As eventful as 2020 was, 2021 has already been quite a doozy.<\/p>\n
Indeed, the year has started off with a bang: in the United States, riots at the federal Capitol building seemed to set off a series of historic events. Privately-owned social media companies have been the subject of much discourse after making the decision to ban the President from using their platforms; at the same time, public concerns about how social media companies are using private data are growing increasingly strong.<\/p>\n
Additionally, though we are not even three weeks into the year, Bitcoin has already reached new all-time highs, bringing renewed attention and enthusiasm to the alternative asset space as a whole.<\/p>\n
Recently, Finance Magnates sat down with James Butterfill, Investment Strategist at UK-based cryptocurrency investment firm CoinShares, to discuss Bitcoin, centralization, and the future of centralized power.<\/p>\n
The following is an excerpt that has been edited for clarity and length. To hear Finance Magnates’ full interview with James Butterfill, visit us on Soundcloud or Youtube.<\/em><\/p>\n <\/p>\n James told us that one of the most important forces that has brought Bitcoin to this moment is increased accessibility.<\/p>\n \u201cIf you think of the ways that you access Bitcoin, it\u2019s different in some ways from the way that you access other financial instruments,\u201d James said. \u201cI\u2019m talking about investors specifically here. If you wanted to access cash, you\u2019d open up a bank account. If you wanted to access Bitcoin, you have to get a digital wallet.\u201d<\/p>\n If you have the necessary technical chops, \u201cthat\u2019s quite easy,\u201d James went on. However, \u201cfor many people, I think that\u2019s still a challenge, whereas opening a bank account wouldn\u2019t be.\u201d<\/p>\n Additionally, \u201cin the financial world, people operate within a regulatory framework, because they have to,\u201d he said. \u201cTherefore, when they buy financial instruments, they have to be operating within that regulatory framework as well.\u201d<\/p>\n As a result, \u201cyou need a certain level of regulatory acceptance or at least financial products that can exist within established regulatory frameworks.\u201d<\/p>\n James explained that this is where CoinShares comes into play. \u201cCoinShares was the first in the world to create a Bitcoin exchange-traded product (ETP) back in 2015,\u201d he said. \u201cPrior to that, there was no real way for investors to add Bitcoin to their portfolios, particularly, something like a pension.\u201d<\/p>\n These products are aimed at retail and institutional investors who want the benefits of Bitcoin without the hassle of being its sole keeper: \u201cthere are challenges with Bitcoin when you buy it,\u201d James said.<\/p>\n For example, who will keep custody over your coins? Of course, there is the saying: \u201cnot your keys, not your Bitcoin.\u201d At the same time, though, \u201cif you stick your BTC on a USB stick and keep it at home, is that safe?\u201d<\/p>\n Additionally, James explained that the kinds of logistical challenges that Bitcoin is facing today were characteristic of the gold investing landscape in the past. \u201c20 years ago, if you were an investor that wanted to put gold in your portfolio, you would have to arrange for delivery, custody (putting it in some sort of vault), insurance, a whole range of different things.\u201d<\/p>\n Today, the story is quite different: \u201cETFs and other kinds of gold-based exchange-traded products were created to make that whole process really simple.\u201d<\/p>\n This is what CoinShares does: \u201cwe take care of a robust custody process and insurance, and make it very easy to buy and sell. [I think of this] as democratization, we\u2019re not changing the underlying asset at all, we\u2019re just making it accessible to a wider range of people.\u201d<\/p>\n And Bitcoin does seem to be becoming even more attractive to a wider range of people.<\/p>\n Since the start of 2021, the price of Bitcoin has risen considerably. At press time, the price was sitting around $37,000; earlier in the year, though, BTC had risen as high as $41,650.<\/p>\n Over the course of the same time period, the public discourse around centralized control of the spread of information has been growing increasingly intense. An update to WhatsApp\u2019s terms of service caused waves of users to abandon the platform in favor of more privacy-focused apps; a nearly unilateral social media ban on US President Donald Trump also has citizens on both sides of the aisle concerned about centralization of power.<\/p>\n Part of this heightened discussion about privacy, centralization, and control may have fed into the growing popularity of Bitcoin. Twitter CEO, Jack Dorsey specifically named Bitcoin\u2019s decentralization model in a tweet about what he hopes the future of the internet will look like.<\/p>\n — jack (@jack) January 14, 2021<\/p>\n<\/blockquote>\n While this is certainly a big moment for Bitcoin, James pointed out that the increased price, usage and attention on Bitcoin could \u201cpose some real challenges\u201d for the asset in the future.<\/p>\n \u201cThere are various government initiatives that compete with Bitcoin, such as central bank digital currencies, and then there\u2019s the Bitcoin protocol itself,\u201d James said. \u201cI do see that there could be a potential conflict between the two.\u201d<\/p>\n \u201cUltimately, Bitcoin is not centralized, it\u2019s decentralized,\u201d he continued. Therefore, as Bitcoin continues to grow, it could pose an increasing challenge to the centralized power that belongs to the world\u2019s governments.