On a Friday morning in Singapore, an eclectic group of misfits gathered in a room to discuss Bitcoin, a digital currency that’s making headlines across the world.
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The crowd at Bitcoin Conference Singapore, the first of its kind in the country, was incredibly diverse: hackers, bankers, investors, researchers, and business people broke bread together and talked about what the currency could mean for the world.
According to Bitcoin angel investors Edan Yago and Roger Ver, the technology could liberate the masses from obsolete financial systems and privacy-violating technology companies like Facebook, Apple, and Google.
For Bitcoin miners and speculators, the currency represents a gold rush where early adopters stand to gain from the ever-rising Bitcoin prices and the arbitrage occurring across various exchanges. Joseph Lee, a Bitcoin trader and entrepreneur, told the audience that he has turned $100 worth of Bitcoins into $200,000, and there’s more yet to be made.
While their motivations couldn’t be more different, there was a common sense of excitement surrounding the technology, no doubt magnified by the bubble that is currently expanding in the Bitcoin universe — prices in BTC China, a Bitcoin exchange, soared to around $436 a bitcoin on the day of the conference.
The buzz was a big contrast from the wider web and mobile startup scene, which has come to be more about exits, optimization, and the bottom line rather than world-changing ideas.
The conference was like the famous Homebrew Computer Club in Silicon Valley all over again — Bitcoin hobbyists took the stage to talk about their ideas, the technical subtleties behind their particular implementation, and the challenges of getting the masses to accept an alien-like currency that’s like nothing they’ve encountered before.
Why should anyone care about Bitcoin?
Borderless, seamless, and decentralized, Bitcoin is a currency for a digital era. Proponents say it could upend the global financial system and change the way we transact and live. At one of the panel sessions, Bitcoin angel investor Roger Ver, with a trademark evangelistic zeal, pitched the benefits of Bitcoin:
It’s the first time in history where anyone situated in any place can send and receive any amount of money to anyone in the world.
Unlike fiat currency — the government-regulated coins and banknotes that we’ve known for centuries — Bitcoin operates on open-source code that is governed by the community. And while fiat currency is generally inflationary in that it decreases in value over time, Bitcoin is deflationary because there is an upper limit of Bitcoins that can be digitally mined. The number, 21 million, creates a perception of scarcity and fuels the speculation going on right now.
Fully digital and peer-to-peer, Bitcoin do not require intermediaries to work, save for miners who operate specialized computers which generate Bitcoins from thin air by solving mathematical problems that translate Bitcoin transactions into the blockchain, essentially a kind of public ledger accessible to anyone.
The elimination of middlemen drastically lowers transaction costs and makes micro-payments even more attractive. Bitcoin cuts down on processing time too, from hours in the case of credit card payments to as fast as ten minutes. It does not require a bank account, and this opens up e-commerce to the unbanked in developing economies. Finally, its borderless nature means that it is an effective way to liquify assets, circumventing restrictions that countries may have when it comes to shifting capital overseas.
It’s not all about money
While Bitcoin as a currency fascinates both governments and the wider public, Edan Yago says the real potential of the technology goes beyond that.
“The most unfortunate thing about Bitcoin is that it’s called Bitcoin,” he said.
To understand why, we look at the blockchain, which contains a record of all Bitcoin transactions in history. It is designed to be tamper-proof, making it ideal for a wide variety of uses.
There’s Proof of Existence, a site where users can upload digital documents and have it verified by the blockchain without exposing its contents. Notaries — people with legal training that are licensed by the state to authenticate the signing of documents — could use this to timestamp contractual agreements.
There are likely many future uses that have not been exploited yet. A proposal is being written to create “colored coins”, which basically layers additional information atop each Bitcoin denomination, turning them into tokens that can represent anything — shares, bonds, IOUs, and alternative currencies. The tokens could even act as proof of ownership for purchased items like cars, houses, books, and even music tracks.
Yago foresees the blockchain as a way to create a decentralized Facebook, since it can record interactions without revealing the identity of the person. It frees internet users “from the cloud, which has become a feudal zone with serf lords who let us use their property.”
The blockchain could even be used to secure votes during an election. Since every vote is verified and placed on a public ledger, tampering with votes without being noticed would be difficult. Existing voting machines, on the other hand, have been demonstrated to be hackable using $30 worth of electronic gear.
In Bitcoin, emerging markets can leapfrog Silicon Valley
Angel investors are already pouring their own coin into Bitcoin startups. Famed accelerator Y Combinator has put $600,000 into Coinbase, a platform for buying, selling, and holding Bitcoins, while Circle, which hopes to bring Bitcoin into the mainstream by making it easy to use, has raised a massive $9 million round from well-known investors like Accel Partners and General Catalyst Partners. Silicon Valley incubator Plug and Play Tech Center, meanwhile, will launch an accelerator exclusively for Bitcoin startups in the first quarter of next year.
The interest is so great that investors at the Bitcoin Singapore conference are complaining that there are not enough Bitcoin startups worth investing in that are attempting to use the technology in disruptive ways.
Nonethless, a sizable amount of Asian Bitcoin startups, founded mostly by expatriates, are getting in on the action. Singapore-based exchange itBit has raised US$3.25-million recently, while GoCoin, another Singapore company building a payment gateway, has received US$550 000. Australian Bitcoin wallet startup CoinJar is also said to have significant investor interest as well.
This highlights a major difference between the Bitcoin revolution (assuming it takes off) and the computer, internet, and mobile revolutions. While the latter movements started out being rather US-centric, Bitcoin is an area where Asia has a serious shot at becoming a leader at an early stage.
