“This is the Bitcoin conference of the year. If you ever wanted to attend a Bitcoin event, this is the place to be” said John Matonis, the Executive Director of Bitcoin Foundation, in the opening key note address.
The audience felt the same – over 1000 attendees from at least 50 countries could be found from at the Amsterdam Passenger Terminal from Thursday, May 15th to Saturday, May 17th.
The program of the conference was tailored to a wide range of interests, with 120 speakers, 40 exhibiting startups and four major tracks of discussion: economical, technological, legal, and social.
These four tracks ran simultaneously throughout the conference, hence I had to zigzag my way from one track to another, motivated by some topics more than others. This report resembles a rather personal journey in the #Bitcoin2014 conference, but covers insights from all tracks.
Here are the most intriguing questions and ideas debated at the #Bitcoin 2014 conference, for each track accordingly.
I was delighted to see two different panels on Bitcoin and its relationship to monetary history and theory. The one titled “History of money” particularly set out to answer the question above, albeit jumped directly to Amsterdam’s history, and specifically to how various currencies circulated in the Dutch economy before the Dutch Exchange Bank centralized them. Centralization of money, argued Erik Voorhees – early Bitcoin supporter and CEO of Coinapult, an application that facilitates Bitcoin transfers to e-mail and mobile phones – is a reflection on the centralization of trade, since Amsterdam was a strategic trading point not only for the Netherlands but internationally. It is this centralization that no longer works for the present day economy. This is particular to the case of the US, after it decoupled the value of the dollar from the gold standard in 1946. There was no real need to do so other than the banks’ and politicians’ desire to make fiat money from nothing, Voorhees argued, and this has led to a coercive centralization of fiat money worldwide. Hence, the proposal of this panel is to discuss Bitcoin in light of its potential to switch economy from coercive centralization to mutual-consent decentralization – a recurrent proposals throughout the conference.
I particularly enjoyed the panel on “The Economics of Bitcoin”. John Matonis, Executive Director of Bitcoin Foundation, did a good job at moderating. He set out with a punctual list of questions and skillfully guided the speakers to answer them. It was a welcomed choice, as mainstream economics so often attempts to (in)validate the Bitcoin concept but never goes too deep into the problems.
The first question asked how Bitcoin fits in the regression theorem of Ludwig van Mises and whether this economic theory, that helps explain the origins of money, is relevant in the Bitcoin context. As Bitcoin theorist Peter Šurda carefully explained, the regression theorem refers to how currency, before becoming medium of exchange, is thought to have an intrinsic value (the case of gold or any other liquidity that became traded as currency). When people get more interested in an object, its liquidity rises. Bitcoin seems to violate the theorem – when it was created, Bitcoin had literally no value. It was a “thing”. Only following significant interest did it became valuable. Fiat money, since its decoupling from the gold standard in 1946, is not so different in this sense. What the panelists agreed on is leaving the debate over the regression theorem aside altogether and acknowledge that we cannot ask last century theories to account for today’s innovations.
The second question asked how Bitcoin can transit to a unit of account. Šurda believes Bitcoin will never become a proper unit of account unless the dollar collapses – until then, the former benefits of legitimacy and power. Robin Teigland, Associate Professor at the Center for Strategy and Competitiveness at the Stockholm School of Economics, suggests that Bitcoin could turn from an agreement of exchange to a unit of account but that it takes 30 to 40 years (in other words, a new generation) to mentally adopt any disruptive technology such as Bitcoin.
The third questions concerned the possibility for multi-standard values. Here opinions varied. Robert Sams, founder of Kryptonomics (a London-based crypto-finance firm), believes that, while alternative coins will flourish in the next years, many will fail, leaving room for only a couple of solid ones that can really gain traction. Teigland sees the potential of alt coins as local currencies, however is aware that their value will always be below mainstream currencies. At the other end of thinking thread, theorist Konrad Graf sees only one crypto currency really going mainstream.
