Bitcoin — the ship needs a new captain.
It’s going to be THE year for bitcoin. It’s is been said many times, but this year, 2016, it has to be different. It is time for Bitcoin to sink or swim.
In March 2013 Bitcoin changed my life. I gave up my old career and I started earning a living working with Bitcoin, I started reading about economics, the history of money and the macro-financial system and I taught myself the Python programming language — all because of Bitcoin.
Since March 2013, I’ve also met a lot of smart, interesting and engaging people that have joined the Bitcoin experiment. I love the frictionless payments, the creativity and the vision laid out by the founder, Satoshi for a new way, a financial system governed by an algorithm, not a bureaucrat.
However, here’s the but — I, and many others who have been inspired by this new, amazing world-wide phenomenon are worried, deeply worried that the Bitcoin experiment is stalling, badly.
During the past 24 months $1Bil has been invested into Bitcoin companies. Investors bought into the promise of the next wave of internet technology, the disruption of the financial system and potential to include many more people, across the world within it. There are large targets on the back of the big banks, the money transmitters and the expensive, cumbersome clearing banks — this is the whole point of the FinTech industry.
Consumers want instant access to their money, they want control of it and to know it’s safe and suspicion of the the banks is high, but trust and confidence in Bitcoin, for most people is still a LONG way off.
While the 2008 financial crisis is fading in the memories of many, and indeed, the effects of it were not truly understood by most, the 2016 crisis is brewing and if it hits as I, and many others expect, the effects will be far more dramatic than in 2008. This will form the backdrop to why 2016 is so important to Bitcoin. It’s a chance to show that independence from central banking is the real strength that must be built on.
Bitcoin itself has faced a few crises of its own. There is no charismatic leader in Bitcoin, nobody to hail a rallying call and keep everyone pulling in the same direction. It’s an experimental system in many ways, and for the past 12 months it has really shown its immaturity with months of naval gazing trying to decide how to allow more transactions per day to keep up with growth. This is why I say in 2016, its time for Bitcoin to grow up. 2016 has to be THE year for Bitcoin.
Bitcoin needs to get over its identity crisis. It’s not going to be the ‘money’ of the world. Despite what many early believers wanted, we (the masses) are not going to buy coffee and cake with Bitcoin. Bitcoin can, and should be a store of wealth, a tradable commodity and a wonderfully useful way to transmit value — one such settlement layer in the global financial system. Trade and settlement in one transaction, elegant and clean.
In order for Bitcoin to get through its growing pains, there needs to be a leader. Satoshi Nakamoto was the leader in the early days, then Gavin Andresen as the Chief Scientist at the Bitcoin Foundation was seen by most as the voice of Bitcoin having been personally anointed by Satoshi. With Gavin’s position now altered, Bitcoin is like a rudderless, captain-less viking longship with a determined crew of strong rowers, but no leader and no direction, floundering in the mist. It is ripe for a take over, a raiding party will come.
The question I have is, who is the raiding party to be and do they come in peace? For the answer I suggest we follow the money. Look to the large recent investments into the ecosystem. Who is putting money into the Bitcoin network? By my own calculations, each day approx $1Mil must enter and leave the system to support the bitcoin price — this is the amount spent on electricity to support the 800 million gigahashes that are processing transactions today — this is the real, hard cost of the network, without including the cost of the mining hardware itself. To produce this $1Mil , the Bitcoin processors sell some of their holdings on exchanges where they are bought by new entrants to the market.
The other large contributors are the venture capitalists, pouring money into Bitcoin companies to the tune of over $1Bil USD to date. 2016 is the year they get over the early euphoria and start to take stock of where the real value is.
If we follow the money, the raiding party will be those who are paying for the system, those who are putting in the $1Mil USD per day to keep it afloat and funding the startups. Those people are the speculators, traders and money transmitters. These are not people buying some bitcoin so they can get coffee or cake. It will not be the libertarian, ‘down with the banks’ set who dominate Bitcoin.
For Bitcoin to swim, 2016 has to be THE year for Bitcoin to decide what it wants to be when it grows up.
2015 saw some larger, well funded Bitcoin enterprises pivot away from ‘Bitcoin is global money’ to what has become to look like ‘Bitcoin will enable financial inclusion’, Circle.com and uphold.com being the best examples. The decline of Bitpay & GoCoin have shown that the expected demand for using Bitcoin as money has simply not materialised.
The final breath of the much maligned Bitcoin Foundation will happen in 2016 also, clearing the way for the raiding party to usher in a new direction, hopefully one more focused and determined and less inclined to waste months deciding on whether and how to increase the number of transactions that can be processed each day in ‘the great block size debate’.
The wider financial community decided in 2015 that while it liked Blockchain, it definitely did NOT like Bitcoin. A large company cannot contract with a network or an algorithm, they need people and organisations that can work with them.
Imagine the farcical situation that would occur if a bank or payment services company was using Bitcoin to settle transactions and a DDOS attack (or worse) occurred and delayed payments for minutes or hours. Who does the firm call to tackle the problem, to get help? The leniency and patience that a startup like Coinbase.com may show, would not occur in a large bank or tech firm. A courtship of ‘Bitcoin and Big banks’ just cannot happen with the current arrangements regarding the way the core technology is lead, developed and supported — leaving aside all the other arguments around regulation.
Large established tech firms are however, embracing Blockchains, now called ‘Distributed Ledgers’ (much less scary to some). These include IBM and Microsoft who see growing opportunities with the Blockchain 2.0 offerings from Ethereum, Credits, Chain.com and others. Blockchains went form scary to trendy (see R3) for large commercial banks in 2015, this will continue into 2016 as projects are started, studies are conducted and many a report is written and given to boards of banks. Banks are focused on reducing costs, not financial inclusion — their motives and those of the good ship Bitcoin are quite different, even if the tech they use is strikingly similar.
Central banks have largely stayed cautious and will continue to be cautious as during 2016 they will be distracted by trying to save the global financial system again, I don’t expect many to make any advances in 2016. Watch out for the money creation debates in Switzerland and Iceland however — those could be interesting to see and provide unexpected results.
We really need to see Bitcoin emerge into adolescence this year and decide on its fate and go for it, blazing torch held high, with strong purposeful leadership.
People follow people, not algorithms and the people need a new leader.
Adrian Cole is CEO of FinFire, a specliast FinTech Consultancy. The views expressed here are his own
