Chris Mountford on bitcoin

Thursday 19 March 2015

Today’s post comes courtesy of Chris Mountford, a software engineer who runs the BlockZombie blog. Chris has had a long-standing interest in bitcoin and recently contributed a submission to the Australian Senate Committee on Digital Currency.  

Read: Chris’s submission in full.

It’s well worth a read: Chris has a wealth of experience across the board, having developed software, spoken at conferences and written many articles about the cryptocurrency since 2011. Perhaps most insightful is that Chris places bitcoin firmly within an existing trend towards disintermediation - something that has already disrupted a series of industries, thanks to the web. Here’s an extract:

The digital revolution has disrupted many industries, but none quite so big and powerful as financial services. We should all expect incumbents to attempt to protect their privileged market dominance. Banks, credit card companies, money transmitter businesses to name a few, all these companies will come to realise they ultimately need to drastically change their businesses or they will suffer on the bottom line. Jamie Dimon, CEO of JP Morgan recently identified Bitcoin as a significant competitor. Payments systems trade journals discuss the oncoming “margin squeeze” due to both tech giants like Google and Apple and from platforms like Bitcoin.

You will hear that Bitcoin is a fantastic opportunity as I detail below, however Bitcoin is also clearly identified as a threat. What is not always clear, however, is who it is a threat to and how that threat arises from some open source computer code.

Bitcoin is not suitable for crime in comparison to cash. Bitcoin is not as good for terrorism, money laundering or tax evasion as cash. Bitcoin is fully traceable ­- “an auditor’s dream”. In fact the extreme transparency of Bitcoin has many privacy activists quite worried. The fact that the global ledger of all Bitcoin transactions is publicly accessible means investigative police work is better supported by Bitcoin than by cash.

The transparency of this ledger offers many benefits from transparent accounting in charities to reduced opportunity for undetected corruption and embezzlement both in government and private corporations.

The main threat Bitcoin represents is disintermediation -­ cutting out the middlemen ­- just as going digital has done in so many sectors: media, publishing, communications, music, film. Just ask Kodak.

Incumbents will resist change. They will fight against Bitcoin. They will fight for what is best not for Australia, but for themselves.

Bitcoin is competition for legacy financial services companies because it automates many of the manual processes through which they provide value. This technology does it far cheaper by eliminating third party risk. Bitcoin cuts these third parties out of many kinds of transaction and it minimises their role in others.

The biggest unknown with Bitcoin is the positive potential. Who ­ given a time machine ­ could resist the opportunity to travel back only a decade or so to a world still skeptical of “the internet fad” and buy some stock in a startup called Google, now one of the worlds largest companies?

Just as we couldn’t imagine Google before the web, we can’t imagine the value that will come from the underlying technology of Bitcoin. This blockchain technology is not merely a new version of what came before. It is a totally new capability and nobody knows exactly where it is capable of taking us.

Over the past few years I have gradually become less skeptical and more bullish about Bitcoin. I now recognise Bitcoin represents a new software technology category. Money is just the first example of its capability, like email was the first “killer app” of the internet. The best is yet to come.

 

What are your thoughts? What do you want your government to know about digital currencies?


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