The fourth question tackled the possibility of Bitcoin as a reserve bank. Teigland argues that we should not get stuck in Bitcoin alone, since there are numerous financial models and instruments out there, including crowdfunding or digital and gaming currencies, time, skills, or local currencies. All these can be examples of new banking opportunities. Graf believes a Bitcoin reserve bank should be possible just so that people at least have an opt-out possibility from current banks, while Sams does not see an option of hypothecating Bitcoins and thus no future of a Bitcoin reserve bank.
Finally the panelists gave their opinions on what will happen after 2140, when Bitcoin mining will reach a halt. One solution, suggests Matonis, is that we can always go the right or left side of the decimal to increase its quantities. Graf suggests that the amount of money circulating in the society is not a critical point at all, while Sams requires a more elastic supply and mentions that a more relevant problem is that people do not trade their Bitcoins but rather hoard them, as deflation rises their price. This argument was counteracted though by Erik Voorhees who, in the previous panel on the history of money, said that people tend to trade more as the value of Bitcoin rises because they feel wealthier – this explains why the startups present at the conference see more transactions when the value of Bitcoin rises, not when it goes down.
Judging by the number of exhibitors at the conference (+40), it’s flourishing. Many of them were third party Bitcoin operators, offering extra services around the Bitcoin infrastructures. There were Bitcoin ATM-creators launching the latest models (like Lamassu), Bitcoin e-wallets providers (Coinbase), proponents of alternative banking via equity crowdfunding and Bitcoins (Bank to the Future), coders of open source payment protocols (Ripple Labs), powerful Bitcoin mining machines (BitFury), etc. The role of these Bitcoin intermediaries and providers was discussed throughout the conference, as I will highlight later in this post.
Given the overwhelming number of U.S. speakers and exhibitors, one presentation I was particularly interested in was ‘What Europe needs to build a digital economy’. The speaker, Luis Ivan Cuende, is assistant to Neelie Kroes at the European Commission and was named best programmer in Europe under 18 . His interest lies in the potential of Bitcoin and how it can be integrated in the digital economy of the EU.
According to Cuende’s research, official (but also legislative) perspectives on Bitcoin within the European Union differ greatly from one member country to another. In the Netherlands, Bitcoin is not considered a viable alternative to the basic functions of money. France, albeit being generally tolerant to alternative revenue models, does not consider it a proper currency. That does not stop it from taxing it. Germany goes further in consider it a unit of account (as discussed earlier, this is essential in Bitcoin’s next step) and does not tax capital raised via Bitcoins. Denmark considers Bitcoin transactions “purely private”, so it does not tax Bitcoin revenue, but nor are losses deductible. In Finland, Bitcoin is a commodity while in Sweden it’s an outright means of payment and operators need to register with financial authorities. Switzerland and the Isle of Man seem to currently be a Bitcoin paradise as transactions go unregulated and Bitcoin is regarded as an interesting phenomenon.
These discrepant perspectives reminded me of crowdfunding (especially the equity-type), an alternative revenue model that finds itself in the exact same legislative confusion. Currently, EU countries have taken on themselves to propose national legislations, some more though than others (see a recent overview I wrote on this topic). What the European Commission did in this particular case was to launch a survey and get insights in different perspectives of crowdfunding and what levels of legislation is desired at the moment. After publishing the results of the research, the E.C. concluded to maintain its position as an observer and called for a group of informal experts (crowdfunding platforms, startups, academics & researchers, financial authorities) to establish best practices and represent the interests of various stakeholders to the E.C..
There is currently no pan-european proposal to regulating Bitcoins, but I think an initiative similar to that in the case of crowdfunding monitoring might be a feasible idea for Bitcoin too. What Cuende though sees as the essential pillars for Bitcoin to become mainstream are a common law framework to target cryptocurrencies, a strong net neutrality (but, he pointed out, clearly not the controversial one that EC recently proposed) and a serious exchange system (legal, backed by big VC, located in a country with strong regulation but Bitcoin friendly). Cuende also sees a conflict between anonymity and legal transacting – according to him, people should not shy away from sharing some form of identification – the cryptocurrency’s legitimacy depends on this.
Bitcoin 2014 sees a different discourse than the last big conference in Amsterdam in 2013. This time, technological developments are more tied to debates on legislative frameworks and concerns like consumer and data protection, enhanced security and privacy.
