Is Bitcoin really a “fraud”? Four members of the Australian startup ecosystem give their two cents

In light of the rapidly-expanding Bitcoin bubble and the debate it continues to fuel, are these comments from JP Morgan’s Chief justified? Revisiting an article I wrote for StartupSmart earlier this year.

Bitcoin “is a fraud”.

This is the sentiment JPMorgan Chase & Co chief executive Jamie Dimon shared earlier this year at an investor conference in New York, and the tech ecosystem was quick to engage with this controversial statement.

Bitcoin is a virtual ‘cryptocurrency’ built on the blockchain, offering a decentralised alternative to traditional currency and its sometimes problematic relationship with the banking industry and government policy.

Dimon was unequivocal in his disdain for Bitcoin, saying that if any of his company’s traders were trading the cryptocurrency he would “fire them in a second” for being “stupid”.

Erik Voorhees, co-founder of American bitcoin startup Coinapult, was quick to defend the cryptocurrency on Twitter, calling out JPMorgan’s previous history of government bailouts and amassing thousands of likes and retweets.

Despite Dimon’s comments the value of Bitcoin remains strong — at the time the cryptocurrency was sitting at $4,846 per coin, and although Dimon said his own daughter is a Bitcoin adopter, he claimed the currency will “eventually blow up”.

Others shared Dimon’s cautious stance on cryptocurrency, with China outlawing initial coin offerings or ICOs as a means of fundraising in September, over fears virtual currencies can be used for money laundering and economic disruption. Closer to home, ASIC is poised to release ICO guidelines to better regulate this emerging market.

StartupSmart spoke to a number of Australian startups and investors about working with cryptocurrencies in the startup space, the stigma associated with this form of currency, and the role it could play in Australia’s fintech future.

Their responses are clear: while cryptocurrency may still be finding its feet in regulation and adoption, it offers widespread applications for the future and should not be dismissed as a mere “fraud”.

Steve Baxter, Shark Tank judge, angel investor and River City Labs founder

“Wow – fraud – pretty strong words.”

“Fraud, to me, is about deliberate mis-representation in many respects; as long as people playing the bitcoin game are fully informed I doubt it covers off being fraud.

“I think that the technology behind cryptocurrency has amazing application but as an investor, at the moment, it is a little too hot. Way too much speculation and not enough substance — it is not more fraudulent than a series of tech trends over the years that have attracted investor dollars where expectations have not been managed.”

Danielle Szetho, FinTech Australia chief executive

“Bitcoin is the inevitable by-product of the original public blockchain, which many businesses, including JPMorgan have been experimenting with. So it doesn’t stack up for Dimon to dismiss it as being a fraud. Fraud implies that something is intentionally deceptive, which can’t be applied to a technology on a distributed network, but could be applied to how people use it.

“The cash economy has exactly the same features as cryptocurrencies in a sense — it’s impossible to tell whom cash is being traded between, and what purpose it is being used for. But we don’t call cash a “fraud”. It’s far more nuanced than that.

“The fintech and blockchain community do need to do more education so people can understand the value and opportunity surrounding the underlying blockchain technology, the utility of the cryptocurrency by-product, and how they are both similar and different to traditional financial products.

“Otherwise we run the risk of sweeping, inaccurate statements like this one being made that stifle advancement, and stop investments being made in technologies that will ultimately be hugely beneficial to businesses and consumers.

Daniel Alexiuc, co-founder of Bitcoin payments platform Living Room of Satoshi

“The horse is here to stay but the automobile is only a novelty, a fad” — the president of the Michigan Savings Bank in 1903.

“Bitcoin was forged in the fires of the 2008 global financial crisis, as a trustless alternative to currencies backed by the “faith” and “credit” of governments. Bitcoin doesn’t offer to “replace” national currencies, but something far more exciting: an exit from the system.

“Living Room of Satoshi has processed over $10 million in everyday bill payments using Bitcoin, including electricity bills, school fees and car insurance. If there is a stigma attached to it, it exists mostly in the minds of those invested in the incumbent banking system. Mr Dimon mentioned that his daughter has Bitcoin, I’d be far more interested to hear her opinions on the future of money.”

Tim Lea, founder of anti-piracy blockchain startup Veredictum

“Whilst one has to respect the opinions of such a thought leader, the more deeply I write, speak and work with this technology every day, the more power I see it has to irreversibly disrupt the banking sector by increasingly removing the need for trust — which is hard-baked in the DNA of any bank.

“I think the comment shows elements of fear of not being able to control of a technology that no-one actually owns, and as the old adage goes, the best form of defence is attack!”

“I think any stigma about cryptocurrencies is based around a lack of insight into the technology and the current lack of any major mainstream “killer apps”. This is changing rapidly and internationally, cross-border, fee-free, instant payments are now beginning to be seen. The next 12-18 months will see an upsurge in apps that have meaning to the mainstream market.”

This article originally appeared in StartupSmart in September 2017.