Bitcoin, blockchain and coffee
Understanding the new economy of currency
One of my favourite trivia questions is: “Who was the first recipient of Bitcoin?” The answer of course is Hal Finney, who received 10 Bitcoins from Satoshi Nakamoto on 12 January 2009.
The cryptocurrency is now more than a decade old. But the concept of Bitcoin was made public a little earlier. On 31 October 2008, an unknown person or group of people writing under the name Satoshi Sakamoto published a white paper on a cryptography mailing list. Bitcoin: A Peer-to-Peer Electronic Cash System, explained in detail the operation of the first ever cryptocurrency and changed the way people think about money. But since then, Bitcoin has had a patchy reputation at best.
Initially, it was viewed with suspicion – a highly technical, opaque solution that frankly the majority of people saw no need for. The way Bitcoin operated seemed designed to strip out the trust indicators that we instinctively rely on in a financial transaction. How and why would you buy something that has no physical presence? How do you store something intangible? Could you rely on other people accepting it? And wasn’t there something just a little unsettling about getting money from someone you weren’t sure existed? Speculation over the inventor of Bitcoin and his desire for anonymity only heightened the sense of risk.
But sometimes people want risk. Speculation in cryptocurrency took off towards the end of 2014, with Bitcoin’s valuation growing 741% between October and November. Suddenly, that risk looked like one worth taking. As awareness grew, so too did the valuation – increasing 20 times to reach $19,665. But behind that growth was a largely uninformed public and an unregulated business. The inevitable crash happened in December 2017, leaving many people burnt by the latest currency on the block.
Today, we’re seeing a resurgence of interest in cryptocurrencies. That’s largely thanks to a higher awareness and understanding of a tokenised future, but also because the underpinning technology – blockchain – has become one of the defining technologies of our age.
At its heart Bitcoin is a decentralised digital currency that operates without a central bank or administrator, so that it can be sent person-to-person or peer-to-peer without intermediaries. The result is reduced transaction charges and transaction times, particularly for cross-border transactions. Those peer-to-peer transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. And blockchain is proving to be seriously good news for a wide range of industries.
Earlier this year, IBM showcased its blockchain solution for ethical coffee trading at the Consumer Electronics Show in Las Vegas. It launched a new consumer app called “Thank My Farmer” that allows coffee drinkers to trace the origin and quality of their coffee – and even to thank the farmer who grew the beans that fuel their day. What sits behind that app is a traceability platform powered by blockchain.
We consume more than half a trillion cups of coffee every year. The supply chain is large and complex, which makes tracing the origin of the beans difficult. It includes multiple stops at co-ops, exporters, shippers, roasters, distributors and retailers – all before we get our hands on a cup. Each stop generates data, but traditionally that has only been tracked for each stop along the way and not for the entire journey. The app provides users with reassurance by pulling information directly from the blockchain in a standardised way across the entire journey and industry.
Blockchain simplifies the exchange and tracking of information and payments, building a permanent digital chain of transactions that can’t be altered. It gives participants access to better data and real-time data. In a nutshell, it drives greater transparency and efficiency.
All this means that the environment for a cryptocurrency is far more robust. As more industries adopt and use blockchain to create trust, then the fears that surround Bitcoin could dissipate. The volatility that typified the currency in 2014-17 has largely been managed, and the product is now seen as a viable, possibly conservative investment by some commentators. Companies, such as WPP client Bitpanda, offer cryptocurrencies and valuable metals such as gold or palladium alongside each other in their exchange. There is a sense the currency has matured.
Some big companies, including Microsoft, BMW and Rakuten, have also allowed payment in cryptocurrency. Some are even paying staff in cryptocurrencies. The tokenisation of blockchain can now be applied to many areas of finance – all companies can, in theory, finance each operation through specific Initial Coin Offerings (ICOs) and we consumers can invest in specific companies or items. Take, for example, the construction of a building. The master builder could tokenise the building or create a specific currency for it, acting as if it were a stock exchange. Investors could then buy and own a percentage of that property based on the percentage of tokens acquired – and sell them at a profit in due course.
Sadly, it’s not all good news. Bitcoin and cryptocurrencies have come a long way but for every good use or positive action, there seems to be a reaction. Bitcoin has become the ransomware currency of choice, with numerous attacks being linked to Bitcoin demands and payouts. There have been thefts from exchanges and exchanges that close when the founder dies taking his password with him. And because there is no central regulator, Bitcoin can be used easily in illegal transactions. This has led to the rise of the pre-audit companies in this space, who aim to take at least some of the risk out of a Bitcoin investment.
So, what does the future hold for Bitcoin? More boom and bust for sure. After all, it is a currency, and subject to the same factors as the US dollar or Sterling – but with less regulation. Governments and central banks are certain to want to get in on the Bitcoin game at some stage – it is in no government’s favour to lose control over their money supply. And, as we know, Bitcoin is too easily associated with terrorism, crime and money laundering. Perhaps the most hopeful indicator for Bitcoin is the rise of consumer comfort with mobile money apps and the potential for this ease with digital cash to transfer to cryptocurrency.
30 January 2020