Bitcoin is getting more mainstream. With it come growing concerns for consumer and data protection. This is inevitable, since the current financial actors (banks, financial intermediaries) take on big risks and operational costs to protect their customers and offer them extra services (like secure internet banking, for example). Bitcoin is different in the sense that its users need to be more aware when they use it. For examples, as speakers from the panel on “Data security and consumer protection” pointed out, a user can only access their Bitcoin account with their private key. Losing that means losing the account forever. The reason why Bitcoin has not switched to securing accounts with passwords is because that involves storing them – a huge risk that also brings further costs. Clearly though, Bitcoin needs to improve its security and protection in order to become competitive. So what are the newest developments to tackle these concerns?
Last year’s conference heard little on smart contracts, but this year they are the way to do business . The concept of ‘smart contracts’ has been made know by projects like Ethereum or BitCloud. ‘Smart contracts’ are, in a simplest explanation, computer coded contracts that aim to replace current human-made contracts. They thus require minim trust and, theoretically, leave no place for manipulation. The potential of smart contracts is that they can allow all sorts of distributed applications (from creating digital currencies to crowdfunding and even voting) by coding the exact conditions in which the applications are to be executed. Here is a tutorial by Ethereum on how to create, for example, a smart contract for a new alt coin. For readers in Amsterdam, Ethereum is hosting a workshop on how to create your own smart contract on Tuesday, May 27th)
Another novelty discussed was that of using digital identities in the Bitcoin exchange. Jacob Boersma from Innopay mentioned that Bitcoin is on its way of creating a system where users can identify themselves by giving as less info as possible and never more than is necessary. This is an underdeveloped idea, but analogies to this could be examples like DigiID (residents in the Netherlands have a digital identity which helps them communicate much faster with authorities, social security and banking services). The digital identity of a Bitcoin user would, as Bitcoin core developer Jeff Garzik explained, a way for users to interact in the market.
There is an unresolved discussion here, though. Interestingly, many third party operators that exhibited at the conference were requiring all sorts of identity verification – from Bitcoin ATMs requiring fingerprints to intermediaries requiring valid IDs. This might inevitable if, as discussed especially in the regulation panels at the conference, future legislation will require start-ups to provide insurance and further security for their clients (in return for a fee, arguably). At the other end of the spectrum, projects like Dark Wallet aim to offer complete anonymity to Bitcoin users.
Whether Bitcoin should go for a (anonymous) distributed identity system – so that users can control their identity – or whether using one’s real ID is a matter of further debate. But, as cryptographer David Schwartz from Ripple Labs clearly stated, it is really not about what technology can do, but what we agree on to be the best solution. Hence, the digital identity debate is particularly interesting to follow in the next stages.
A top concerns remains security, especially with Bitcoin getting traction. Possible solutions to this are multi signature transaction and multi signature wallets, which essentially refers to implementing different checkpoints that prevent opportunistic attacks.
All these innovations were contextualized within the general trend of Bitcoin-like technology to decentralize society altogether. Johan Gevers from Monetas repeated what he said at Amsterdam’s last year’s conference: we need decentralized communication, decentralized law (made possible by smart contracts, for example), decentralized means of productions ( like 3D printing). I think Ethereum has an interesting list of activities that decentralized technology could completely reshape: “voting, domain names, financial exchanges, crowdfunding, company governance, contracts and agreements of most kind, intellectual property” etc. One example that was also mentioned in the conference was the Danish liberal party that proposed using the blockchain technology for an internal voting assembly, as this would make the whole process less prone to manipulation and allowed voters to follow if votes are securely and fairly stored. Johann Gevers predicted the future of Bitcoin and its underlying technology as follows: in 5 to 10 years, everyone will mainly use their mobile phones as universal platforms to which they can connect and be financially included.
