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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.
[From BBC News – Bitcoin: Experts clash over the crypto-currency]
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.
[From Bitcoin As Protocol | Union Square Ventures]
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.
[From Digital money: The Bitcoin bubble | The Economist]
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.
[From Bitcoin Watchers: Think Protocol, Not Price | The Ümlaut]
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.
[From What should the “mainstream” think about Bitcoin?]
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.
Hi Dave- Has Ripple come onto your radar?
It’s similar to Bitcoin (decentralized ledger), except it supports any currency (USD, GBP, EUR, etc.), and settles and facilitates FX in real-time (5 seconds).
To a bank, Ripple looks like an interbank payment system (e.g. international wire), except free and instant.
This article doesn’t actually give any rationale behind the prediction that Bitcoin will not be a currency. Its interesting that Birch could not have designed or even predicted a system like Bitcoin, but now that it is here, he wants us to believe he has the insight to tell us all how it will evolve in the future. He cant.
This article spends more time telling us about the weather and obscure personalities than it does making predictions and justifications for his idea of how the future will play out. The article does not mention any specific application or application in development. It is hand waving pure and simple. This sort of talk can wash in conference land, but it doesn’t work well at all in a written piece where you expect some logic, facts and exploration of the extant technologies and where they are going.
He thinks Bitcoin is “a revolution”. Why? And why does he expect a revolution to not have a revolutionary impact? Surely a revolutionary technology whose explicit aim is to displace fiat currency should be expected to do what it is designed to do if indeed it is a true revolution as Birch admits himself? Clearly Bitcoin is made for the ordinary consumer. Its clear that it will be a revolution, by his own words, so how can it not be a revolution in the way the consumer uses and regards money? What we are hearing is Birch’s desire that Bitcoin NOT become a revolution.
What Birch does not want is the revolution that Bitcoin is; the removal of government from the creation of money and the removal of banks as intermediaries in transfers and accessories to the inflation scandal. This is exactly what Bitcoin was designed to do, and it will do it.
He says he is unconvinced by Bitcoin as a currency. Why? He does not tell us, he simply makes this statement without backing it up. He says that Bitcoin is part of an evolving family of technologies, but cites Etherium. Etherium cannot work without the Bitcoin Blockchain; this demonstrates that Birch’s understanding of Bitcoin is not complete. Etherium outside of the Bitcoin Blockchain is nothing more than a curiosit. It needs the first mover advantage size of the Bitcoin Blockchain to be a sucess. It is utterly dependent on it for wide adoption and momentum.
Birch says that people who think Bitcoin will become the world currency of the future are “deluded”. This is an ad hominem attack. If Birch thinks this, and wants to be taken seriously, he needs to say why this event cannot happen. Of course, he is working only with the assumptions of today, and cannot take into account the software clients of tomorrow. Even the desktop Bitcoin clients of today are vastly superior to the ones of two years ago. Take for example Multibit, which can get you up and running very quickly, since it only downloads a subset of the blockchain. In the future, clients will get better and better, smaller, faster and easir to use as text messaging. Blockchain now has over one million users; this number could double every month once the viral effect sets in powered by the new genration of apps. In short order, Bitcoin could be the phenomenon we expect it to be.
Finally, Birch says that you will not be using Bitcoin to get on the subway or buy a pair of shoes. This is completely absurd. You can already buy shoes with Bitcoin as a simple google search will demonstrate. As for rides on the subway, there is no reason why you should not be able to top up your Oyster card with Bitcoin, or have a bitcoin account on a card debited just like Oyster does.
What I have just demonstrated in the two above refutations is the difference between entrepreneurial thinking and consultancy thinking. Consultants are men who do not have the imagination or insight to be entrepreneurs. They are good at analysing the landscape as it is today, but absolutely terrible at predicting the future. If they could predict the future, they would be entrepreneurs.
Birch and his class are being dragged kicking and screaming into the future. They do not like Bitcoin, because its effects make their work harder; they have to be more like entrepreneurs, whcih is something that they cannot do. Bitcoin increases the pace of innovation exponentially, making the landscape difficult to analyse and “consult” over. This is why there is so much irrational scepticism and distaste from this class of man. And lets not forget that Birch is for the surveillance State; he thinks that the government should have unfettered access to all bank and money movement activity, which of course, Bitcoin, ZeroCoin and DarkWallet are going to remove forever.
It is no wonder that he keeps predicting that Bitcoin will not amount to much. It is his overriding desire that Bitcoin ceases to exist entirely.
