The Daily Mail hasn’t yet written about how Bitcoin causes cancer. I’m rather surprised given the hysterical tone of much Bitcoin coverage. “It’s going to a million dollars!”. “It’s going to zero!”. “It’s the future of money!”. “It’s a scam!”. “It’s for drug dealers and terrorists!” . And those comments are just from the sober broadsheets 😀
[And just in passing the currency accepted by terrorists and drug dealers worldwide is a wad of US$ bills – nothing is going to displace that soon ;-)]
In this episode I am very glad to welcome Dr James Smith, CEO and co-founder of Elliptic – a company founded by three PhDs – which has recently raised £2m to grow it’s business as a digital custodian of digital currencies. As per the photo above even the Chancellor George Osbourne is happy to be photographed at a Bitcoin ATM. So we can assume there must be something more to Bitcoin than hysteria if hommes serieux are coming to the party.
Bitcoin as Technology as well as Currency/Asset
The most under-appreciated point about “Bitcoin” is that it is both a technology and a currency/asset/payment-mechanism. By which I mean that the pseudonymous creator – Satoshi Nakamoto – made (in 2008) a great leap forwards in Computer Science/Tech. THAT leap forwards will persist and has massive and widespread potential (and is used in most other digital currencies at present).
In implementing that technology in one specific application he then made a whole bunch of implementation decisions (eg there will only ever be a fixed number of Bitcoins). All of those parameters can be changed – so eg as James says you can easily make for example a currency that is more or less anonymous than Bitcoin.
However creating things for the digital age means we can have “digital costs” – I recently saw an example of an international $6m transaction which was done five million times cheaper than through banks… Think about the implications of that kind of pricing change – now that is disruption (whatever the early teething troubles are).
We can also note that Governments and Banks have a very privileged position due to being the sole creators of money. Can’t say that’s going very well – if I had been given £1 when I was born it would have fallen in value roughly tenfold 🙁 And let’s not start on the 2008 financial crisis, or the EU’s creating massive debts to be paid by our grandchildren just to keep their unsustainable vanity project going, or all those debt-financed wars.
The full implications of disruptive tech are always under-appreciated. “TCP/IP” sounded unsexy in the past but became “The Internet” which is not. “Hyper text mark up language” became “The Web”.
In the same way the (opaque and unsexy sounding) “Blockchain” has the capability of becoming many things. I mention the example of solving the problem of house purchase chains in the UK for example. And any of you that have sat with that pain know that it’s one of the biggest stresses in life – a huuuuge benefit if we can sort that one.
In this episode James and I focus on unwrapping “Bitcoin as technology”. We also highlight Tech/Computer Science as a never-ending flow of ideas, of concepts, of innovations, of upgrades to prior concepts. Everything in life is a stepping stone to the next stepping stone.
Bitcoin – whether qua technology or currency – is complex (especially when you drill into the cryptography). Most reporting of it is unclear. [I must give a shout out here to another James – James d’Angelo – his YouTube “Bitcoin 101 Blackboard Series” I found highly useful in getting to grips with some of the detail. To evidence the complexity of Bitcoin he has 1.5hrs of YouTubes explaining the first (relatively short) wiki Bitcoin paragraph alone!].
Translating Bitcoin Tech Terms into English 🙂
In this episode we stick to the Bitcoin tech terminology even if we try and convey that in common sense terms. It’s evidence that we are still at the “tech” stage that the language is tech driven. Blockchain makes sense in programming terms. Mining makes sense in terms of expending effort for a reward,
However after recording the episode it occurred to me that everyone would understand Bitcoin far more if “normal Financial Services Terms” were used. So:
– instead of “Blockchain” – “the list of all transactions” (or ledger if you prefer)
– instead of “Bitcoin miners” – “Bitcoin accountants”
– instead of “Bitcoin mining pools” – “Accountancy partnerships”
In these terms – as we describe in the episode – Nakamoto’s disruptive innovation was – for the first time – to do away with a centralised ledger of transactions, to do away with a Central Authority [cf the Internet]. In doing so he had to create a system where Bitcoin Accountants are remunerated for keeping a record of all transactions. Furthermore as a whole they act in the interests of Bitcoin and “the truth” even if some of them are not to be trusted. He also had to find a way of ensuring that a digital asset can’t be copied [after all you can make infinite copies of an mp3, jpeg (not ideal for a currency :-D)]. Huge conceptual leaps forwards (and that part of it – the ledger system – has proved pretty robust so far).
The need for robust Financial Services Infrastructure
We also talk about the importance of maturing the environment around digital currencies which is where Elliptic are focused. Investment managers do not hold your assets themselves – they hold them with custodians. In the same way the new generations of digital currencies or digital assets will require new digital custodians.
In the specific case of Bitcoin-qua-currency your sole proof of ownership is “a password” – lose that (or have it stolen) and you have lost your currency. Would you rather trust a free App with your money or a professional, insured, custodian?!
I hope you listen to the show and end up with a sense of the technology, how radical it is and a glimpse of the possibilities. You can also (as I mention) go off and set up your own currency 🙂