Tales from the Crypt: Bitcoin holders trust ‘Internet magic money’ more than conventional currency

By Henry Adefope

There’s no going back on Blockchain and the crypto’s it’s brought to life…for the biggest institutions at least.  We wrote a blog recently stating our excitement about the enterprising banks and investment managers going for ‘digital’ gold with cryptocurrencies on a business to business level. We were clear that this ‘internet magic money’ was too nascent to be put in the hands of retail investors, but time, may have other ideas. Wikipedia, Microsoft and AT&T already accept payment in Bitcoin. These companies are no slouches.

Meanwhile, many restaurants and coffee chains across the UK also accept bitcoin as a way of buying a gift card, including Wagamama, Pizza Express, Caffe Nero and Brasserie Blanc. Even the biggest high street names, Tesco, Sainsbury’s, Marks & Spencer, John Lewis, Asda and Argos accept gift cards via Bitpay.

It appears that bitcoin is sneaking into the payments sector, gaming, the music industry (Apple, Amazon, Google Play, Uber and Spotify), and particularly the gambling sector. Did you know that Bitcoin is now the most popular way to bet on the Super Bowl?!

There was an interesting theory put to me by an expert recently. Crypto is risky, volatile, and anonymised – something not lost on the media at large, but also not lost on the individuals taking an interest in it.

To put it another way, people physically buying cryptocurrencies like bitcoin, love this fact! The mainstream media’s concerns about the extreme volatility, rather ironically, are a big part of its appeal to holders and speculators. It’s not a negative. A negative to these types of retail buyers and speculators is the rate on their savings accounts and cash ISAs have been reducing for the past year.

Yes, cryptocurrencies like Bitcoin and Ethereum are fanaticisms, that the fans have, and will continue ‘willing’ into reality. Just like Take That, Boyzone, or One Direction fans made their boy bands become commercial commodities. These boybands were useful to the subculture of young girls (and boys). Many trusted them more than their own parents.

Bitcoin, and Ethereum, the crypto’s referenced most often, are in similar territory, mainly down to the fact their uses have been well-ascertained or established. For example, many see it as an asset class for those seeking a long-term store of value. US equity analyst Vincent Ventures recently wrote that Bitcoin may never be as easy to use as a transactional currency, but it is quite plausible as a reserve asset.

Other ‘coins’ will come more into fashion, and institutional attention as soon as their uses are established too.  For example, tether (a stablecoin - stay with me) is becoming very useful for Bitcoin holders who prefer a bit less volatility (pegged to US dollar).

All these coins aren’t even the headline point, it’s the Blockchain technology that underscores all of this.

It goes back to this question of trust. Humans fundamentally do not trust other humans, in transactions between one party, and the next. As the original founder of Bitcoin said, ‘The root problem with conventional currency is all the trust that's required to make it work’.

Blockchain needs none of that. Its system of registry and encryption is its innovation. You can get cheated, manipulated, or even robbed, by transacting with gold or cash conventionally. It’s not the case with Blockchain. This means something, to everyone!

Bitcoin adopters entrust in a system that is designed to not trust or be trusted by anyone, by giving everyone a perfect record of all accounts and transactions.

Blockchain has allowed something like Bitcoin, to become the reserve currency among some demographics. And it is a must for asset owners and managers, to understand its ‘utility’, relatively soon, before the market and infrastructure matures and seeps into different areas of finance (as seems to be the case now…).

This blockchain tech is still in its infancy, make no mistake about that. But for the biggest financial institutions, missing the boat on this one could be painful, whether this be the opportunity cost of new clientele, or new forms of transaction technology in the medium term.

Over time - companies will be accepting bitcoin

While not a lot of places accept Bitcoin directly, it’s clear to see that the adoption of Bitcoin as an indirect payment method is increasing with each year.

Speculation was the start of it... institutional adoption and facilitation is the nexus we are seeing now, and retail payment adoption is not as far away as we thought.

The timeline is open to interpretation, though it does seem difficult to square institutional adoption of bitcoin with its absurd carbon footprint. Business and finance are certainly moving in the opposite direction of bitcoin when it comes to environmental stewardship.

We’ll see how that plays out. Nevertheless, greater visibility of Blockchain technology, and its uses, is afoot.