With more vendors now accepting bitcoin and big-name investors waking up to the possibilities of cryptocurrency, is it time to stop worrying and love the blockchain? Oliver Hotham speaks to Llew Claasen, executive director of the Bitcoin Foundation, about the end of fiat money, the new digital banking climate and the future of enigmatic online finance.
Bitcoin is beginning to come into its own. Once seen as the reserve of counter-cultural hacker types and Randian ubermenschen eagerly awaiting the end times, the world’s first cryptocurrency is going mainstream. With the value of a single coin at the time of writing a staggering $16,628.01, it’s become a commodity to buy and sell unlike any other.
Bringing the cryptocurrency into common use is, at least in part, Llew Claasen’s job. In his capacity as executive director of the Bitcoin Foundation − a non-profit corporation set up to "standardise, protect and promote the use of bitcoin cryptographic money" − he’s spent a great deal of time arguing for more widespread use.
“We believe that it gives people an ability to have money outside of the control of governments that are not necessarily protecting the financial interests of people,” he says. “I think it has an important role to play.”
The rise of cryptocurrency
It’s a role that is increasingly becoming part of the day-to-day financial lives of millions all over the planet. In some circles, it’s becoming a more mainstream form of currency faster than many would have expected.
“It's already happening,” Claasen says. “We already have a situation where it is accepted as equivalent to fiat money in Japan, it is going to happen in Australia as well. It's happening a lot faster than people think.”
The Japanese development is a big step forward: every merchant in the country will soon have to accept cryptocurrency as legal tender, changing forever the way that transactions are traditionally performed.
“We think what is going to happen is that it's going to be common to have two wallets, or at least two wallets, depending on what it is you're trying to achieve,” Claasen argues. “You're either using the local currency or you'll pay in bitcoin. I think the two can coexist side by side in the future.”
So when you can pay for your morning coffee in bitcoin with your phone or your smartwatch, what’s the purpose of cash, and is it possible that cryptocurrency might be the final nail in the coffin for paper money, already essentially replaced by other forms of digital banking?
“People use cash because it's convenient, there's no transaction fees associated with it from the use perspective, and, you know, all nations accept it,” Claasen says.
So when all merchants are willing to accept different forms of payment, in the way that Mastercard or Visa are used in most developed markets, there’s little need for cash.
“At that point in time, it'll just be a convenience issue,” Claasen says. “There are already markets that have forms of mobile money that you can use, things like contactless payments, and I think that is a precursor to what we're going to see with cryptocurrency.”
While bitcoin’s digital, decentralised nature certainly means that it gives owners a sense that their money can travel anywhere, and is more secure than it might be in a traditional savings account, its unusual history contributes to its anarchic image.
In fact, it’s not even certain who came up with the idea. In November 2008, a paper by a man calling himself Satoshi Nakamoto titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ appeared online. Before long, the idea had taken off, with users earning currency through ‘mining’ and using blockchain technology to record transactions.
Nakamoto’s identity, to this day, remains the topic of much debate, but the date of the publication of his revolutionary paper will likely bring unpleasant memories for many in the financial world. September 2008 saw the world economy go into meltdown, the beginnings of what is now known as the global financial crisis. Classen says this is no coincidence.
“It's important to understand where bitcoin came from,” he says. “It's a direct consequence of the 2008 financial crisis, and this realisation that we live in a world where we cannot necessarily rely on our governments to look after money on our behalf.
“We believe it could be a very important tool in economies where the financial system is under pressure, and people need alternative ways of storing and exchanging value.”
What happened in 2008, he argues, is that many realised that banks − and the governments that would later bail them out − were old news. The future, it seemed, was taking control of one’s own assets through cryptocurrency.
“Bitcoin creates a platform that enables us to effectively manage our finances without the need for intermediaries, like banks and governments,” Claasen says. “It’s a mechanism to hold our governments more accountable for what they do with our money.”
Transparency and accountability
Part of the great appeal of bitcoin is, in part, its anonymity. Users’ accounts are not tracked, and you don’t need a proof of address and a passport to set up an account and start trading. The currency can be mined and spent without it being known who you are.
So it comes as no surprise that it has found itself popular among the kinds of people who benefit from online anonymity, with many illegal online bazaars using bitcoin as the currency of choice. While advocates paint a picture of a brave new world where fiat currency dies a long-deserved death, does its appeal not lie in its more illicit possibilities?
Claasen is emphatic that it does not. He points to a report by the European Commission in June 2016, which argued that, by and large, bitcoin was not being used for organised crime, terrorist financing or money laundering. Anyway, he argues, there are better cryptocurrencies for those purposes out there.
Arguing that the blockchain nature of the technology provides transparency − and accountability − that work in contrast with some users’ illicit aims, Claasen wants to tell business about the good things that bitcoin can enable, from financial inclusion to low-cost banking services.
“We want to engage with regulators and legislators for the purposes of clarifying some of those misconceptions,” he says.
The real danger, he believes, is lawmakers charging ahead before they understand how it really works, and part of the Bitcoin Foundation’s mission is informing decision-makers about the reality of cryptocurrency: the public face, if you will, of a movement with a traditionally leaderless structure.
“We're more about clarifying misconceptions, and encouraging legislators and regulators to give the technology some time to develop,” Claasen says. “If we wanted to regulate the internet in 1995, without fully understanding how people will use it in 2017, we would have made mistakes.
“We want people to take an approach of saying let's wait and see where this goes before we over-regulate.”
The bitcoin bubble?
One of the big worries these days, however, is that of a bitcoin bubble. The price has ballooned in the years since it first appeared, and there’s a danger that, eventually, this will burst − leaving millions having lost it all. Claasen admits that many are simply buying and selling for a quick buck and that a downgrade is coming in the near future.
“If you look at it over short periods of time, then it becomes very volatile and you could get the timing of entry and exit wrong, completely wrong,” he says. “So if you look at it like that, of course it would look like a speculative bubble on the verge of collapse.”
That’s the nature of business, Classen argues: you win some, you lose some. What matters is that, in the long term, bitcoin is still a worthy investment, and that the freedom the technology affords its owners is its own reward.
“These things grow on the back of expectations that will tend to correct on the back of bad news, and the trend is always up,” he says. “Corrections are not permanent.”
But with hundreds of new cryptocurrencies popping up, all of which provide the same off-the-grid appeal as bitcoin, does Claasen see it becoming just one in a marketplace of cryptocurrency? If asked that a month ago, he says, the answer would have been yes. Now, it’s less clear.
“There are a couple of other players that have some specific features that make them interesting to different customer segments,” he explains.
But none have bitcoin’s now-ubiquitous presence on major world streets, he says, or its possibilities as a form of digital cash.
“It's unlikely that we're going to have hundreds of competitors in the future; in the short term, sure,” Claasen argues. “In the future, I think there will be fewer than ten dominant cryptocurrencies.”
Ultimately, bitcoin isn't going to be for everyone. For those looking for a safe investment, it's certainly not going to be the first choice, with its fluctuating price and occasional run-ins with regulators. But part of its appeal is in its anarchic sense of adventure, and in the brave new financial platforms and opportunities it offers.
“Bitcoin is not about creating financial turmoil,” Claasen says. “It's about economic empowerment and accountability.”