The Night Bitcoin Grew Up
"I want to focus on one thing: the risks"
Last Tuesday I attended a Bitcoin meetup in London where Jeremy Allaire, the CEO of Circle, a pre-product Bitcoin-focused company which raised $9m from Accel and General Catalyst, gave a speech about his vision for the cryptocurrency. Surprisingly, he decided to focus on a single theme: the risks associated with it. Volatility, fraud and criminal activity. And, consequently, on the necessary regulations to be imposed by governments to protect consumers. It felt like a pivotal moment in the life of Bitcoin: the time when early adopters libertarians were being supplanted by experienced (Jeremy cofounded Brightcove previously), realistic, VC-backed executives who are entering the space to turn it from a hobbyist oddity into a mass-market business.
While both inevitable and beneficial to grow consumer adoption, this move didn’t delight everyone in the room. Some enthusiasts, originally drawn to Bitcoin by the promise of a decentralised pseudonymous currency designed to escape government control and meddling with the money supply, seemed to be silently wondering: “what’s the point of Bitcoin if we are recreating sudo-banks, as heavily regulated and subjects to the same attacks on our privacy as the incumbents?”.
The atmosphere tensed further when one local entrepreneur asked Jeremy what Circle would do if the SEC or the NSA were to ask them for access to their confidential customer information, and he replied straight away: “Of course we would provide it to them, it would be a criminal offence not to”.
Living the free market dream
He is obviously right but many early Bitcoin adopters may be forgiven to see this as a betrayal of their original dream. The opposition to fractional banking is one of the cornerstone of Bitcoin and the possibility to strip central banks from their control over the supply of money (and to indirectly bail out failed banks and bankers) naturally attracted libertarians in the early days. And they probably still form a large (and very vocal) part of the community.
To them, central regulation and consumer protection are counter-productive: the free market shall work efficiently to bankrupt bad services and select the best and most trustworthy companies without the need for a central and bureaucratic 3rd party protection, which necessarily comes at a crippling cost for the society as a whole (for instance, protecting consumer deposits in banks is a nice idea in theory, but creates a massive moral hazard whereas bankers and their lenders know they can take maximum risk because losses will be collectivised eventually).
In the same spirit, libertarians might argue that AML and KYC are only the byproducts of poorly designed regulations, which create a legion of “victimless crimes” (drugs, prostitution and gambling being the biggest one) that push otherwise well-functioning markets (a buyer wanting to exchange cash against weed with a seller, for example) into illegality, and therefore create a need for undue control and invasion of privacy. Similarly, the desire to evade tax might be imputed to overly complex and heavy tax laws. Adopting a money that can’t be centrally controlled and tracked could be an efficient way to force governments to eventually repel those illegitimate or inefficient laws, or so the thinking goes. Contrast that to Jeremy Allaire’s position and it becomes clear that a rift is appearing, splitting the Bitcoin community in two.
It’s painful to grow up
This situation is not surprising. As Marc Andreesen pointed out in his remarkable NYT Oped, Bitcoin’s development has actually been very similar to two other very disruptive technologies and platforms: the PC and the Internet, which also started as platforms for academics and hobbyists before entering the mainstream thanks to business-savvy executives who built easy access to attractive applications, and were ready to play nice with governments and regulators to protect their interests. That the same is happening with Bitcoin is merely an indication of its phenomenal success, and should be celebrated as such by the early adopters.
But the tension between the ongoing institutionalisation of Bitcoin and its fundamental disruptive nature will not disappear anytime soon, and its evolution will be fascinating to watch.
UPDATE: It looks like Kadhim Shubber from Coindesk had very similar impressions when listening to Jeremy, as he explains in an article published this morning.