NEF Blog: Why Bitcoin hasn’t changed finance – yet
Last week I was invited to talk about Bitcoin and the future of money at the Sibos conference in Boston, an annual get-together of the payment systems industry: the people working in between your bank account and that of anyone you buy from.
This is a gigantic, profitable and globally established sector – but at the same time one still virtually invisible to the average person on the street. The conference gave me a rare look inside.
Despite the 8,000 bankers and finance specialists that were eager to talk about the threats that Bitcoin and other crypto-currencies might pose to their industry, the CEO of conference organisers, SWIFT, ensured attendees that none of these innovations pose a real risk to the payment-systems industry and banking as we know it.
Not many in the session I spoke at seemed to agree. But when looking around the exhibition floor and listing into the other sessions, I realised where such complacency came from: even the biggest new crypto-currency systems, such as Bitcoin and Ripple, are still tiny compared to the current industry norms.
Why hasn’t Bitcoin managed to disrupt the established plumbing of our financial system yet? Something I’ve argued before is that the currency needs to be differentiated from its underlying blockchain technology.
The bitcoin currency itself isn’t that useful compared to other currency innovations. As I told the conference, its limited, central and untargeted issuance does not help SME’s who struggle with liquidity in the real economy, it does not alleviate the economic inequalities that rip apart our societies and it does not help to finance the impeding adaptions to climate change.
But what about Bitcoin the protocol? The payment system behind the currency is much more useful: cutting out the middle men it has the potential to open up this unseen industry, as well as making transactions quicker and cheaper.
Should that not be of great concern to an industry that is built around providing such middle men – basically anybody in the audience that day?
Maybe the narrative around “crypto” – meaning secret or hidden – is too familiar a story to be scary to those who deal with our current financial system and the currencies it transacts today.
What would the reaction be if the protocol was described by what really makes it special – a payment system that achieves accountability and trust by being radically transparent? Perhaps replacing crypto with “endilo” – the Greek word for clear, manifest and visible – would help spook them.
Harnessing the real qualities of Bitcoin is something Ethereum, a new project presented by 20 year old Vitalik Buterin, is starting to do. Instead of just transacting currency, they use the blockchain technology to build whole new communication and governance systems.
Radical new technology takes time to come into its own: when Gutenberg invented the printing press in around 1450 it took another 300 years until Diderot finally used it to democratise knowledge through the mass production of his encyclopaedia – instead of others just printing the same old books over and over again. Just 30 years later and that brought with it a series of social revolutions – starting with the Boston Tea Party just down the road from the conference centre – which made me wonder, how long before this blockchain technology really allows us to change the way we transact financially, or even socially.
This article was first published on the NEF website on October 10th, 2014.