital economy. In fact, I strongly doubt whether Bitcoin the currency has any role at all in a dynamic and efficient digital economy in the future. I tend to agree with other well-informed observers who say that the applications of blockchain technology beyond currency are far more interesting.

While he did note that his interest remains strong in bitcoin and related companies and services, he said that the bitcoin protocol has perhaps far bigger ramifications in key fields like Internet identity:

[From VC Fred Wilson: ‘Block Chain Could Be Bigger Opportunity than Bitcoin’]

Speaking in the Q&A after his excellent lecture at the London School of Economics, Professor Nigel Dodd (the author of “The Social Life of Money”) made a similar point, and specifically highlighted Ethereum and the work going on around smart contracts as a potential game-changer. And he is not the only one to point in this direction. Nick Szabo (who many people thought was either Satoshi Nakamoto or a close confederate thereof), for one.

“Ethereum has vast potential, whereas Bitcoin won’t ever do anything well beyond implementing a currency,” programmer Nick Szabo, another early Bitcoin proponent who’s recently begun tweeting after an extended absence from the internet, told us in an email several weeks ago.

[From Ethereum Launches Ether – Business Insider]

And, what’s more, so did the Honourable Edward’s departmental advisors, if you read down the interview to the point where he says:

we want to look at the kind of technologies that the digital currencies use to allow end systems to operate in a de-centralized way, with no intermediaries.

[From U.K. Government Keeping An Open Mind On Bitcoin, Says Digital Economy Minister | TechCrunch]

Aha. So the government isn’t really keeping an open mind a Bitcoin, what they are really keeping an opinion mind about is the blockchain. I always said that Digital Ed was a sound chap. Anyway, I’ll be exploring Bitcoin, the blockchain and the future of money on 12th November 2014 in London, where the Institute of Chartered Accountants of England and Wales have invited me to give their annual lecture. The lecture is free, a characteristic sure to be appreciated by the membership, so I look forward to seeing you all there.

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