Bitcoin evangelist Andreas Antonopoulos today appeared before the Canadian Senate to make the case for bitcoin’s freedom, touting the promise of decentralized financial systems and calling for a better understanding of the technology before regulation is considered.
It was the 11th meeting of the Senate Committee on Banking, Trade and Commerce’s special study on the potential threats, risks and advantages of digital currencies. So far it has seen presentations by members of the bitcoin community and the existing financial and payments industries.
Described by committee chairman Senator Irving Gerstein as an individual “considered to be the bitcoin guru”, Antonopoulos made a 15-minute introductory presentation before fielding questions from other committee members.
“He has literally […] written the book on bitcoin,” Gerstein quipped.
Opportunities in decentralization
In his introduction, Antonopoulos spoke mainly of the advantages and opportunities presented by a decentralized financial system, over the multiple failings of the current centralized model.
Centralization, he said, made the current financial system fragile and impenetrable to new players, and introduced systemic risks through the multiple layers of regulation required.
This created “cosy relationships between regulators and industry insiders” which has led to corruption and financial crises.
Pointing out that “there has never been a large-scale, decentralized, secure network before,” Antonopoulos said there is a risk that many will try to apply familiar models of past, centralized systems to bitcoin which would prove inefficient and unsuitable, thus weakening security and disempowering its users.”
“The combination of decentralization and security is the novelty at the heart of bitcoin.”
Most negative experiences in bitcoin to date were the result of trying to apply centralized systems that introduced single points of failure into a network and removed control from users.
Regulated by maths
A decentralized system, Antonopoulos suggested, is actually more secure. Unlike ‘pull system’ credit card transactions where customers trusted merchants with full access to their accounts, bitcoin’s ‘push system’ left control with users.
Bitcoin transactions could be sent in the clear and unencrypted over open networks without fear of compromise, which allowed the infrastructure to be open to any participant or software application without vetting, authorization or identification.
Contrary to popular belief, he added, bitcoin is not unregulated. It is “regulated by mathematical algorithm” and puts core security functions into its users’ hands.
“The ability to innovate without permission at the edge of the bitcoin network is the same fundamental force that has driven internet innovation for 20 years at a frenetic pace, creating enormous value for consumers, economic growth, opportunities and jobs.”
This would in turn drive innovation by providing the opportunity to invent whole new decentralized security mechanisms “based on innovations like smart contracts, multi-signature escrow, decentralized audits, hardware wallets, and algorithmic proof of reserves”.
Response and questions
Although the Canadian senators’ questions were generally positive, they joined their legislative contemporaries around the world by expressing concern that digital currency technology could be used for nefarious purposes like money laundering, terrorism financing, or as Senator Larry Campbell put it, “ISIS or other whack jobs.”
Antonopoulos’ responses to these queries stayed on message: bitcoin is not anonymous, transparency and accountability features are easier to implement than anonymity, and the opportunities to empower people through better access to international financial infrastructure far outweighed the potential for misuse by a tiny minority.
He gave the example of mobile phone technology, which had allowed millions in the developing world to leapfrog over landline technology and its limitations.
To Senator Douglas Black’s question about what is needed to allow innovation to continue, and what regulation would he recommend, Antonopoulos replied that it would be best to wait until the technology is better understood by everyone – there are nuances that even those in the bitcoin community don’t yet understand, he said.
He asked that digital currencies not be “contorted into structures made for banks”, as they presented an entirely new financial paradigm.
Senator Campbell asked if his (age 67) generation is capable of ever understanding bitcoin, when younger ones seemed to get it easily, saying:
“I don’t understand it still and we’re on our 11th meeting […] I’ve been told to keep my old nose out of it.”
Antonopoulos reminded him that the Internet was initially esoteric and difficult to access. Bitcoin would beat its slow path to user-friendliness, given there is no need to roll out physical infrastructure and the Internet already exists as a medium to distribute the new technology.
He believes it will take about eight years to see mainstream applications that consumers will feel comfortable using.
“There has been no shortage of people trying to hack bitcoin,” Antonopoulos replied to Senator Stephen Greene’s question about whether bitcoin itself was indeed impervious to hacking.
The risks were more to individual wallets than the system as a whole, he explained, and that no-one in five years had been successful at hacking bitcoin itself.
“A dynamic system that is constantly exposed to threatening stimuli will develop resistance […] a concept often called ‘antifragile’.”
Skepticism and curiosity
Senator Paul Massicotte was more skeptical, querying whether it was wise to reject identification requirements for bitcoin users. “What you don’t see is who’s behind the chain,” he said, pressing the issue in an attempt to get Antonopoulos to admit bitcoin’s anonymity could be exploited by criminals.
Antonopoulos pointed out that Visa fraud protection had been contacting him regularly since his arrival in Canada, merely because he was using his credit card in another country. Tying identity to transactions exposes individuals to personal risk, he said, especially when there have been multiple security breaches at companies that possessed such information.
Other questions fielded included the viability and purpose of cryptocurrencies other than bitcoin, and whether a nation state could conceivably adopt a cryptocurrency as its official currency.
There were also discussions on whether bitcoin’s advocates might eventually be proven wrong on economic issues, and how Canadian consumers would be protected from unscrupulous actors if bitcoin were adopted by the masses.
Canada’s Senate hearings
The Canadian Senate committee has already heard presentations from the Department of Finance, the Bank of Canada, the Canada Revenue Agency, and the Canadian Payments Association.
Payments industry representatives have included Interac (Canada’s national direct-debit network), PayPal, Visa, and MasterCard.
It has also questioned companies and advocates from the bitcoin ecosystem, including BitPay, Canada’s Bitcoin Embassy, the Bitcoin Alliance of Canada, the Bitcoin Foundation, the Bitcoin Strategy Group, exchange CAVIRTEX and ATM manufacturer BitAccess.
Chairman Gerstein noted he had used a BitAccess machine to purchase 0.18 BTC for himself in the course of the study and appreciated the experience, “even though I have a substantial loss at this point”.
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