Having monitored developments in the world of bitcoin for a year, the Bank of England has now delivered its verdict on a currency that was only created five years ago.
When I spoke exclusively to the Bank’s Chief Cashier, Victoria Cleland, she was keen to say the Bank doesn’t want to dismiss bitcoin. It is watching how it develops and wants to be seen to be taking it seriously.
Perhaps she has a vested interest in keeping an eye on this rival currency. As Chief Cashier, her signature will start appearing on every new bank note from next Spring – a flourish that won’t be required if we all switch to digital.
But I wonder if the Bank is still not taking bitcoin seriously enough.
It’s keen to emphasise just how small demand for the currency is right now. It calculates there are perhaps just 300 bitcoin transactions in the UK every day and only 20,000 people who have a digital wallet.
Victoria Cleland told me: “At the moment, there isn’t much evidence of the general person in the street really wanting to move to bitcoin”.
Then again, things on the internet have a habit of starting small and getting very big very fast.
Nicolas Cary of the BlockChain website points to the experience of PayPal, saying they “went from doing zero … transactions to doing a couple of million to doing 10 million to doing 100 million. Bitcoin now does 200-300 million dollars-worth of transactions a day, and the speed at which it got to that point is an order of magnitude faster than PayPal.”
He believes bitcoin could match VISA and Mastercard in size – possibly within just a few years.
But even if the Bank is right about bitcoin’s limited appeal in the UK, I suspect there are two other groups that might drive its usage – two groups at the opposite ends of the economic spectrum.
One is the super-rich. Many of them are exactly the sort of techie geeks who love the idea of bitcoin – including some who have made millions through investing in bitcoin itself. One such billionaire told me he’d consider holding 10 per cent of his wealth in bitcoin in future.
If that commitment gets repeated by other wealthy entrepreneurs, then bitcoin will become an important part of the financial infrastructure, and fast. It’s not the volume of bitcoin transactions that will matter but their total worth.
Alongside the super-rich will be the super poor.
Billions of people on the planet have no access to bank accounts and, frankly, the banking system has shown no interest in them.
Already, mobile phone technology has moved in to fill the gap – by creating a whole new payment system that allows people to move money by text. The M-Pesa system in Kenya is the most developed example. In that country, 12 million people use a text message system developed by Vodafone to make transfers – that’s more than a quarter of the population.
Here in the UK, bitcoin allows anyone with a smartphone to effectively operate their own bank account, moving money for almost nothing.
You might not have a bank branch in a hundred miles, you might not trust the banks anyway, and you might not trust your nation’s currency either. Bitcoin will allow you to circumvent them.
As the Bank says, one of the main attractions of the currency is that it “minimises the degree of trust participants need to place in any third party”. It also, cuts down on commission fees charged to people trying to send money home.
So is bitcoin the future?
The internet is littered with next big things that disappeared back into the ether. Think MySpace or Friends Reunited. But the idea doesn’t tend to die, it evolves. With even the Bank calling bitcoin “the internet of finance”, it seems this idea may be here to stay.”