May 22nd, 2013
Via Economic Policy Journal, an interesting commentary on the future of Bitcoin:
Having had a bit (pun intended) of time to decompress from the Bitcoin 2013 conference that I attended in San Jose this past weekend. Here is my current thinking on Bitcoin and how that thinking evolved over the conference.
Going into the conference I thought the major problem for Bitcoin (and other crypto currencies) was the exchange point between fiat currencies and Bitcoin. My view was that as long as the government can control these points of exchange, and associated bank accounts, that Bitcoin could not get much passed being a dark underground virtual currency. My belief seemed to be buttressed by the recent seizing by the Department of Homeland Security of the funds held in US accounts by leading Bitcoin dealer, Mt Gox. My view was that if the government can control the exchange points and shut them down, then it would be game over for mass use of Bitcoin.
After spending some time at the conference, however, I realized that there were a number of dealers about to launch, who were going through the painstaking and expensive process of registering in the US as money exchange dealers.
At this point, I thought to myself, “Okay, registered exchanges will survive, but they won’t offer any of the significant (though not foolproof) anonymity that Bitcoin itself offers.” In other words, if you have to register with name, DOB and SS#, then there is limited use for Bitcoin. It’s almost just like a bank account, though with fluctuating value.
When I learned that the Bitcoin Foundation was about to hire a lobbyist in Washington D.C. and a staff of lawyers, I thought to myself that nothing good could can come of that. That it is negotiating with the devil and that it will mean even more restrictions on Bitcoin.
By the middle of the weekend, however, I began to see how the registered exchanges and the Bitcoin Foundation could provide good cover for Bitcoin. If the government is happy with exchanges that are being registered and the Bitcoin Foundation provides a distraction for the government, by which I mean, congressmen and regulators think that an agreement with the Foundation is an agreement with the Bitcoin community, than that could all be to the good. As I learned at the conference, the Bitcoin community is far, far bigger than, and there is much more to them, than regulated money exchanges and that if the registered exchanges and the Bitcoin Foundation distract the government and keep it from focus on the entire BTC community, than all the better.
As Tuur Demeester said to me, Bitcoin has a thousand heads. That doesn’t mean that Bitcoin will survive a battle with the government, but it will be a battle. Expect some casualties. CEO Alan Safahi of Zip Zap told me, there will be some lawsuits, some scams and some arrests.
But just as there is an above ground group that wants to deal with government regulations, there is an underground group that has no plans to do so. One exchange developer told me he doesn’t have the money to register as a money exchange, but plans to launch his exchange anyway. There were even wilder schemes that I dare not go into in print about. Let’s just say there are some very creative and aggressive people in the community.
That said, there is some big money pouring into the crypto currency world. Peter Theil recently put $2 million into BitPay. Google Ventures has put money into another platform/crypto currency, Ripple. I also got wind of a global multi-billionaire, who wants to keep his name and his investment secret, but who has put money into a Bitcoin company.
It is this BIG money, above ground money, that may keep the regulators from shutting down BTC completely. And if it is not shutdown completely, the nature of Bitcoin is such that the underground BTC world will continue to develop methods and systems for all sorts of exciting things. It will be a cat and mouse game. But the mice here are very smart. They are thinking of all methods possible to make a government shut down of Bitcoin very difficult. This means, of course, that they want to see as many users adopt BTC as possible, but their thinking goes beyond that.
I heard one speaker tell a large audience that they should make their charitable donations in bitcoins. His argument was that if the government tried to shut BTC down in the future and charitable organizations were receiving some of their donations in BTC that they would likely then object to the government shutting down BTC. Like I said, they are thinking all angles. The government at present may have the ability to shutdown the entirety of Bitcoin, but as it becomes more used in mainstream transactions, the more difficult it will be politically to do so.
One EPJ reader asked me at the conference if I had changed my mind about Bitcoin and now consider it a money. My answer was that I still don’t. It still doesn’t have the liquidity that a medium of exchange has. That is, you still can’t walk into every store and use bitcoins to buy something, but that is changing and at some point you may be able to do that and that would make it money. But I must hedge even here, about BTC has the crypto currency likely to emerge. BTC has a major advantage to being first in a sector, most of the developers are working on BTC, but that doesn’t mean it will end up top dog if a crypto currency succeeds.
Remember, in the early days, we all used AOL email and AOL search and then came along Google and gmail, which changed things a lot. BTC may come out the winner or it may be another of the crypto currencies out there. Ripple’s XRD looks very interesting to me. It is surrounded by very smart people, has money and it has that investment from Google Ventures.
In short, at this stage the government is a significant threat, but it is a threat that likely doesn’t understand the beast it is dealing with. It is very possible they won’t understand the moves they need to make to shut the crypto currency world down. If they don’t, and use of crypto currency grows, then long term we may end up with a currency that, unlike the Fed’s fiat dollars, can’t be inflated at will.
If a crypto currency emerges as a popular medium of exchange. It could in a way become the crypto world’s answer to gold, a currency that climbs in value against depreciating currencies, such as the dollar, but a currency that may be even easier to transport and hide then gold. Indeed, as one attendee explained to me, crypto currency does not have to take any physical form at all. If you remember your passcode in your brain, you can pass any border check point without a customs agent detecting the wealth you have with you.
This entry was posted on Wednesday, May 22nd, 2013 at 6:48 pm and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
