The FT has just released another article that endorses the familiar mantra of “Blockchain Good Bitcoin Bad”. This should come as no surprise as this is becoming a familiar refrain from the powers that be. Now big financial institutions’ concern about losing out has shifted the terms of the discussion, which moves this week to the World Economic Forum in Davos, which is holding its first session on “the crypto-asset bubble.”
You can watch the session live when it starts tomorrow at 17:00 GMT (25th January). https://www.weforum.org/events/world-economic-forum-annual-meeting-2018/sessions/the-crypto-asset-bubble
They are concerned (correctly) that stock exchanges and clearing houses could become irrelevant, while big global foreign exchange trading houses, such as JPMorgan and Citigroup, will lose out as more and more of us become our own banks. To date the debate has pitted anti-establishment believers in the technology’s power to sweep away many of the faults they see in today’s financial system against top financial leaders who constantly use scare stories about dirty money and tulip bubbles.
Across established institutions like the big banks, the International Monetary Fund (IMF), and the Federal Reserve, there is a pattern of thinking that goes like this: Bitcoin is bad, but blockchain technology is good. JPMorgan CEO Jamie Dimon is perhaps the best example of the type: He thinks bitcoin investors are stupid and that the digital blockchain money “will be closed”—yet his company is developing its own blockchain called Quorum, and it backs a bitcoin competitor called ethereum.
Jamie Dimon, has recently said he regrets calling bitcoin a fraud, but when asked about Bitcoin while on CNBC at the Davos summit Jaime Dimon could only manage to give his stock answer:
"I'm not going to say anymore," Jamie Dimon says of bitcoin. "You should stop talking about it and go back to something relevant." pic.twitter.com/94KcnH7Q7u
— CNBC (@CNBC) January 24, 2018
Even intellectuals outside of the mainstream, like best-selling author James Rickards, buy into blockchain technology but don’t like bitcoin.
“I separate the blockchain technology from the cryptocurrency bitcoin. Blockchain technology has a very bright future. … That’s a very cool technology. Bitcoin looks like a bubble or a sandbox for criminals.”
In reality, bitcoin is used for only a fraction of all payments, including criminal activity, which is mostly done in cash or goes through the banking system—hence, the $2 billion fine JPMorgan had to pay because it failed to report the suspicious activity of Bernie Madoff. That is only one of many, many examples of big banks paying billions in fines because they break the rules.
The establishment hates bitcoin because it cannot control it.
Professor Saifedean Ammous, recently wrote in a research paper on blockchain technology.
“The Federal Reserve chair has said it has no [technical] authority to regulate bitcoin. Transactions will clear if valid, and will not clear if not valid, and there is nothing that regulators can do to overturn the consensus of the network processing power,”
The president of the European Central Bank, Mario Draghi recently said:
“It would actually not be in our powers to prohibit and regulate [bitcoin],”
Bitcoin is sufficiently decentralized such that it cannot be shut down as Dimon would like, or regulated as Draghi says, then there are only two options left.
The first one is to talk it down.
Dimon made the this remark while speaking at the annual meeting of the Institute of International Finance:
“But what is the use case for bitcoin? You’re in Venezuela, North Korea, you’re a criminal. Great product!”
Larry Fink, chairman and chief executive of BlackRock, the world’s largest asset manager, likened the price of bitcoin to an “index of money laundering”.
Marco Santori, head of the fintech practice at Cooley, a New York law firm, who described alleged links between bitcoin and criminal activity as a “demonstrably false narrative, long disproven, driven mostly by ignorance and wilful blindness, held by financial intermediaries losing their grasp on the market”.
This approach has been ineffective, as bitcoin is up 1,000 percent over the last twelve months, roughly 48 times better than JPMorgan stock at 11 percent. However this strategy may have the opposite effect, as more people become curious about bitcoin even if the news coverage is negative.
The other strategy is to ignore bitcoin and focus on different blockchain and fintech systems, which was is becoming the obvious choice. The most common refrain now amongst bankers in particular is that blockchain is good and Bitcoin is bad. What they fail to realise is that to date the most successful application of blockchain technology by FAR is Bitcoin.
However, by funding and promoting other blockchain-type solutions, big companies and governments can divert resources away from bitcoin in an effort to slow its growth. This is partly why bitcoin only has 54.5 percent of the total market capitalization of all crypto assets. As for their initiatives, they remain little more than words for now, according to a survey done by Ammous in late 2016.
“The only commercially successful application of blockchain technology so far is digital cash, and in particular, bitcoin.”