The Strategist

Blockchain of Freedom: Greece's Part in Bitcoin's Widespread

07/13/2015 - 15:47

Once again, the Greek events forced talks about the advantages of Bitcoin. Many observers see an economic panacea in the cryptocurrency and predict a radical restructuring of the global financial system. However, it is not obvious that the big banks and big government lost the battle with cyberanarchists.
April 1 this year, one of the Greek Internet resources announced the intention of the Minister of Finance Janis Varoufakis to convert the country into Bitcoin state if negotiations with the EU do not succeed. April Fool's joke turned out to be only partly a joke. Now, quite respectable Western editions regard the cryptocurrency as a possible Greek exit from the crisis. Alluring "virtual-financial" offers is coming to suffering from a lack of cash Greeks - the company Spartan Route is ready to finance local export using Bitcoin. Greek residents themselves are selling luxury villas on the coast for digital money, and Bitcoin exchanges quotation have reached a new high against this background.

- Their importance depends on the adoption by a large number of people. As is the case with any social network, the value of virtual currency depends on how many people use it and trust it - Swiss Business School Professor Arturo Bris wrote about Bitcoin IMD two years ago. From a technological point of view, it is not difficult to get countries, whose citizens are well acquainted with the Internet, hooked on the  cryptocurrency.

Indeed, there is no need to create special banks and emission centers under the Bitcoin. The essence of them just in the complete absence of any regulation and external control. Blockchain is a key element of the infrastructure of the financial know-how – it is a giant book, which keeps track of who and how many owns Bitcoins. The coins themselves are not physical objects or digital files but records in the book. Thus, the possession of Bitcoin is actually claim to part of the information stored in the blockchain.

The new coins are available only as a result of successful operations of Bitcoins "miners". They combine user transactions in the new blocks and attach them to the overall chain. Once a miner manages to fill up the blockchain first, he receives compensation.

If we draw an analogy with the classical monetary system - here the emission occurs after the transaction of purchase/sale of goods or services, rather than precedes it. It is no accident Janis Varoufakis has already called Bitcoin a deflationary digital equivalent of gold. However, for this reason, the charismatic Greek financier doubted that such a "totally depoliticized currency can serve an advanced industrial society."

- Is it possible to set up long-term supply of Bitcoins in such a way as to avoid the negative effects of deflation? I think not - we need a "Bitcoin-central bank" to do this, - so Varoufakis, not yet being the head of the Ministry of Finance of Greece, formulated an idea of fedcoin or eurocoin, which, as it seemed, allows to transform the cyberanarchists’ brainchild to the needs of European politicians.

Once the author of such an original approach to digital money becomes finance minister, the cryptocurrency’s status cannot help but changes. Even if Varoufakis himself was much more busy negotiating routine, rather than the transformation of the global financial system, there still was someone to think about the transformation.

In February, the Bank of England mentioned Bitcoin among the factors that can have a significant impact on the economy.  
- The idea of a decentralized open credit and debit transactions book, underlying these systems, has good prospects, - admitted British financiers. This passage was quite revolutionary in view of the extremely skeptical and cautious attitude that financial regulators have showed to cryptocurrency until now.

The head of the Federal Reserve Janet Yellen complained that "these payment innovations are completely outside the banking sector." The People's Bank of China in March 2014 ordered to stop all the transactions with the cryptocurrency. In turn, the Russian Central Bank in January of the same year warned: "Citizens and legal persons may be, including inadvertently, involved in illegal activities, including the legalization (laundering) of proceeds from crime and terrorist financing due to the anonymous nature of the activities for the virtual currency production, unlimited range of subjects and to use them for transactions." And Russian Finance Ministry even proposed to fine for general use of the "money substitutes".

Meanwhile, the cryptocurrency was finally legalized on Wall Street: the Department of the State of New York Market Surveillance Financial Services has published a set of rules for working with digital money.

Goldman Sachs, which, in April 2015, was the first global bank that invested in Bitcoin industry about $ 50 million, has once again demonstrated a remarkable flair. Or, perhaps, the cryptocurrency was given the green light just because big business was interested in it?

By the way, this spring, it became known that the Swiss UBS and the American Bank of New York Mellon want to use the know-how of virtual financiers. IBM and Samsung took the challenge of use and improvement of technological developments, providing treatment of digital money. The former head of Citigroup, Vikram Pandit, joined the founders of a Bitcoin wallets operator Coinbase. Blythe Masters, a founder of insurance against default market, so-called "credit default swaps", topped the Digital Asset Holding - a startup specializing in cryptocurrency infrastructure.  

- How seriously do we have to take such a technology? I'd treated it as well as we all should have treated the Internet in the early '90s. This technology is really significant. And changing the structure of our global financial system is under its power – by this words, Masters has defined her current priorities.

It is understood that famous companies and iconic people would not risk their reputation for projects, doomed to semi-underground existence. However, full Bitcoin legalization is a serious threat to governments and central banks. At the end of the day, an amateur cryptographer, hiding under a pseudonym of Satoshi Nakamoto, hoped to press, or even remove them the out of the financial scene by introducing Bitcoin in the crisis October 2008.
- The cryptocurrency allows to decentralize bank assets moving and put them out of the authorities’ reach, - Goldman Sachs analysts. In other words, the state loses its key financial leverage on business.

But only if classic Bitcoin stays. If its modification, which Varoufakis told about, is spread in some form, anything can happen the other way around. From the tool of release, the cryptocurrency would become a tool of a control even stronger - and Greek financial upheavals provide an excellent opportunity for such an instrument.

Janis Varoufakis’s resignation is hardly a serious hindrance. A pragmatic argument of Blythe Masters in an interview with Financial Times is an additional proof:
- Libertarians advocate a world without the big banks and big government. That's fine, but it does not match the business model [of digital money]. It is impossible to imagine a world in which there would be no big banks and big government. They [the libertarians] want to change the world, but the world will be changing with only adapting a new technology for itself.

Almost always, it was not authors who benefited from inventions and innovations. Very often, the use of new products is very different from how creators saw their brainchildren. Bitcoins do not seem destined to refute these rules.

What is symbolic that a new milestone in the history of digital money comes after the Greek referendum, which many sympathetic observers see as a revolt against the oppression of European bureaucracy and the global financial corporations.

based on Wall Street Journal materials