With bitcoin in the media spotlight, everyone seems to have an opinion on the price. Few recognize the profound implications of decentralized money for the monetary system, society and government – not to mention the emerging business opportunities.
The timing could not be better for the inaugural conference of the newly-formed Bitcoin Foundation. Next month, several hundred people from around the world will converge on the San Jose Convention Center (in Silicon Valley, naturally). Billed as "The Future of Payments," the conference is attracting technologists, venture capitalists, bankers, traders, payments specialists, and financial regulators.
Launched in January 2009, bitcoin achieved all-time highs in transaction volume and new entrants into the currency last week – milestones overshadowed by the price volatility. The nonprofit foundation was established in September 2012 to standardize and promote the core bitcoin protocol. (I have a seat on the foundation’s board.) Two of its early accomplishments were to recruit lead bitcoin developer Gavin Andresen (whose informal role in the Bitcoin community mirrors Linus Torvalds’ position in the Linux world) as chief scientist and to launch a quarterly grant program for funding various initiatives that advance the bitcoin protocol. Next, the foundation intends to encourage best practices for bitcoin businesses and exchanges, to facilitate the formation of local foundation chapters in foreign countries, and to educate global regulators about what can and cannot be regulated feasibly with a distributed peer-to-peer system such as bitcoin.
Although the conference features excellent technical tracks, the agenda will be particularly interesting to those in the banking and payments fields.
For example, many people understandably ask why merchants would want to accept payments in Bitcoin given the volatility of the exchange rate with the dollar. After all, even if you believe the digital currency will appreciate over time, you probably can’t use it to pay the electric bill or the rent.
Part of the answer is the service provided by firms like BitPay, whose cofounder and CEO, Anthony Gallippi, will explain how he’s been driving business adoption of Bitcoin. BitPay functions as a merchant payment processor, somewhat akin to the acquiring banks in the Visa/MasterCard space. The startup provides foreign exchange conversion services for merchants desiring immediate settlement in local national currencies. Thus Tony’s customers reap the benefits of Bitcoin – no chargebacks, since bitcoin transactions are irreversible, and lower fees than they’d pay for credit card transactions – while BitPay takes the currency risk. Tony recently landed one of the best-known merchants to accept Bitcoin: WordPress, the blogging platform.
Another startup is Paymium, whose Bitcoin-central exchange has shown it is possible to seamlessly integrate bitcoin and the traditional regulated banking infrastructure. The French company’s co-founder and chief operating officer, Pierre Noizat, will talk about bridging that gap. If his name rings a bell for some financial services professionals, it may be because Pierre comes from the traditional payments world, having served as managing director of the French Mobile Contactless Association.
Would-be disruptors eyeing this space but worried about legal uncertainties will have a chance to hear from Patrick Murck, the general counsel of the Bitcoin Foundation. His expertise extends across the legal and regulatory issues governing the use of Bitcoin, virtual economies, gamification, alternative payment systems, and social loyalty and reward programs. Immediately after the Financial Crimes Enforcement Network issued the March 18 regulatory guidance on centralized and decentralized virtual currencies, Patrick published an analysis.
Bitcoin’s user-defined anonymity protects personal privacy, and this combined with the decentralized structure arguably thwarts censorship – for example by allowing people who want to donate to WikiLeaks to circumvent the political blockade that forced the major payment processors to cut off that organization. Rainey Reitman, the activism director of the Electronic Frontier Foundation, a nonprofit civil liberties law firm and advocacy center, will hold forth on these liberating aspects of Bitcoin. She is particularly interested in the intersection between personal privacy and technology, and has spent significant time investigating the role of financial intermediaries as censors. Reitman is also the chief operating officer and co-founder of the Freedom of the Press Foundation, a nonprofit organization that crowd-sources funding to supporting independent, nonprofit journalistic institutions – and recently started accepting bitcoin.
Most of the attention paid to Bitcoin in the mainstream media has focused on its merits and drawbacks as a store of value. The smarter commentators have paid greater attention to its potential as a means of exchange. But what about the third key role of money, as a unit of account? Bitcoins, after all, are divisible to the eighth decimal place, and this is another disruptive component. Erik Voorhees, a bitcoin early adopter involved in several leading bitcoin-related companies, such as BitInstant, SatoshiDice and Coinapult, will encourage thinking on this as he discusses the economics of Bitcoin and its role as money.
Ever since the bitcoin cryptocurrency launched and achieved initial success, institutional investors and hedge fund managers have secretly sought a regulated investment vehicle for bitcoin placements. Malta-based Exante Ltd. has a solution with its new Bitcoin Fund. There remains a case for Bitcoin as a store of value, even after the recent whipsawing. Tuur Demeester, author of the financial newsletter MacroTrends, added bitcoin as part of his recommended currency basket in January 2012, and he’ll talk about bitcoin's emerging role as a separate asset class alongside precious metals, equities, and bonds.
Last month, my column featured a conversation with software developer and online payments industry veteran Peter Šurda about how nonpolitical cryptocurrencies like bitcoin could alter the future of fractional reserve banking. If you were as fascinated as I was by the discussion, he’ll be on the “Economics of Bitcoin” panel with Voorhees and Demeester.
Jon Matonis is an e-money researcher and crypto economist focused on expanding the circulation of nonpolitical digital currencies. His career has included senior posts at Sumitomo Bank, Visa, VeriSign, and Hushmail. Currently, he serves on the board of the Bitcoin Foundation. Follow him on Twitter @jonmatonis.