Waiting for the phoenix
On 14 January 2016 Mike Hearn, a former Bitcoin proponent, declared that Bitcoin “has failed”. Since then we’ve seen headlines such as “R.I.P. Bitcoin – it’s time to move on” (LinkedIn) and “Bitcoin: is the crypto-currency doomed?” (BBC News).
What does this mean for those outside the tech sphere? Were countries such as Bolivia and Thailand right to ban Bitcoin? Did finance sector cynics correctly categorise all Bitcoin-related activity as the domain of drug dealers and Ponzi schemers?
In relation to the final question, there’s no getting away from the fact that users of the dark web embraced Bitcoin enthusiastically from the outset. The Silk Road website pioneered online drug sales funded by Bitcoin – by-products of which were global testing of this new method of transacting and new challenges for law enforcement agencies.
So if the Bitcoin bubble has burst, should this be written off as a failed experiment by dope-smoking geeks?
It all depends on your view of Bitcoin and what it represents. Bitcoin, which is just one of many virtual currencies, may have hit a stumbling block (and Mike Hearn’s pronouncement on this is by no means generally accepted). However, it has been comprehensively scrutinised over the past 7 years and has inspired the creation of a vast array of cryptocurrency and blockchain products. There is nothing inherently bad or immoral about cryptocurrencies such as Bitcoin – as with cash and commodities it all depends on what you do with them. From a lawyer’s perspective, the interesting point is not Bitcoin but the lightbulb moment behind it and the blockchain mechanism which underpins it.
In the past few years we have seen a huge transition in attitudes, with the development of a whole new transactional language. Immense hostility towards anything related to cryptocurrencies has given way to recognition that the concepts and technology on which they rely could lead to a paradigm shift in the mechanics of finance.
International finance houses and governments are now rushing to get in on the action. In December 2015 we saw the former chairman of Barclays, Sir David Walker, join SETL, “months after the business went live with a system designed to use the technology underpinning bitcoin” (The Times). 20 January 2016 saw the publication of a report on distributed ledger technology by Sir Mark Walport, the British Government’s Chief Scientific Adviser, which includes the following in its Foreword:
“The progress of mankind is marked by the rise of new technologies and the human ingenuity they unlock.
In distributed ledger technology, we may be witnessing one of those potential explosions of creative potential that catalyse exceptional levels of innovation. The technology could prove to have the capacity to deliver a new kind of trust to a wide range of services. As we have seen open data revolutionise the citizen’s relationship with the state, so may the visibility in these technologies reform our financial markets, supply chains, consumer and business-to-business services, and publicly-held registers.” http://bit.ly/1WreVPL
The hyperbole is impressive but what should we make of it? And does this have any relevance to the man on the street?
Any dramatically different innovation is going to face knockbacks and must evolve. Regardless of whether or not Bitcoin as we now know it exists in the future, the underlying technology gives rise to extraordinary possibilities. To give just one example, smart contracts - “computer programs that can automatically execute the terms of a contract” (fastcolabs.com http://bit.ly/1spAQ9a ) - could revolutionise business. Without the approach to decentralisation of transactions that Bitcoin has introduced to the masses, work on smart contracts would not be anywhere near as advanced as it is today. We may well see a phoenix arising from these ashes.
Advocate Vicky Milner, founder of Callington Chambers, is a Jersey employment law specialist with an interest in technology law developments.