The panel on “Bitcoin and Global Financial Inclusion” offered a more realistic answer to Gevers’ ideal. At the moment, crypto currencies simply do not deliver the promise they were hailed to accomplish. Alan Safahi, CEO of ZipZap, a company that “builds railways for Bitcoins” started the debate by mentioning the 2,5 billion unbanked people of the world, almost half of which live in extreme poverty. Intermediaries in remittances are anything but helpful, as Safahi ironically remarks: “we might as well not spend all that money in foreign aid but rather cover those people remittances fees – it would be just about the same”. Could Bitcoin then be an answer? Richard Boase, a journalist and collaborator at Coindesk, thinks this questions needs a much more critical analysis. Boase was recently returned from Kenya, where the non-profit he works for – the UK Digital Currency Association – is carrying different projects on implementing Bitcoin there. His practical experience so far makes him doubt Bitcoin’s feasibility. For one, teaching users on how to create a wallet and exchange Bitcoins is a much tedious process. Second, to use Bitcoin you need to be online – cheap data and constant wifi are essential, and that is not the case in most areas in Africa. Boase also criticizes how (reputable) media has often irresponsibly portrayed the role of Bitcoin in Africa, exaggerating both its potential as well as the zealously reporting on non-existent developments. What he has found out is that “the street finds its own use for technology” – in this case, using cheap phones and existing M-Pesa exchanges are currently more effective than Bitcoin. Hence, Boase argued, we must ask whether Bitcoin needs to be the right inclusive technology in Africa’s case: pushing Bitcoins in underdeveloped societies is somewhat irresponsible.
Peter Smith, one of the founders of Blockchain Info, shared a different perspective: the level of development in east Africa (Nairobi) has been outstanding in the last years. The telecommunication services are very reliable, and people are giving up their feature phone for Blackberries and Smartphones, since they are now made as cheap as 20 $. In his opinion, the future of Bitcoin is strongly reliant on the mobile phone as a platform, and converges with existing M-PESA services. However, he points out, Bitcoin can only address middle and high class citizens of those areas, and it is unreasonable to expect that Bitcoin is the right tool for the very poor. Yonni Assia from eToro also commented that, for the latter category, we need to rethink what “financial inclusion” means for those who do not earn anything or those who work in black markets. He further drew attention to the fact that most Bitcoin third party operators only want to offer global financial inclusion in order to increase their consumer database. What Bitcoin can realistically do is serve as a financial inclusion tool for those “unbanked by choice” – right now, a growing phenomenon in South America, as explained by Rodolfo Andragnes, co-founder of the Argentinean Bitcoin Foundation. These are essentially people who voluntarily refuse to use banks and other intermediaries because of privacy concerns, high fees, lack of trust. Alternatively, they voluntarily turn to Bitcoin as an alternative. How then can future developments address this target group more suitably? Perhaps this is a good topic for next year’s panel on financial inclusion.
Legal clarity is essential for Bitcoin to gain wider trust and adoption: ” if people don’t trust it, they won’t use. We have seen it before with online trading, when critics said no one would ever trust the Internet with their money”. The analogy belongs to Lars Christensen from Saxo Bank: “until some light regulation will be in place, Bitcoin will not be embraced by merchants and investors”, he added. Regulation, predicts Christensen, is bound to happen. There is a paradox here though: while investors and big merchants are cautious in adopting Bitcoin precisely because they have no legal guarantees and clarity, should regulation be installed, most of the smaller Bitcoin operators would lose the game as they could not afford the costs of financial audits, respective money-laundering rules and following best practices. Regulation, he mentions, is often too restrictive with new developments. What should Bitcoin developers, users and startups then be aware of?
In the light of the recent approval of Bitcoins as a way of supporting political parties and elections, but having in mind the notorious episode when Wikileaks had their donations blocked by government pressure on Visa, Mastercard and PayPal, some advice on financial rights and censorship was most welcomed. This was delivered by Rainey Reitman and Marcia Hofmann from the Electronic Frontier Foundation.
