Bitcoin is uncontrolled and uncontrollable and is going through the classic Ghandian four phases – “First they ignore you, then they laugh at you, then they fight you, then you win”. We are sort of in phase 3, except many governments and big companies want to benefit from Bitcoin going mainstream, so there is no clear united opposition to Bitcoin. That was true for Ghandi as well – many in Britain also thought that India should be independent.
Whether it is Bitcoin or some other cybercurrency or some combination of cybercurrencies is not the issue. All will fuel and be fuelled by a change in thinking. Nor will Fiat currency go away, any more than newspapers, TV and physical stores went away. The past and the future are always with us, even if unevenly distributed.
What is bigger than any single cyber currency is that millions of people are starting to think about what money is from first principles. The basic thought is that money is only worth what we all agree it is worth. Once that thought gets established in the minds of millions of people, the toothpaste is out of the tube and you won’t get it back in.
That thinking is fuelled by Blockchain, Bitcoin and Cybercurrency for sure. These innovations force us to think outside the box. The momentum behind Bitcoin creates lots of conversations where mainstream people ask early adopter to tell them about Bitcoin. That conversation may end in people just dismissing it as crazy, but enough people do start thinking a bit differently and then the next next time they look at Bitcoin they have a more open mind.
It is not just Bitcoin that changes how we think about money:
- Consumer to consumer payments. Whether it is Venmo or Zelle or Square Cash or any number of alternatives, the idea that I can send cash as easily as email gets established in people’s mind. This has nothing to do with Blockchain, Bitcoin and Cybercurrency, but it does change thinking. It is then a short mental hop from sending cash in USD to sending cash in Bitcoin.
- Initiatives to end Fractional Reserve Banking in many countries. It has already happened in Iceland, is going to referendum in Switzerland (where it is called Vollgeld) and has serious establishment figures (such as Lord Adair Turner and Martin Wolf) backing the idea in the UK (where it goes by the name Positive Money). The UK based Positive Money is also getting attention in other English-speaking countries like USA and NZ. The schemes vary in detail and obviously get vociferous and well-reasoned opposition from the banking lobby, but what is interesting is that when the schemes are explained to mainstream consumers the most common reaction is “that is how I thought banking worked”. It is the idea of Fractional Reserve Banking – how the world works today – that seems weird to ordinary people.
- Fintech regulation. When companies can get regulated for all the different functions of a bank (see Swiss Fintech License as an example), you start to ask “what is a bank that is different from a licensed Fintech?” The answer is something along the lines of “an institution that is allowed to do Fractional Reserve Banking”.
- Local currency use cases. See this post about Colu. This is a simple mental transition. The currency has a familiar name – Pound or Dollar for example – and pegged convertibility to your Fiat currency. Yet it is not Fiat currency as we normally think about it.
- Heavy handed government action. Whether it is demonetisation in India or the Cyprus government taking money from your bank account, the idea that your money is your money becomes challenged in the Fiat currency realm. That makes people motivated to look for alternatives.
- Doubts about silver and gold. Taking the long historical view, Fiat currency may be viewed as a blip. That is the view of many who like Silver and Gold. Yet there are doubts also about these markets. Is the Silver market manipulated. Is some physical gold really Tungsten with gold plate?
Crossing the Chasm inspired lots of entrepreneurs. It was written as a guide for teams planning the crossing. What is fascinating about Bitcoin, is that there is no team doing that planning. There is only what we often call community, but which could also be described as warring neighbours at times. That is a strength in my opinion. It makes Bitcoin AntiFragile (another book that has inspired so many).
Bernard Lunn is a Fintech deal-maker, investor and thought-leader.
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