As eventful as 2020 was, 2021 has already been quite a doozy.
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.
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.
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.
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.
Finance Magnates · FMTV: Bitcoin, Centralization, & Control with CoinShares' James Butterfill
Bitcoin Accessibility and Acceptance
James told us that one of the most important forces that has brought Bitcoin to this moment is increased accessibility.
“If you think of the ways that you access Bitcoin, it’s different in some ways from the way that you access other financial instruments,” James said. “I’m talking about investors specifically here. If you wanted to access cash, you’d open up a bank account. If you wanted to access Bitcoin, you have to get a digital wallet.”
If you have the necessary technical chops, “that’s quite easy,” James went on. However, “for many people, I think that’s still a challenge, whereas opening a bank account wouldn’t be.”
Additionally, “in the financial world, people operate within a regulatory framework, because they have to,” he said. “Therefore, when they buy financial instruments, they have to be operating within that regulatory framework as well.”
As a result, “you need a certain level of regulatory acceptance or at least financial products that can exist within established regulatory frameworks.”
James explained that this is where CoinShares comes into play. “CoinShares was the first in the world to create a Bitcoin exchange-traded product (ETP) back in 2015,” he said. “Prior to that, there was no real way for investors to add Bitcoin to their portfolios, particularly, something like a pension.”
Bitcoin Today Is a Lot like What Gold Was Decades Ago
These products are aimed at retail and institutional investors who want the benefits of Bitcoin without the hassle of being its sole keeper: “there are challenges with Bitcoin when you buy it,” James said.
For example, who will keep custody over your coins? Of course, there is the saying: “not your keys, not your Bitcoin.” At the same time, though, “if you stick your BTC on a USB stick and keep it at home, is that safe?”
Additionally, James explained that the kinds of logistical challenges that Bitcoin is facing today were characteristic of the gold investing landscape in the past. “20 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.”
Today, the story is quite different: “ETFs and other kinds of gold-based exchange-traded products were created to make that whole process really simple.”
This is what CoinShares does: “we 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’re not changing the underlying asset at all, we’re just making it accessible to a wider range of people.”
Amidst Conversations on Centralization and Control, Bitcoin Is Having a Moment
And Bitcoin does seem to be becoming even more attractive to a wider range of people.
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.
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’s 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.
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’s decentralization model in a tweet about what he hopes the future of the internet will look like.
As Bitcoin’s Popularity Grows, So Too Do Its Challenges
While this is certainly a big moment for Bitcoin, James pointed out that the increased price, usage and attention on Bitcoin could “pose some real challenges” for the asset in the future.
“There are various government initiatives that compete with Bitcoin, such as central bank digital currencies, and then there’s the Bitcoin protocol itself,” James said. “I do see that there could be a potential conflict between the two.”
“Ultimately, Bitcoin is not centralized, it’s decentralized,” he continued. Therefore, as Bitcoin continues to grow, it could pose an increasing challenge to the centralized power that belongs to the world’s governments.
“I recently read that the US government was thinking about censoring certain Bitcoin transactions,” James said. “With my knowledge of the Bitcoin network, I know that’s not possible, but that was a good example of how the government might want to control things around Bitcoin, but it’s very challenging to do that.”
Bitcoin’s Scarcity Highlights “the Profligacy of the US Government”
“This 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’re printing a lot of money,” he explained.
“You’re 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’re too loose with their monetary printing, it could cause inflation and other socio-economic problems.”
“Some people see Bitcoin as the answer: people think of it as something that has a fixed supply, something that is immutable, something that doesn’t allow a human to step in and alter and cause problems with it.”
Therefore, “I think what Jack Dorsey highlighted is perhaps undertones of anti-establishmentarianism, to some extent.”
“However, I don’t think that Bitcoin necessarily ‘does that,’” James said. “It’s 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” from taking further hold.
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."
Bitcoin and CBDCs
Nowadays, James believes that this kind of ban is unlikely for something like Bitcoin: “a ban probably isn’t the way forward," he said.
For example, “if you look at China,” which banned domestic cryptocurrency exchanges several years ago, “four percent of Bitcoin trading turnover comes from China.”
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).
“Many governments are talking about this now, about 80 percent of central banks around the world are considering one,” James said. At the moment, “there is live testing in places like Sweden, and the Bahamas and China.”
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.
“CBDCs come with their own privacy issues,” Butterfill said. “If I buy something with Bitcoin, people don’t know it’s me. It’s anonymous. Whereas, if I buy something with a CBDC, then the government would know exactly what, where, and when I bought.”
“That comes with lots of privacy concerns,” he said. “In 2021 and 2022, there’s 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’s completely decentralized, and therefore uninfluenced by some sort of rather jaded political issues?”
“I don’t 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.”
“Every Day That Bitcoin’s Popularity Is Increasing, Cbdcs Are Losing That Race.”
It is particularly important to be discussing these issues now because of the events of last year.
James explained that previously, there have been some CBDC concepts that were explored by governments and then eventually dropped: “in Sweden, an e-Krona initiative started up in Sweden, but eventually, the conclusion at the time was that DLT was not at a mature enough phase to pursue further.”
“If there wasn’t COVID-19, the CBDC concept” could have been abandoned elsewhere in the world, too, James said. “What we’ve 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’re much more committed to it than they were in the past.”
Of course, “there are a lot of real merits of having a CBDC,” James said. “But you also need a broad acceptance” of the concept in order for it to work properly.
And, as it happens, “as every ticks by, Bitcoin is rapidly gaining broader acceptance, whereas CBDCs are still locked up in a lot of bureaucracy and structuring. There’s a long day before they’re going to be released.”
Meanwhile, “every day that Bitcoin’s popularity is increasing, CBDCs are losing that race.”
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.