Although much of the thought leadership, entrepreneurial talent, and investment money are still coming from the West, they won’t necessarily end up in Silicon Valley. In fact, the recent moves by the US government to scrutinize Bitcoin has cast a pall of uncertainty over the Bitcoin community there, perhaps causing investors to hold back.
In Asia, the outlook is cautiously optimistic. While the Thai government has banned Bitcoin trading, the Monetary Authority of Singapore has said that it does not regulate the currency. China, meanwhile, has not made its position on this known, although a recent CCTV documentary on the subject may indicate positive interest.
While the situation is extremely fluid regulatory-wise, China is slowly emerging as a leading market for Bitcoin. BTC China is now the top Bitcoin exchange in the world, and according to virtual currency news site CoinDesk, the US only accounts for two percent of global Bitcoin trading activity. Asian-based exchanges have managed to secure banking relationships, a crucial edge that has so far eluded US-based counterparts. America, however, still claims the largest number of Bitcoin users in the world, followed by Germany and China.
Asia could be a compelling market for Bitcoin. According to Zennon Kapron, analyst and founder of research and consultancy firm Kapronasia, high net worth individuals have used it to move money in and out of China to overcome the US$50 000 annual limit on transferring capital out of the country.
While the older generation tends to be cash-heavy because of Mao’s Cultural Revolution, the young tech-savvy crowd faces no such inhibitions. China’s Tencent has been circulating its Q Coins since the mid-2000s, and it has hit billions in yuan in circulation. The government, however, has recently introduced regulations aimed at preventing virtual currency from being exchanged for physical goods and services.
Developing countries also present unique opportunities for Bitcoin, says Steve Beauregard, founder of GoCoin:
Emerging and growth leading economies are filled with unbanked people. As such, they can potentially leapfrog from cash to digital currency in the same way they adopted wireless systems.
Countries like Indonesia and the Philippines have several things going that make them ideal petri-dishes for the technology: high mobile and social media penetration, low banking and credit card adoption, and a general lack of confidence in the government to keep their assets safe.
Massive risks
As lucrative as Bitcoin already is for speculators and mining rig makers, the future of the currency is highly uncertain.
Regulators are fearful of the technology’s potential to facilitate criminal activity and money laundering, and how they might rule on Bitcoin will shape the currency’s future. That said, firms like MatrixVision and individuals like Edan Yago are working hard to put Bitcoin startups and regulators on the same page. Steve of GoCoin has also been actively engaging the Singapore authorities on the topic.
Fortunately, the currency’s trans-border nature keeps Bitcoin startups nimble and not as beholden to geographical locations as, say, e-commerce companies. So if one country proves unfriendly to the currency, startups can move operations elsewhere.
Bitcoin, for now, is like the Wild West and that scares off all but the intrepid, thrill-seeking, and less risk-averse pioneers. But for the technology to take off as digital money, the environment has to change.
This explains why most Bitcoin startups today revolve around building secure exchanges, wallets, and payment gateways — railroad tracks and outposts that would encourage Bitcoin adoption and keep out malicious hackers who have been plaguing the ecosystem and emptying Bitcoin wallets.
While the technology’s protocol itself has been robust so far, Yago fears that a presently undiscovered bug or future flaw in the system could one day render the currency inoperable overnight.
Researchers have already pointed out one such vulnerability: if a group of selfish miners accumulate enough computing power, they could potentially hijack the entire system and use it to commit fraud. Fortunately, a fix could be just one software update away, so it’s a matter of the community coming together to plug holes before they get exploited.
Paradise or hell?
The Bitcoin universe has been portrayed as a sort of techno-utopia by anarchists and libertarians. Free from the shackles of bureaucracies, overreaching corporations, and nation-states, Bitcoin is virgin territory that presents a chance to form a truly borderless financial system that serves the interest of the masses.
Roger Ver, a founding member of the Bitcoin Foundation who’s sometimes called the ‘Bitcoin Jesus’, said, “The government is using inflation to pay for things. Bitcoin strips them of their ability to print money at will and use it as a means to run the economy and fund wars that kill people around the world.”
But as we’ve seen in previous revolutions, being overly optimistic about technology’s ability to improve people’s lives is naivety. Jaron Lanier, a pioneer of virtual reality technology, wrote in Who Owns Your Future?:
We cannot hope to design an ideal network that will perfect politics; neither can we plan to replace politics with a perfect kind of commerce. Politics and commerce will both be flawed so long as people are free and experimenting with the future.
So, as much as we hope Bitcoin will lead to a more equitable and just future, it’s impossible to predict how powerful institutions will adopt and new power players will surface to bend technology towards their own agendas.
While anonymity is built into Bitcoin through the use of private keys, it’s still possible, with enough determination, to match a person’s spending habits, viewable to all through a public ledger, with a real-life identity.
Legislators could also deal a blow to the currency’s anarchic appeal, especially by requiring Bitcoin services to enforce Know Your Consumer practices which would require firms to collect their customer’s personal details.
And with investors continually pouring money into Bitcoin, prices will continue to soar and remain volatile, making it more of a commodity than a currency.
That is scary for merchants, as the idea of product prices swinging wildly is unpalatable. Consumers, too, may be encouraged to hoard their money rather than spend it. In Singapore, a handful of cafes and even a squash coaching company accept Bitcoin. However, the squash firm, despite accepting Bitcoin for five months, has not received a single payment in the currency yet.
But while the mass adoption of Bitcoin isn’t guaranteed, it’s open source nature will lead to continued experimentation among the community, leading to new and unexpected uses for block chain technology.
Bitcoin could even be a precursor to a truly ubiquitous and decentralized digital currency, which may come in the form of one of the many altcoins that are already out there.
This article by Terence Lee originally appeared on Tech in Asia, a Burn Media publishing partner.