<\/p>\n \u201cI recently read that the US government was thinking about censoring certain Bitcoin transactions,\u201d James said. \u201cWith my knowledge of the Bitcoin network, I know that\u2019s not possible, but that was a good example of how the government might want to control things around Bitcoin, but it\u2019s very challenging to do that.\u201d<\/p>\n \u201cThis extrapolates over many different concepts across the economy and society: another really good example is what the US Federal Reserve is doing, as well as the Bank of England and the European Central Bank (ECB). They\u2019re printing a lot of money,\u201d he explained.<\/p>\n \u201cYou\u2019re reliant on individuals at the ECB, and the Bank of England, and the Fed to be very prudent about how they print money. If they\u2019re too loose with their monetary printing, it could cause inflation and other socio-economic problems.\u201d<\/p>\n \u201cSome people see Bitcoin as the answer: people think of it as something that has a fixed supply, something that is immutable, something that doesn\u2019t allow a human to step in and alter and cause problems with it.\u201d<\/p>\n Therefore, \u201cI think what Jack Dorsey highlighted is perhaps undertones of anti-establishmentarianism, to some extent.\u201d<\/p>\n \u201cHowever, I don\u2019t think that Bitcoin necessarily \u2018does that,\u2019\u201d James said. \u201cIt\u2019s a bit like gold in the 1930s. It highlighted, in a way, the profligacy of the US government at the time. Gold was presented as an alternative, and as a result, they stopped it, regulations prevented it\u201d from taking further hold.<\/p>\n Indeed, in 1933, US President Franklin D. Roosevelt signed Executive Order 6102. The order “forb[ade] the hoarding of gold coin, gold bullion, and gold certificates within the continental United States.”<\/p>\n Nowadays, James believes that this kind of ban is unlikely for something like Bitcoin: \u201ca ban probably isn\u2019t the way forward,” he said.<\/p>\n For example, \u201cif you look at China,\u201d which banned domestic cryptocurrency exchanges several years ago, \u201cfour percent of Bitcoin trading turnover comes from China.\u201d<\/p>\n However, a possible big-government effort to quell the growing power of Bitcoin could culminate in the creation of many central bank digital currencies (CBDCs).<\/p>\n \u201cMany governments are talking about this now, about 80 percent of central banks around the world are considering one,\u201d James said. At the moment, \u201cthere is live testing in places like Sweden, and the Bahamas\u00a0and China.\u201d<\/p>\n And it is possible that the technology that was originally used to build decentralized currencies could be used to create digital currency systems that are even more centralized than the fiat currency systems we have now.<\/p>\n \u201cCBDCs come with their own privacy issues,\u201d Butterfill said. \u201cIf I buy something with Bitcoin, people don\u2019t know it\u2019s me. It\u2019s anonymous. Whereas, if I buy something with a CBDC, then the government would know exactly what, where, and when I bought.\u201d<\/p>\n \u201cThat comes with lots of privacy concerns,\u201d he said. \u201cIn 2021 and 2022, there\u2019s going to be a lot wrangling about just how much the government really needs to know about you, and who controls that information: should it be something that\u2019s completely decentralized, and therefore uninfluenced by some sort of rather jaded political issues?\u201d<\/p>\n \u201cI don\u2019t have all the answers, but I think that Bitcoin–or at least the blockchain-based concept of distributed ledger technology (DLT)–certainly has a really important part to play in dealing with that.\u201d<\/p>\n It is particularly important to be discussing these issues now because of the events of last year.<\/p>\n James explained that previously, there have been some CBDC concepts that were explored by governments and then eventually dropped: \u201cin Sweden, an e-Krona initiative started up in Sweden and then abandoned because there wasn\u2019t enough takeup.\u201d<\/p>\n \u201cIf there wasn\u2019t COVID-19, the CBDC concept\u201d could have been abandoned elsewhere in the world, too, James said. \u201cWhat we\u2019ve seen during COVID-19 is a massive move toward cashless societies, which has really kickstarted a lot of central banks into think about CBDCs. They\u2019re much more committed to it than they were in the past.\u201d<\/p>\n Of course, \u201cthere are a lot of real merits of having a CBDC,\u201d James said. \u201cBut you also need a broad acceptance\u201d of the concept in order for it to work properly.<\/p>\n And, as it happens, \u201cas every ticks by, Bitcoin is rapidly gaining broader acceptance, whereas CBDCs are still locked up in a lot of bureaucracy and structuring. There\u2019s a long day before they\u2019re going to be released.\u201d<\/p>\n Meanwhile, \u201cevery day that Bitcoin\u2019s popularity is increasing, CBDCs are losing that race.\u201d<\/p>\nBitcoin Accessibility and Acceptance<\/h2>\n
Bitcoin Today Is a Lot like What Gold Was Decades Ago<\/h2>\n
Amidst Conversations on Centralization and Control, Bitcoin Is Having a Moment<\/h2>\n
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As Bitcoin\u2019s Popularity Grows, So Too Do Its Challenges<\/h2>\n
Bitcoin\u2019s Scarcity Highlights \u201cthe Profligacy of the US Government\u201d<\/h2>\n
Bitcoin and CBDCs<\/h2>\n
\u201cEvery Day That Bitcoin\u2019s Popularity Is Increasing, Cbdcs Are Losing That Race.\u201d<\/h2>\n