Bitcoins. No you’re not being innovative.
The other day I read a story about how Chiasso, a town in the Swiss canton of Ticino will start accepting bitcoins for tax payments starting in 2018. This announcement comes months after the canton of Zug allowed residents to pay for services in bitcoin. That article was followed by one days later about how JPMorgan CEO Jamie Dimon had voiced a strong opinion against the cryptocurrency in an interview saying that governments will never allow for a decentralised currency. As I write this, I’m not sure about the future of bitcoin, but I don’t think it will just fade away. Bitcoin, over the past nearly nine years, has established itself as a viable, though still not stable, means of storing wealth.
What was interesting about Mr Dimon’s comments during the Fortune Global Summit, is that he acknowledges the value of the blockchain technology underlying bitcoin and that it may well be used, but people will exchange it again for conventional currencies like US dollars, Euros and Pounds. And this is where we come back to Switzerland. Is it dangerous for cantons and communes to be accepting bitcoins? And more importantly is it innovative? The answer to both questions I believe is a firm no if it is done correctly.
As Mr Dimon said, people and governments especially like to deal in hard currencies backed by a government. What the cantonal and local governments will most likely do is exchange the bitcoins they receive if anyone takes them up on the offer in the first place. I imagine with the current volatility in the market, bitcoins payments will be accepted at the exchange rate at the time of payment. Offering a Swiss franc and bitcoin invoice for settlement in 30 days would leave the commune too exposed. Since Mr Dimon’s statement bitcoin has been taking a hit. The communes might also hold on to a few to speculate in the market. But the risk is next to nonexistent for the governments. Accepting bitcoins today with the right parameters is like accepting any other foreign currency. While the technology behind bitcoin is innovative, accepting it is not.
What these announcements will do though is cause further speculation in the bitcoin market as a few savvy people might buy into the currency now, hoping for continued appreciation and therefore lowering the amount of actual earnings they pay to the tax man. In the spring of 2016, writing for Digital Switzerland about the Blockchain and bitcoins and having listened to Xapo President Ted Rogers, I downloaded the Xapo wallet and bought 0.1 bitcoin for CHF 40.00. When I started writing this article that amount was worth approx CHF 330.00 and as I edit this article is only CHF 305.00. Yet, I’m left thinking what would have happened if only I had bought an entire bitcoin or even a few. Buying a few hundred or thousand would have been out of the question and I don’t believe in speculative purchasing so that would have been out of the question, though there are plenty of freshly minted millionaires from the practice. Still, for me, we’re talking about an over 7.5x increase in value over a year and a half. Between July 14, 2017 (1 bitcoin = $ 2274.57) and September 14, 2017 (1 bitcoin = $3941.78) the value almost doubled (1.73x). Imagine cutting your tax bill in half through bitcoin speculation? Some people will do just that and again, it’s not innovative, it’s gambling.
Until the bitcoin market settles and stabilizes against other major currencies and more businesses accept it as a form of payment the cryptocurrency will be more like holding stocks in a tech company — great for speculating but terrible for day to day use and still very susceptible to large swings in value — both up and down. At present the real innovation still lies in the blockchain technology underpinning the currency and actual implementations of that technology and not the currency itself.