Bitcoin: deconstructing the myth
When it comes to Bitcoin, most people struggle to have a clear idea of what this technology really represents and how the world would look like once unleashed of its potential application and adoption. Indeed, there are a number of stereotypes and misleading convictions that are generally disseminated amongst the public. This is also due to the limited, fragmented and conflicting information with regards to the crypto-world. Most of the time when Bitcoin covers the headlines of the news, the topic is often explained in a scaremongering perspective, highlighting concerns about price volatility, illegal activity, money laundering and so on. As a result, a lot of people have developed negative convictions about the technology. Moreover, they associate Bitcoin simply with an alternative payment network or a currency.
On the other hand, once you actually experience and engage with the Bitcoin world, you rapidly start realizing that it is not what you thought it was, it is a lot different and a lot more. The more you use it, the more you appreciate its potentials and you start to get the feeling that there is something special, something beyond it.
The truth is this: Bitcoin is not just a minor incremental change or payment solution, Bitcoin is a fundamental transformation of every aspect of money. That seems so easy and simple with Bitcoins it is almost impossible with any other system. In this blog post, I will explore the magical elements of Bitcoin and the engine beyond them the blockchain, the most disruptive technology of our day an age.
But first, what is money really?
When dealing with Bitcoins, money becomes almost inevitably the center of the conversation. But, what is money? Why can’t we have more? Who makes money? What is money made of? Although we use it everyday, we have really limited knowledge of what money really is and even addressing these simple questions might be challenging for most people.
Money is a one hundred thousand year old technology. It is hard to understand when it was first invented. This is in part validated by the fact that every archaeological site we uncover has evidence of some sort of money in it.
Even though it has always existed, there were four major transformations in the underlying form of money throughout the course of history.
- The first form of money appeared as a physical object such as beads and feathers.
- Around 5–6 thousands years ago, physical object left the stage for pressed precious metals. Pressed precious metal has been moulded through many civilizations such as the Greeks and the Romans, mostly in the form of gold, silver and platinum.
- We than started to see the evidence of paper money around A.D. 618–907 during the Tang Dynasty in China, mostly in the form of privately issued bills of credits or exchange notes. Paper money was essentially a form of abstraction of the precious metal. It took another two centuries for paper money to spread to the rest of the world, also thanks to Marco Polo and his endeavors in the east.
“How the Great Kaan Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over his Country” Marco Polo, Book 2, chapter 24.
- It was only in the 1920s-1930s that we “gave up” on the precious metal component and opted for paper money with the advantage of being more convenient. And then we finally arrived in 2008 at the inception of Bitcoin, simultaneously occurring with the GFC.
Now, many people would look at Bitcoin as an incremental innovation, a new type of currency and payment service. However, Bitcoin represents the most fundamental transformation of every aspect of money, and the most abstract form of money that has ever been created. The name is actually a misnomer, as “coin” typically refers to the most physical form of money. Bitcoin, on the contrary is the least physical modality of money.
The magic beyond Bitcoins
“Bitcoin is not a currency, Bitcoin is not a payment network, Bitcoin is a protocol and a network centric platform for recording ownership and trust on a peer-to-peer basis.” Andreas M. Antonopoulos
Saying that Bitcoin is a currency is like saying that Internet is email; currency is the first application and the most likely type of asset to be implemented on top of the blockchain but it is not the final evolution of this new technology. Bitcoin is not money for the Internet, it is the Internet of Money and currency is just the first application.
Are you looking for a radical disruption? Bitcoin is a completely decentralized, open design, with no borders. It is trustless, devoid of intermediaries; identity and control security is programmed and granted within the protocol.
“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” Arthur Schopenhauer
Throughout the history of humanity, when a truly revolutionary innovation arises to the public, it always takes time and encounters different levels of resistance for its adoption. This has been the case also for Bitcoins. Why is Bitcoin so hard to grasp and accept? The reason is that it is truly disruptive, it changes fundamentally every aspect of money and change itself is always difficult. I have noted that the acceptance and adoption of Bitcoin followed 3 main stages from its launch in 2008:
- Denial: When I first started to explain Bitcoin, people would first say that it is not real money. However my personal experience was the direct opposite. Indeed, if I can use it to buy goods and services and I can get paid for my services, it is money.
- Anger: During this second phase, people, incentivized by the little information available on the media, were and to some extent still are associating Bitcoins exclusively with illegal activities such as money laundering, black markets, criminal activities and terrorism. This in turn evokes feelings of anger towards a field that is inherently misunderstood.
- Bargaining: Lately people have started to really appreciate its potential and they have started to think that Bitcoins is actually really different, really changing, really disrupting. However, they are trying to use this technology to the old framework and mindset. The tendency is to try to embrace the blockchain to provide better efficiency to the existing centralized organization rather than fundamentally rethinking about the infrastructure of distributed and open social design.
