We spoke to Dr Tom Robinson recently about the public perception of Bitcoin, and what the future may hold for the cyrptocurrency.
Dr Robinson works for Elliptic Vault, a highly secure, insured digital asset custody service that safeguards bitcoin and other blockchain assets using proven deep cold storage techniques.
We are seeing more and more news stories related to hacking and cybercrime in the last few years; as there is no way to recover lost or stolen bitcoins, does this scare off potential investors or users? Will there ever be a way to recover lost/stolen bitcoin?
TR: The irreversibility of bitcoin payments does represent a significant risk for those investing in or using this asset. It has to be thought of like physical cash or gold; once it’s gone it’s almost impossible to recover, which means that you have to be extremely careful about how you keep it safe. Our service provides this safekeeping as a service, utilising secure physical locations and military-strength encryption and with controls and procedures certified by KPMG to the same standard as a traditional custodian bank. We also offer the further safety net of insurance, with the first and most comprehensive cover available against loss.
As well as creating risk, the finality of bitcoin transfers is also an advantage to many. The certainty and finality of payments is appreciated by merchants who are often subject to chargeback fraud. If this irreversibility is a concern, the smart contract functionality of bitcoin can be used to provide escrow mechanisms such that payments are not final until approved by a trusted third party.
As for theft, the transparency of bitcoin makes it tricky to hide stolen funds. Every bitcoin transaction is recorded on a public ledger known as the blockchain. Identities are not recorded here, but by using advanced data analysis techniques such as those developed by Elliptic it is possible to assign identities and trace stolen funds through the bitcoin network. As these techniques become more effective it will become easier to locate and retrieve stolen funds.
Do you think that there will be a strong migration to bitcoin in the next five to ten years?
TR: Bitcoin has seen strong growth over the past few years. However, it has battled against negative perceptions, especially around security and criminal misuse. There are also challenges around explaining the benefits of the technology to the wider public - it is still mainly used by a tech-literate minority.
For these reasons it’s not clear whether we’ll all be paying for cups of coffee with bitcoin in 10 years’ time. However, we are confident that the “blockchain”, bitcoin's underlying technology, will be used to store and transfer a range of digital assets - everything from complex derivatives to the deeds to your house.
Do you believe that bitcoin is now being perceived by the public as less of a risk than in previous years?
TR: Yes, bitcoin now has a far more diversified and mature infrastructure surrounding it. Nearly $1 billion has now been pumped into digital currency start-ups and this is beginning to bear fruit in terms of services that businesses and consumers can feel confident using. These include fully insured custody solutions like Elliptic or even regulated bitcoin investment vehicles like GABI.
Is the perception of bitcoin vastly different between the public and the banks/government?
TR: Public awareness of bitcoin has grown as mainstream businesses such as Microsoft and overstock.com begin accepting bitcoin, and compelling use cases such as online tipping emerge. However it’s still true that the vast majority of people have little or no understanding of bitcoin and associate it primarily with criminal marketplaces such as the Silk Road.
Banks and governments, on the other hand, are becoming increasingly positive about bitcoin and the underlying blockchain architecture. Many financial institutions have conducted research and produced detailed reports on the disruptive nature of bitcoin, while others such as Barclays and UBS have demonstrated positive interest by creating accelerator programmes for bitcoin technology companies.
If banks were to adopt bitcoin, would this raise the trust/legitimacy in the currency?
TR: Yes, undoubtedly so. However, as much as we complain about our banks, one thing they do have, and which bitcoin currently lacks, is a trusted brand. We may never see mainstream adoption of digital currencies until banks package them up into consumer-friendly products. We may lose some of the power and decentralisation that bitcoin promised, but wider trust in the technology would certainly be boosted.
How much of a problem does the anonymity factor of bitcoins play to those looking to use/invest in the cryptocurrency?
TR: Firstly, I think it’s important to clarify that bitcoin is not anonymous. In fact, it’s more transparent than the cash and bank accounts we use today. Every bitcoin transaction is recorded on the public “blockchain” ledger and in many cases it is possible to determine who is transacting with whom. However, criminals can still try to launder their bitcoins, using services known as ‘mixers’ or ‘tumblers’, which attempt to obscure the transaction chain.
Businesses handling bitcoins or other digital currencies need to be confident that the bitcoins they are handling have been not been stolen or passed through a drug website, for example. Elliptic is creating a way to prove auditable chain of bitcoin ownership through its Elliptic AML product, which leverages graph analysis to map the blockchain to provide robust AML services in real time.
What future trends do you think we will see?
TR: We will see increased intervention from governments and financial regulators. The introduction of regulation for certain digital currency businesses should help to foster trust in bitcoin and increase user adoption. Compliance tools such as those being developed by Elliptic will be used to minimise the money laundering risks currently present with bitcoin.
More and more financial institutions will engage in cryptocurrency research and look to use the blockchain architecture in their own systems, to represent and manage a range of financial assets. Central banks may even adopt digital currency technologies - the Bank of England is currently engaged in research in this area and we could well eventually see a “BitPound”.