Last year, bitcoin was nothing more than funny-money criminals used to buy drugs and weapons. Well, that was the story that dominated mainstream coverage of the digital currency.
No longer. The world-changing potential of this decentralised method of digitally transferring ownership is being discussed in serious, if inflammatory, terms everywhere from the US Senate to Chinese state television.
But to make this transition, bitcoin is having to change. No longer the preserve of radical libertarians, bitcoin is beginning to be dominated by a different kind of animal: the suited businessman.
And with Wall Street-types not far behind, the anti-government ideals held by certain parts of the bitcoin community are being rejected and disowned. Bitcoin is beginning to hit the mainstream, but it’s tidying itself up first.
Why banks fear bitcoin
Jeremy Allaire, who founded the bitcoin payments company Circle, which raised $9m in venture capital funding and is due to launch later this year, is one of the people arguing that bitcoiners should work with governments to establish regulations for bitcoin.
“If your goals are to create a sort of shadow financial system that runs in offshore jurisdictions and is attractive for anarchists and criminals, then maybe [regulation] is not important,” he told CoinDesk on a recent visit to London.
But if your goal is to ensure widespread adoption of bitcoin, there needs to be rules around its use, he says, arguing that it’s not good enough to imagine bitcoin can exist above society:
“A lot of the safeguards that businesses and consumers take for granted in their everyday interactions and payments don’t exist in bitcoin, so […] how do we understand those risks? How do we address those risks? That’s actually going to be the path forward, not saying, ‘well bitcoin is superior to all things, it’s going to undermine all of these things.’”
Allaire is blunt about the transition bitcoin is going through, saying it’s “absolutely” moving away from its libertarian roots.
He defends governments for issuing warnings about the risks of using bitcoin – “I think these are people who are doing their jobs and calling a spade a spade” – and has little time for people who harbour conspiracy theories about why banks have been unwilling to engage with bitcoin businesses.
It’s not because they’re worried about losing the fees they charge on transactions, he says: “They’re not even thinking that far out. It’s more because they don’t want to go to jail.”
The suits are coming
Government regulation in the bitcoin space will give banks the confidence to start working with bitcoin businesses, says Allaire. But that’s not the only important change that needs to occur so that bitcoin can enter the mainstream: bitcoin needs Wall Street.
The birth of bitcoin has been tied by some to the economic crash that began in 2007. With the reputation of the financial sector ruined, a new currency that bypassed the banks always had a good chance of being a winner.
The idea that Wall Street may have a role to play in bitcoin’s development is “heresy” to certain members of the community, admits Allaire. However, if bitcoin trading is to develop, it needs Wall Street’s input.
“What I’ve found is that there are so many really talented and smart people in that industry that want to get into this industry. They see what its potential is,” he says.
“You’re going to see an injection of Wall Street knowledge-based skill sets, technical sets, coming into this space, that ultimately will benefit everyone because it will create products from a trade perspective that are more mature.”
Allaire’s vision is that bitcoin will be as easy to use, and as widespread, as the financial services we take for granted today, as physical cash even. That’s not to say he sees bitcoin as merely a like-for-like replacement for our current financial systems.
He talks about “unifying the world more deeply on a common internet-based monetary system” and says that privacy is a “critical ideal that needs to be held up.” However, in its current form, the currency doesn’t appeal to enough people.
“The users of bitcoin, I hate to say it, they’re men aged 25-40. Typically, they’re hi-tech focused people; that’s not the whole world,” he says.
“To the average consumer, for them to put their money in this and feel like that money is secure and no-one can steal it, requires some rules around how does that get stored.”
De-risking bitcoin won’t just involve government rules – there are technical and business innovations that will make bitcoin more palatable to ordinary people, Allaire says.
His outspoken belief that bitcoiners should embrace rather than resist the involvement of governments runs counter to the ideology held by many of the people that first flocked to bitcoin, and he admits as much.
But he’s relaxed about moving bitcoin in a direction that some may consider antithetical to its origins:
“A lot of significant technical inventions, including a lot of inventions on the internet, were created with different goals or different expectations around their use, and those really evolved in unpredictable ways.”
Bitcoin is no different. It’s changing, evolving in a way that could allow it to dominate the financial arena. But it won’t destroy the system, it will simply become another part of it.