Will Bitcoin make it into the mainstream. I don’t think so. But something like it will, and it won’t be for currency.
A lovely afternoon out at the British Museum, where I had been invited to join a panel discussing cryptocurrencies as part of the Saxo Bloomberg #TradingDebates [video]. I was flattered to be asked to be the technology chap on the panel alongside Citi’s currency strategist Steven Englander and Anthemis Group founder Sean Park. We were moderated by Izabella Kaminska from FT Alphaville. My position was, overall, that the people who think that Bitcoin will become the world currency of the future are wrong and, in some cases, deluded. This is not a new debate, as it’s been running since Bitcoin entered mainstream consciousness.
The big advantage of Bitcoin as “stateless money” is that when it collapses, the government won’t have to bail it out.
I wanted to make two points in response to the questions from Izabella and the audience of financial services people. This first is that I think that the Bitcoin technology is, indeed, a revolution. An entirely new way of doing things.
At the heart of bitcoin is a fundamental innovation: a distributed public ledger. A ledger in accounting is a book that you cannot edit once you have written in it. Instead, if you have made a mistake, the only way to fix it is to add another transaction to the ledger that undoes the error.
I think this aspect of Bitcoin is the genuine invention and will be the lasting legacy. I am unconvinced about the currency but I’m sold on the cryptography. The other point that I wanted to make is that the reason that I am convinced about the technology is because it is part of an evolving family of technologies.
Just as Napster paved the way for BitTorrent, iTunes and Spotify, Bitcoin has triggered a surge of innovation in digital money.
Now, this family is still growing (see, for example, Ethereum) and I’m not smart enough to know which branch of the tree will become the mainstream. But I am smart enough, I think, to at least be able to spot the right tree: and that’s the distributed public ledger tree.
More sophisticated analyses consider the potential of the protocol itself.
Fred Wilson talked about this in his 2013 Le Web talk about “macro trends”. He said that the “unbundling” of banking was one of the key trends that he saw as being significant over the next decade. He is funding companies such as Lending Club and Funding Circle who picking off aspects of the banking business, and I am sure he will be very successful with them. But he also made this particular point about the Bitcoin protocol, rather than the Bitcoin currency, which I think is a business validation of my technical position. I think Consult Hyperion called this correctly when we were first asked by clients for an opinion on the topic. As I wrote a couple of years ago,
The best strategy is to learn, and to think about ways that the cryptography at the heart of Bitcoin can be used to deliver new kinds of services in a connected environment. I don’t think cash will be one of them.
As we have a studied the ecosystem further, I’ve become confident that this initial assessment is correct. You’re not going to be using Bitcoin to get on the subway or buy a pair of shoes, but you are going to be using the Bitcoin technology in all sorts of other services.