[Editor’s note: Business as usual may be replaced by automated job scarcity, digital-powered sharing economies, yawning wealth imbalances, post-carbon energy, explosive innovation, capitalism rebooted or scrapped. This Tyee occasional series interviews experts with differing visions of what lies ahead.]
Bitcoin advocates say the technology can topple the global monetary system -- it still may, according to one of the cryptocurrency's closest observers, Paul Vigna.
Launched amidst the global financial crisis in 2008, Bitcoin rapidly gained a cult following. What's the allure? Bitcoin is a new form of digital money built on an innovative peer-to-peer ledger system -- the blockchain. Blockchain technology provides an alternative to banks because Bitcoin's decentralized network would allow anyone in the world to verify transactions with a computer and an Internet connection. That's liberating, say Bitcoin boosters, because big banks are controlled by an elite, and their priorities and methods are subject to political interests and maintaining the status quo.
Bitcoin captured global attention as it gained value measureable in U.S. dollars. By November 2013, that BTC value eclipsed US$1,000 per Bitcoin, but free fell two years later to US$177 and now has climbed back to around US$740. As more people bought Bitcoin, the cryptocurrency faced growing pains. The question of how best to scale up has ignited a debate between two factions. One wants Bitcoin to remain closer to its philosophical roots of decentralization. The other is ready to develop blockchain technology into something Wall Street could adopt with robust centralized control.
Paul Vigna has written extensively about Bitcoin for the Wall Street Journal and is co-author of The Age of Cryptocurrency: How Bitcoin and the Blockchain are Challenging the Global Economic Order. Here is what Vigna told The Tyee in a recent interview.
The Tyee: Why did Bitcoin take off?
Paul Vigna: I think a few years ago it was a very simple proposition. Bitcoin was going to change the world. It was a better way to do money, and money had been corrupted by the banking cartel, by the central banks, by governments, and it had been debased throughout history. All these things aren't untrue.
The simple thought was that Bitcoin is a better, cleaner, faster, more transparent way to do money that cuts out all those middlemen who end up taking bits and pieces of the currency, and twisting it for their own purposes. Bitcoin was going to take over the world in six months or a year. There was wild enthusiasm about it.
It has become clear that this initial very simple vision was not really accurate. But we're just starting to see the technology is proving to be extremely valuable. You now have central banks, major corporations, government and everybody else looking at this technology, trying to figure out what they can do with it, going beyond just using it as a currency.
They do see a value there and they see a process that can be an improvement over the way things are getting done now and for centuries. I think this is extremely significant.
Can Bitcoin disrupt the political networks controlling the current global monetary system? Can Bitcoin change that game?
I think the answer in the short term is a flat out no. You are not going to get rid of the Federal Reserve, the European Central Bank, the Bank of Japan, JP Morgan, Citigroup, Bank of America, and this entire global infrastructure overnight because Bitcoin technology works. Could it happen over decades? That is possible. I'm not saying it is guaranteed, but it is possible.
Currently, the Bitcoin industry and community is tearing itself apart. There is a debate on how it should scale. Now that Bitcoin has grown to a certain point, there are limitations on how many transactions can be processed at any one time. The discussion on how to change this has become intensely political.
It is almost ironic that a system which was supposed to operate without any kind of outside influence is proving that you can't get rid of human frailties. That is what politics is all about. Bitcoin is at a crossroads and two groups have very different ideas about what it's supposed to be.
If Bitcoin were to take hold over several decades, how would that change how we exchange value and use money?
My personal view is that over the next couple of decades, blockchain technology is going to become a central part of our daily lives. The blockchain improves on processes and services that we have now, and it does them better, faster, cleaner and with more transparency.
Any time we transfer anything of value -- a mortgage deed, a security, currency, or swipe a credit card -- on the surface this seems to happen instantly. It doesn't happen instantly.
There is a time consuming and laborious process going on in the background, even though it seems to happen in five seconds. It takes days before the money goes from your bank account to the merchant's account. There are several intermediaries involved who verify your transaction and your identity. This is very time consuming, laborious and still mostly manual. All of this can be automated through blockchain technology.
In the past, we could only do this verification through a centralized process. Everyone likes to beat on the middlemen, but we needed them. There were things that could only be done because you had somebody who was willing to stand on both sides of a trade and guarantee a piece of it.
Blockchain technology decentralizes that process and puts it on a computer network where verification happens automatically as the transaction goes through. This is very significant.
Because we've needed banks to verify transactions, they have been able to pull in reams of money by simply sitting as a middleman. What if we took that money received from every transaction processor, and put that back in the broader economy?
A lot of money can be saved. Nobody really knows how much. Globally, estimates are about $20 billion each year. That's only just the physical cost of operating the system. How much more money can be saved from reducing the amount banks are taking out of the system to line their profits? That number is really unknowable.
Since banks could save so much each year on operating costs, Wall Street is now taking this whole thing seriously. They see a way to save money. Who is going to end up with these savings? I don't know if most people are going to see it. That's a problem. It would be nice if this system was run so that all the capital it unleashes can go back to the people for more productive uses.
Are we going to have a closed-loop system that the banks control? Or will we have an open-loop system like Bitcoin that is not controlled by anybody? Nobody can answer this question.
Bitcoin certainly ignites a debate between values of centralization and decentralization...
The central friction of the next few decades is going to be the conflict between centralized and decentralized systems. Technology is giving us ways to do things that previously required centralized systems. It is going to take a long time for people to get used to this change.
In a few more decades, money will be used very differently. We aren't going to recognize it. I'm old enough to have been raised with paper money. I don't trust credit cards. I like having coins and dollar bills in my wallet. But 20 years from now, people will be paying for everything with their mobile phones. They will never see physical money. Their relationship to physical money is going to change.
So what would that world look like?
I think it's going to kind of look like a Star Trek kind of world, where people might say, "Well they don't have money anymore." And yet, we'll need to have some way of moving value between each other.
I think money is going to become a service that underlies everything we do. But you're not going to actually see it because of the automated digital decentralized network running it.
You'll go on Amazon to buy something and you're never going to see the money. This is happening on some basis now, but in another few decades, generations will be born who never saw paper money. That's going to change our relationship to buying and selling. That is going to have a very subtle change in our psychology and that that can't happen overnight. That is a generational shift.
There is a lot of talk about the potential for a new global monetary order. If one emerges, could it involve a cryptocurrency like Bitcoin?
No one knows when the next global financial crisis will happen, but we'll have one for sure. Maybe in 10 years. At that point there will be a major global digital currency. I don't know who exactly is going to issue it, or who will back it, but I do think it is going to come from a well-trusted source.
I used to think that this idea was very revolutionary. Now I think it's just evolutionary. This is the way technology is taking us.
Bitcoin seems to have just appeared in 2008. But it didn't. People have been thinking about this for a long time.
We focus on Bitcoin because it was just the first cryptocurrency to put all the different elements together in the right way. In the future, you are going to see more people get this to click. It is going to be a very slow evolutionary change, but we'll see more ways of exchanging value this way.
This interview was lightly edited for readability.
Listen to more of Paul Vigna: To hear an extended interview with Paul Vigna on his new book, listen to this recent episode of the Extraenvironmentalist podcast.
About Paul Vigna: As a markets reporter for the Wall Street Journal, Vigna covers equities and the economy. He writes for the MoneyBeat blog and hosts a daily news show of the same name. Previously a writer and editor of the Market Talk column Dow Jones Newswires, he has been a guest on the Fox Business Network, CNN and the BBC. His co-written new book is The Age of Cryptocurrency: How Bitcoin and the Blockchain are Challenging the Global Economic Order.
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