Bitcoin vs the 'Bin Laden'

Welcome to the CoinDesk Weekly Review 21st June 2013 — a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law.

There are some unexpected problems in becoming a career criminal. Just nabbing the loot is the easy bit: there are piles of the stuff heaped up in easy-to-access concentrations all over the place. The forces of law and order are usually too busy trying to solve existing blags to spend much time second-guessing what an inventive, intelligent thief or fraudster might come up with.

The biggest hassle is disposing of the ill-gotten. As soon as you start to spend it - presumably, your primary goal - or squirrel it away, a whole host of nosy bureaucrats will start to notice. Assuming you want to avoid really immoral options like going into retail banking or running a multinational then you must disguise your assets. Hence money laundering, and hence a certain amount of official and general suspicion towards Bitcoin.

A report on the use of digital currencies for surreptitious fund transfer and disposal, however, suggests that we’re unlikely to see many crypto-crims flocking to our favourite fiscal upstart. Not only do large movements of cash into or out of the currency reveal themselves to anyone keeping an eye on the global blockchain, but there are so many alternatives that work so well - prepaid credit cards, crooked businesses with high cash throughput, bribing a bank - that, really, it’s not on the radar for the big guys.

As for the smaller fry, well, the biggest boost of late has been the 500-euro note. Nicknamed the “Bin Laden”, because everyone knows what they look like but nobody’s ever seen one, you can get ten thousand of them into a briefcase small enough that even Ryanair won’t charge you excess baggage. In comparison, BTC looks as wholesome as fifty pence in a church collection: another worry to be put firmly on the back burner.

An interesting article at The Genesis Block asks a very good question - could Bitcoin become the national currency of Kenya?

Probably not, at least not in the foreseeable. But if such a thing does happen anywhere, the developing world has a very good chance of being the place, for the big, historical macro-economic reasons that John Law loves so much.

The article has some specious arguments; that bitcoin is in some way less amenable than cash to being used for corruption, and that the Chinese are big investors in African telecommunications. It isn’t; they are; so what? But it also makes some very good points.

The biggest and best is that Kenya is a nation saturated with mobile devices. So is everywhere else, but the important realisation is that this is the country’s first wave of information technology. In the developed world, we remain saturated in legacy technologies with legacy companies holding onto old ways of working. Kenya - and so much of the rest of the developing world - has leapfrogged all that; Africa has more 4G than Europe and even cheap mobile phones are stupendously capable, these days - just wait for next year’s models.

And the developing world is poor and dependent on remittance; money coming in from family members working in Europe, America and the richer parts of Asia. So far, that cash flow has been heavily taxed by the existing Western money transfer systems; the immediate benefits of moving to a peer-to-peer currency are substantial. Ditto within a country, where bank accounts and other money transfer systems are relatively expensive and underdeveloped.

For the first time, ordinary people in the developing world have the personal electronic technology and connectivity to create their own industrial revolution that’s far more efficient than the older generation we’re stuck with out here in the mature economies.

It won’t happen tomorrow: bitcoin is too volatile and too expensive - it’s a rich kid’s plaything. But the conditions are coming right for something like it to catch fire, and in economies that are poised to grow hugely and packed with ingenuity, ambition and potential that spark may come at any time.

Here’s hoping.

Talking of rich kid’s playthings: a pub in London’s Dalston hipster ghetto has started to accept payment for food’n’booze in bitcoin. It’s not something for the cost-conscious drinker, as the pub takes eight percent of the transaction cost to cover fees (so much for a farewell to credit card company cuts, at least until its suppliers start taking payment in BTC). Also, you have to go through a bit of a dance with mobile phone wallets, QR codes and perhaps even having to tell the bar staff what to do before you can walk away with your pint.

None of this matters. If you’re counting the pennies, you won’t be drinking in Dalston - but you will be wanting to walk the walk of a 21st century trailblazer. And while the instructions may be a bit daunting, they’re actually a pretty good guide to how to do it for anyone considering repeating the exercise. Just at the moment, proof of concept is worth praising in its own right.

John Law, who may on occasion be seen promoting economic activity in the pubs and bars of London Town, considers the true future of bitcoin - and its alternatives - does not lie in the wobbles and whims of far-off trading houses such as Mt Gox. Instead, it’s in using the stuff in normal life. While that’s hard to justify in terms of pure fiscal probity at the moment, if you’re one of the small yet growing band of young urban media/digital/foodiepreneurs who shuttle between London and San Francisco, it can at least be marginally useful.

Like Dalston.

John Law 

is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.

Image credit: Tim Gough