Press & Media

Does Bitcoin Actually Have Value?

By   Ryan Radloff 25th September 2018

CoinShares partnered with Financial News and MarketWatch to answer this question and more at the first entry in our Bitcoin: Believers & Sceptics breakfast series. Here’s what you missed:

From left: panel moderator Francesco Guerrera, Head of EMEA at Dow Jones Media Group; Ryan Radloff, CoinShares CEO and XBT Provider Director; David Hesketh, COO of Trading Hub; and Ned Naylor-Leyland, Portfolio Manager at Old Mutual Global Investors.

For this first discussion, CoinShares CEO and XBT Provider Director Ryan Radloff sat down with David Hesketh, COO of Trading Hub, and Ned Naylor-Leyland, Portfolio Manager at Old Mutual Global Investors. The panel was moderated by Francesco Guerrera, Head of EMEA at Dow Jones Media Group.

Below are highlights from their conversation.

FG: “Do we really need cryptocurrencies, what is the point of them? And if we do need them, what is their purpose?”

Ryan responded first with a personal anecdote, then noted:

“In 2008 we saw the largest defaults in the history of markets… The concept that unravelled from that… was the embedded element of trust which exists within our financial services system.”

As a byproduct of this historic event, he concluded:

“What digital assets are aiming to bring to the market is an ecosystem and a financial services base layer of money that doesn’t rely on trust.”

David Hesketh — the bearish counterweight to Ryan’s bull narrative — rebutted, describing what he considered to be only limited, fringe use cases for digital assets:

“I think some people need cryptocurrencies. I think people who need to avoid capital controls need them, I think people who need to do money laundering need them… Yes, I think it has value for those people who are on the margins of society who are trading illicit currencies or living in Venezuela where their currency is even more unpredictable than bitcoin.
The problem is [that] in the apocalypse I can’t wear a string of 1s and 0s from my bitcoin wallet.”

Lastly, Ned weighed in, offering a more neutral third perspective.

Linking this emerging asset class with the decentralised nature of gold and silver, he noted:

“The truth is a bit more nuanced. For me as a gold and silver investor, I’m very interested in the lack of need for trust in money.”

And went on to assert:

“Many people consider the commercial banking system or even governments to be as trustworthy as they make out to be.”

Given his more agnostic view of crypto assets and belief that this is an industry still in its infancy, he identified balance and an open mind as key to evaluating these assets as an investor:

“I definitely think that an asset allocation of 0 in bitcoin is not the right number… it’s not about being all in, but keeping a toe in this world and realising that there are big issues with trust whether we like it or not.”

We should note that Old Mutual was an early adopter of bitcoin and allocated a small percent of their gold and silver fund into a bitcoin tracking product in 2017 (publicly available information).

Inevitably, the conversation turned technical, as Ryan and David sparred over the infrastructure underpinning digital assets and how this compared to the current system.

In response to David’s assertion that digital assets are unique to the edges of society and limited to fringe use cases, Ryan countered:

“When you look at the distribution of bitcoin… certainly you have a high degree of bitcoin that is held in emerging markets. Yet when you look at the progression of where bitcoin is going, we very much see this as becoming an industrial-type asset that individuals save and transact in.”

He continued, asserting some of the benefits over today’s financial system:

“We believe [bitcoin] will out-compete the legacy system in terms of settlement finality, transactions and usability.”

David responded with the frequently-cited issue of information throughput limitations on the Bitcoin blockchain:

“I’m a bit confused how its going to outcompete when the throughput is so low and the solution to that is the layer two protocol, Lightning.
The solution to the fact that Bitcoin isn’t very good at recording transactions is not to use the blockchain for 99% of transactions which occur…
Either the blockchain is useful because it records all of the transactions or it is not.”

He concluded:

“Bitcoin eventually will have something superseded because the development rate of a despot… is much quicker than a consensus.”

Ryan used this opportunity to clarify an important distinction between value creation and information throughput:

“If you look at Bitcoin and how we [at CoinShares] view this evolving into the future, the only thing that matters from a decentralisation standpoint is the base layer of money. The creation of money needs to be hard. It needs to be super inefficient to create money. If you can print money out of thin air, that is a problem”.

He continued:

“As computational power gets stronger on certain devices we expect to see mining to continue to decentralise [over the next few years].”

Here, Ryan referenced increasing competition and declining prices in ASIC chip manufacturing as the driving forces behind this trend. We expect this to mean that in the future it will theoretically be possible to have mining nodes in mobile phones that are participating in a large, international mining pool.

“The amount of energy that this network is consuming is a proxy, I call it, to the dissatisfaction of the legacy system.”

For more information on the cost of Bitcoin mining — and misconceptions around its energy consumption — check out this June 2018 report from the CoinShares research desk on the Bitcoin mining network.

Ryan then challenged David’s claim that digital assets simply cannot match (let alone outpace) traditional financial infrastructure by pointing out the opportunity that is emerging with tokenized securities, which could drive improved access for global capital into faster, more liquid markets:

“Where cryptocurrencies outcompete is when you start emerging into not just money, but other assets as well. The settlement finality that exists on a 10 to 60 minute basis that you have in crypto-assets — a T + 0 settlement — will be much more important as we see other assets start to emerge. So we will see security tokens and all sorts of other types of tokens on top of Bitcoin and on top of Ethereum that offer T + 0 settlement as opposed to T + 2, or credit cards, which are effectively T + 30. We’ll see that usher in an exciting new wave of assets.”

This last point links back to a theme that CoinShares, as an organisation, believes is important to reiterate:

Yes — the base layer of Bitcoin is slow, but this could also be its greatest strength.

In our opinion, the base layer of money should be slow moving, difficult to change, and of paramount security. Once that foundation is secure, we can build faster, lighter networks on top that take advantage of this infrastructure.

We are on the cusp of an inflection point with the advent of Security Tokens. As regulated digital equities, bonds, etc., these could unlock significant access to capital inflows for businesses that may never reach the size to be acquired or IPO; but nevertheless have real, sustainable businesses with capital needs.

Building these digital securities on top of the most secure and decentralised networks that collectively, as a society, we have ever produced will remove many of the dangers caused by single points of failure.

As Ryan concluded, “money predates any social construct or government that we know of.” Organizationally, we believe this construct is most effective when it doesn’t require trust.

The Bitcoin: Believers & Sceptics breakfast series aims to encourage debate and educate financial industry participants around the progress that is being made within the digital asset and blockchain ecosystems.

By partnering with Financial News and the Dow Jones Media Group, our goal is to assemble trusted voices from both the crypto-asset and legacy finance sectors in order to challenge deeply-held beliefs around money and the current financial system that is, in our opinion, largely built on trust.

We will be hosting the second breakfast in this series later in the quarter. If you are interested in attending, follow @CoinSharesCo and @xbtprovider on Twitter for the most up-to-date information and details on how to RSVP.


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