Some additional perspective in Wired today http://www.wired.com/2014/03/decentralized-applications-built-bitcoin-great-except-whos-responsible-outcomes/
“We need to make sure we don’t exchange the tyranny of large online operators for the “tyranny of code” instead.”
First of all, who is “we”? There are hundreds of millions of peopl who do not agree with this statemet; what is this woman planning to do about them?
This Wired piece is not insightful. This article is written from the perspective of a Socialist Frenchwoman, who is anti-Liberty. She does not even understand the correct character of Tyranny. There can be no “Tyranny of Code”; tyranny is something that men do to other men. Code is inert, and cannot act by itself. This sort of misuse of language is what the statist needs to do in order to make her case, because she cannot do so and tell the truth at the same time.
Part of the problem the Statist has in addressing Bitcoin is that her entire life has been spent with an understanding of English that has a different base set of definitions to true English. This is very much like someone from the novel 1984, trying to understand an Englishman speaking in 1977. Its impossible to understand Bitcoin, tyranny and rights if you do not understand what Bitcoin, tyranny and rights are.
What is so wonderful about Bitcoin is that no matter what people at Wired, hard core socialists or anyone else thinks, Bitcoin is going to change everything. It is going to remove trillions of dollars worth of commerce from the grip of the State, and there is nothing anyone can do about it. Except benefit.
It’s interesting James that you claim Ethereum can’t succeed without the Bitcoin blockchain. They themselves would disagree, as would the organisers of the BTC meetup who were in attendance at a recent meetup.
Bitcoin has a number of Achilles heels
1) Mining is a zero sum game that rewards people who hoard ASICs
2) Which makes a 51% attack an eminent possibility
3) It has no established trading mechanism (Ripple and other escrow services could help) – but it is effectively an asset that is mined at the cost of (shit loads of) electricity
I do think Bitcoin can and will survive the coming decades, but it will have to fundamentally alter it’s mining algorithm OR start charging fees to do so. There’s a great post on the subject here:
http://radar.oreilly.com/2014/04/bitcoin-what-happens-when-the-miners-pack-up-their-gear.html
I find there are a lot of Bitcoin types with a significant amount of speculative investment in Bitcoins that are very emotive about Bitcoin and it’s potential.
I’m more of a follower of Marc Andersen on the subject
http://techcrunch.com/2014/02/12/marc-andreessen-tech-is-still-recovering-from-a-depression/
““I would not encourage your grandmother to put her life savings in it,” he said. “[But] every single smart computer science person I’ve had look into it has reached the same conclusion — it’s a fundamental breakthrough in technology.”
He gushed: “For the first 20 years of the Internet, you couldn’t do this … Bitcoin is the first Internet-native approach of dealing with money. He said that corrupt governments and flimsy central banking systems would be Bitcoin’s true test.”
– Even – HE – Isn’t saying Bitcoin will smash the banking industry. Just that it could. I do think the Foundation have made great leaps in the past couple of years but the innovation is happening in the altchains.
You make many assumptions about the motives of others. Can I recommend questioning your own given the vehemence with which you defend something with 100x less users than Flappy Bird?
What makes cryptocurrencies different from a PayPal or Liberty Reserve even are that they are decentralized. Only a decentralized cryptocurrency will survive government’s desire to censor and corrupt the network. An example of censorship would be an attempt to impose restrictions on what types of payments the payment network protocol allows. An example of corruption would be a mandate to modify the protocol to comply with some tax reporting or withholding.
What makes proof-of-work cryptocurrencies different from others (e.g., Proof-of-stake) is that consensus from the majority of the mining capacity on the network determines what is appended to the blockchain. Proof-of-work is likely the only approach for reaching distributed consensus that too protects against censorship and corruption.
What makes Bitcoin different from other proof-of-work cryptocurrenies is its unprecedented level of hashing capacity and maturity of mining infrastructure (i.e,. mining pools). The 51% attack (which can introduce “corruption” by way of allowing the attacker to double spend funds that the attacker had already been used in previously confirmed transactions.) would require an investment in hundreds of millions of dollars of mining-specific hardware. The 51% attack against the top alternate proof-of-work currencies (e.g., Dogecoin) might require less than one million dollars even.
It might seem common sense that some scrappy up-and-comer that “fixes” some drawbacks Bitcoin has (e.g., 10-minute block confirmation time) and is backed by some heavy hitter could be something that could supercede the “legacy” coin, Bitcoin. But it is not likely that anything will gain the protection against censorhip and corruption that Bitcoin has reached. Bitcoin remains an order of magnitude better at this protection than any competitor and that margin remains steady, or perhaps increasing even.