So let’s add a bit of control, centralize it a tiny bit, implement a KYC (Know Your Customer) on top, let’s polish it up, smooth it up for regulator, making it more palatable for corporates, beyond Bitcoins, and rename it the blockchain and then start investing on it huge amount of capital. So far the total amount invested in blockchain technology sum up to 1 billion dollar, 10 times more than what was invested on the Internet at its early stage in the same period of time.
Why banks are getting it wrong
The blockchain certainly ensures some benefits when applied to traditional banking. For instance it is useful to disinter-mediate the clearinghouse and settlement systems.
“This is the reason why Nine of the biggest global banks, including JP Morgan Chase & Co., Credit Suisse and Commonwealth Bank of Australia have joined a consortium formed by product-development firm R3 CEV. The aim of the group is to establish protocols and standards for using blockchain technologies in financial services.” CNN. (2015, March 1).
By so doing they can reduce costs while ensuring a better security. While it may be changing the equation for settlement and clearinghouse standards, it is not as evolutionary or disruptive. The intention is obviously to preserve the actual financial system by applying blockchain to centralized banking, rather than embrace its ethos of decentralization.
“In data we trust” & decentralized consensus
On the other hand of the equation, Bitcoin is a completely Decentralized transaction platform for exchanging value, no boards and boundaries. It does not care whether you like the transaction or not, it does not change its performance according to any regulation or centralized monetary policy based entirely on math. It is the Internet of Money, unleashed, unpolished, disruptive. If you don’t accept it and make it yours then there is a start up out there that will disrupt your industry, as was the case for the telecommunication industry in the late 90s.
Bitcoin will not wait for the regulation to adapt, will not require any of the existing banking license because its focus is not to become a part of the existing “retail shopping environment”. Bitcoin is a bottom up movement, it is about the 99% of the world and it is introducing an innovation to the world of a magnitude that most of the people and regulators have not even begun to understand at its fullest.
From horse to the tractor
When it comes to the “completion” and rivalry between bitcoin movement and banks, the main argument that the latter use to oppose is through policy and regulation, which just happened to be the single point of failure and the prime source of its liability vs Bitcoins.
A question of identity and privacy
Identity and security facts are the most important element for customers to choose their “trusted” bank. The reason why security and privacy become a plague is because personally identifiable information have to be collected by intermediaries in every transaction creating this so called giant honey pot of sensitive information that attracts hackers from all around the world like bees. It is basically impossible and very expensive to protect this information. A clear example was when the US government was not able to protect the background data and information about politician’s security clearances of illegal activities, drug addiction, criminal accusation to which were given clearance. If the NCIS and US government can’t protect this sensitive information what will lead you think that retail banks will be able to assure the security of your personal information such as social security number or date of birth?
Bitcoin inherently solves that problem in its own design from the one out of the box, as it is designed not to store any centralized data.The only way to protect personally identified information is not to collect them at all in the first place, without the use of a middleman and intermediaries. Bitcoins solve the problem of identity fact, by basing trust on variable transactional mathematics (trustless), on programmable money and do automated exgrow and transactions .
As a result, identity is not required for trust, payments are trustless therefore there is not the need to trust any third party in order to guarantee the transaction. This represents the biggest breakthrough in payment systems for years.
Bitcoin can’t be leashed — Imagine 10 years from now
(Blockchain itself is a boring technology, is a distributed ledger, it is a slow database.
Interesting is to decentralized consensus, with no intermediaries, no trust party involved in a transaction, no counter party peer-to-peer, transaction are verify on itself without authority. This is the disruptive innovative.)
Are you still thinking that in 10 years from now people will be running banking services on their phone? You can bet you will not. Thanks to blockchain you will be your own bank, you will run a swift network on your phone regardless of your age, and exercise all the action of a bank apparatus such as brokerage house on a day-to-day basis. In a global connected world, credit cards will not work, especially for minors. In 10 years from now, young generations by the time they reach 18 years old (age required to be eligible to open a bank account) they will have used everyday bitcoin as their currency payment network for at least 5 years. It would be very hard trying to explain what 3–5 business days for clearing a check means, what a check is, why you need to pay $5 to keep the account, explain what a transaction fee and a commission fee is. There would simply not be the need and the convenience to have a bank account in the first place.
Make it or break it
There are 5 billion people in the world with no access to international equities, credits, liquidity, with ability to move money between currencies and country to properly perform import and export of services and resources. This is a restriction of capability for the advantage of a privileged few.
Bitcoin can deliver services to these people not by banking the unbanked ones but by banking all of us and making us our own bank.
We can do it with any name but the underlying invention of a completely decentralized protocol for doing money is here it happened in 2008 is not going anywhere, and when you see the next article when you see that the Bitcoin died because the price goes down, or crashed, you can add it to the other thousands. Bitcoin refuses to die, because there is no center, nothing to filter or to control, nothing to shut down: we are Bitcoin.
So when executives, companies and institution want to get involved in arguably the most exciting invention of Computer Science of the last few decades, their key focus should be decentralization. So do not try to bend this technology to win hearts in your executive board room, because when you face such a highly disruptive industry there is no middle ground and there are only 2 places you can be: you can be Blockbuster or Netflix, you can be Nokia or Apple.