The two offered valuable insights in the correlation between freedom of speech and freedom of spending. Freedom of speech is protected on different levels. Political speech is highly protected by the U.S. First Amendment, while commercial speech is less protected and violent ones are not protected at all. Freedom to have a political speech also includes financially supporting a certain party. This has interesting implications for the Bitcoin community and the currency’s role in politics. The two advised operators and users of Bicoin to be constantly aware when they are protected in their endeavors and when to retreat. Wikileaks, then blocked on reasons of illegal and criminal activity, is not the only case of financial censorship. Other, perhaps less impressive – such as the Chase Bank closing the bank accounts of adult entertainers – show that often these decisions can be arbitrary. The most common excuses for financial actors to censor someone are violation of terms of service violation, trademark violations, the “know your customer” regulation, and government pressure. Their advice for the Bitcoin community is to be neutral, respect user privacy (not to ask for more identification than is legally required), avoid terms of service that are too restrictive, and get involved in the regulatory fight in order to make if favorable to the Bitcoin community.
Pro-activeness of the Bitcoin community in regards to legislation was the often heard as an advice from speakers coming fromm the legal/policy making background. Marcia Hoffman, for examples, emphasized how in the US, lobbying is essential as senators are not only extremely busy, but tend to be generalists with the bills they propose. Insights from the Bitcoin industry are essential for them. That’s not just entrepreneurs, cautioned Hoffman, but all types of stakeholders, from coders, merchants, civil society, think tanks and academics – the broader the spectrum of arguments when it comes to Bitcoin, the more suited to expectations the future legislation will be. Criticism was drawn on irresponsible journalism that tends to paint Bitcoin in one color, whether critical or over-optimistic. This is essential as senators pick up the news more easily than they do from lobbyists. Lars Christensen also advised Bitcoin startups to not go under the radar with their activities and to be as transparent and regulation-friendly as possible, so that future legislation does not catch them off guard. Other speakers, such as Johan Gevers (Monetas) argued that Bitcoin need not wait for regulation, as regulation follows practice and the best thing Bitcoin startups, users and researchers can do is be pro active. There seems to no longer be a conflict in terms of “to regulate or not to regulate” but rather an acknowledged fact that Bitcoin needs to fit in the legislation – and it’s up for all stakeholders to participate and determine how that legislation will look like.
Content-wise, it was impressive. The broadening scope and debate on Bitcoin was well reflected by the conference’s diverse program. It was certainly refreshing to attend a more thorough debate o the history of money and Bitcoin economics, to notice that data and consumer protection are rising concerns, to learn that freedom of speech is associated with freedom of spending and how this leads to financial censorship, or to join the reality check on Bitcoin’s promise to bank the unbanked. This is far from covering all debates – I practically only attended a quarter of them due to the parallel tracks, but wished I had been present at way more. I particularly enjoyed sessions that had good moderator, rather than incoherent Q&As from beginning to end. What I also would have liked to hear more about is how Bitcoin engages with the wider scene of alternative revenue models, such as mobile money and crowdfunding.
I also walked along many Bitcoin startup-ups in the exhibition space. I knew only a few names, and that’s because most have just launched. It’s a good time to have a Bitcoin start-up. And, as I learnt from the panels, these startups can play a big role in the future of Bitcoin. First – as businesses: their collaboration with regulators could very well define how future legislation will look like. Second – as intermediaries: they could provide extra safety and insurance for new Bitcoin users, thus helping the currency get traction. Third – as innovators: they are the ones considering new technical possibilities. Yet the Bitcoin world has more stakeholders than just startups, and the conference seemed heavily-focused on the business perspective in all tracks. I had the sense that some startups were venturing (pun intended) quite far from Bitcoin’s core concepts: anonymity, freedom, minuscule fees and an increased awareness of one’s financial power. Some of the startups that offered Bitcoin trading accounts required as much identification bureaucracy as any bank, charged high fees and seemed to address investors predominantly. However, this is inevitable, given Bitcoin’s growth (and hype) and there is plenty of development going on to support the independent Bitcoin user as well.
Last year’s edition of the conference took place in San Francisco’s Silicon Valley and the organizers say they target Asia for next year’s location. An interesting decision, as Asia has a somewhat controversial position in relation to Bitcoin. Nevertheless, it’s worth looking into how the next conference rethinks the Bitcoin discourse and what developments will take place in the meantime.
Report: Irina Enache for INC