I made a provocative comment at a recent keynote address by saying that the coding behind virtual currency Bitcoin could be enormously transformational, potentially even replacing the Swift network for interbank payments.
This created a lot of debate among the audience, with many showing a lack of understanding of Bitcoin. This is not their fault. Bitcoin is a fledgling techno nerds’ method of recreating banking. But when asked, not one banker could tell me what the blockchain was. This is just incredible.
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I’m encountering this at many conferences, where I regularly ask can anyone here explain the blockchain? Usually no one raises their hand or, if one does, it usually turns out to be a Bitcoin developer. This is embarrassing to be honest.
For the record, the blockchain is a public ledger of all Bitcoin transactions.
We have a technology that has been developed in the open for almost six years now, that has more computing power behind it on a decentralised basis than any open source project in history, and that could fundamentally destroy the banking system, and only a miniscule number of bankers are trying to understand it, while most have little or no understanding.
Bitcoin myths
In order to change this, here are the typical things bankers believe about Bitcoin.
It’s purely for payments.
No. Bitcoin, the protocol, and other cryptocurrencies are for the recording of digital-value exchanges that can take any form from a payment to a marriage vow.
Bitcoin cannot threaten something such as Swift, as Swift is more than just payments. Half of Swift’s activities are in securities settlement for example.
Wrong. Bitcoin’s technology can record securities settlements as easily as a marriage contract or payment. This is evidenced by the newly launched investment markets service, Colored Coins, which records equities and derivatives trades using the Bitcoin blockchain.
Upstart cryptocurrencies could not threaten Swift as Swift has the scalability, security, resilience and history that instil trust in the network.
Wrong. Bitcoin is now using more scalable and capable networking computing power than SETI, the Search for Extra-Terrestrial Intelligence, which was previously the world’s largest networked system.
The Bitcoin blockchain may be of interest but not the currency.
That’s wrong too. You cannot have a blockchain in banking without a native currency, and why would you replace Bitcoin as the native currency when it’s had six years and thousands of man hours of development effort invested.
Mt Gox's collapse has destroyed all trust in Bitcoin and its ecosystem.
Nope. Just because a flaky trading system collapsed does not remove the robustness of the Bitcoin protocol. This was purely the same as Northern Rock collapsing. Does that mean you no longer buy sterling?
Bitcoin is difficult to use.
Yes, but that's changing fast thanks to the Bitcoin ecosystem. Companies such as Circle and Ripple are changing the game. In fact, Bitcoin can be compared to the internet before Tim Berners-Lee gave us www dot. It's changing quickly and becoming easier, faster.
Bitcoin is not relevant because it’s just a cryptocurrency.
Wrong. It’s a protocol, a commodity, a technology, a smart contracts system, a general ledger, a secure exchange… a many splendored thing.
Rebuilding the system
Now, I write all the time about Bitcoin not because I’m promoting it, invested in it or wanting it to succeed. I’m writing about Bitcoin all the time because it has the potential to destroy banking, money and regulation as we know it.
For example, Marc Andreessen, super angel investor, founder of Netscape, seed funder of Twitter and manager of a $4bn-plus venture capital fund in Silicon Valley, has made two major comments on Bitcoin recently that stand out for me.
“We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information,” Bloomberg, October 2014
“I am dying to fund a disruptive bank,” Twitter, February, 2014
This guy is not stupid and nor are the thousands of other seed funders of the Bitcoin system, including Sir Richard Branson. In other words he, and many other highly intelligent investors, are betting the farm that this Bitcoin experiment will succeed.
It’s just a shame that the majority of that community have no idea what we are talking about.
