Published on February 24, 2018
A few months ago I wrote the piece “Jamie Dimon and the ‘Closing’ of Bitcoin” (Closing of Bitcoin) that was critical of remarks made by the Chairman, CEO, and President of JPMorgan Chase about the legitimacy of bitcoin. He referred to the virtual currency as a “fraud” and “Ponzi scheme.” Recently Mr. Dimon has decided to walk back those remarks, indicating that he “regrets” calling bitcoin a “fraud.”
In recent weeks uninformed comments from finance industry titans continue to emerge. Shortly after Dimon made his original remarks, Blackrock Chairman and CEO Larry Fink, in a very public forum, stated that bitcoin is “more of an index of money laundering than anything more than that.” Having been involved in anti-money laundering compliance for 12 years, I can tell you bitcoin is far from being an index for anything close to money laundering. First of all, mixers and tumblers (programs operating in conjunction with blockchain technology that disguise the source/destination of funds) already prove Fink’s statement to be weak, as a significant number of bad actors are already using these tools to try to obfuscate their illegal actions. Second, the fact that he didn’t mention currencies specifically designed for privacy, such as Zcash and Monero, point out his inability to fully grasp how cryptographic currencies work. I’ve pointed out in prior posts that transactions in cryptocurrencies give you something fiat currency does not: an immutable historical ledger. There are patterns that can emerge from investigating blockchain transactions regardless of mixer/tumbler usage and the use of cryptographic currencies designed for privacy. Also, cryptographic currencies are here to stay, so denigrating this form of value transfer is delaying the inevitable: a blockchain technology revolution delivering significant benefits to the developing world.
In the case of Larry Fink and Jamie Dimon’s original remarks, they did point to the value of the underlying technology and indeed, within JPMorgan, blockchain technological advances are under development. However, when the original application on the blockchain is publicly shamed to this degree, it’s challenging for the rest of us to enlighten individuals to the value of the technology, especially to the hope and potential it can bring to struggling economies.
Other prominent figures are also denigrating bitcoin. Saudi Arabian Prince Al-Waleed bin Talal stated publicly that he expected the price of bitcoin to “implode.” He based his comments on the lack of regulation by a centralized financial authority and went on to compare its price rise to the myth of success surrounding Enron, which in 2001 collapsed due to enterprise-wide fraud. Prince Al-Waleed, however, has an entrenched history with mainstream financial service organizations: in November 2008, the long-time investor in Citi Group increased his holdings in the company from 4 to 5 percent to bolster the shares that were falling in price due to the financial crisis. In January 2018, Warren Buffett of Berkshire Hathaway commented on bitcoin, “we don’t own any, we’re not short any, we’ll never have a position in them.” At Davos 2018, UBS Chairman Axel Weber echoed the mood of many in high finance when he told attendees that his bank wouldn't “touch bitcoin, … in case investors blame our business when its value collapses.”
All of these dramatic pronouncements have an adverse impact on blockchain technology and the promise it brings to the developing world. I’m on the frontlines of the endeavor to educate individuals and organizations within the NGO space and beyond that will reap dramatic technological and social benefits as the technology matures. When initiating a conversation with someone not operating within the financial technology space, if they haven’t heard of blockchain technology, they (in most cases) have heard of bitcoin. And the reason they’ve heard of bitcoin is because of the media sensationalism surrounding the virtual currency. Most of the buzz they’ve absorbed through the media has been negative. They bring up “money laundering,” “Ponzi scheme,” “tulip bubble,” and outright fraud, terms popular with those who seek to denigrate the promise of a universal currency and the underlying technology. The benefits of blockchain technology always seem to be overshadowed by the negative perceptions surrounding bitcoin. As I stated above Jamie Dimon of JPMorgan Chase said that he regretted the comments he made surrounding bitcoin and publicly walked back his remarks. I conducted a (somewhat) unscientific survey of how much attention Dimon’s original remarks received versus his walk back. A search within Google using the search terms such as “Jamie Dimon” and “bitcoin fraud” produced 535,000 results. A search using the terms “Jamie Dimon” and “bitcoin fraud” and “regret” yielded 144,000 results. Although not an airtight way to survey, I do believe it’s illustrative of a larger point that sensational comments receive more media attention than thoughtful “walk backs.”
With all of the negative media surrounding cryptographic currencies, from its use on the Silk Road dark website, to hacks of exchanges acting as cryptographic currency custodians, to ransomware, it’s easy to become dismayed at the future of cryptographic currencies. In fact, I sometimes find myself avoiding speaking to people about the benefits in order to focus on the overall potential of blockchain technology. But recently I’ve come to appreciate the fact that, in their creation of blockchain technology by the merging of the shared ledger, global consensus, and cryptographically secured segments, Satoshi Nakamoto introduced the technology through the use of currency for a reason. Currency is a tool that everyone can relate to, as most if not all of us come into contact with monetary instruments on a daily basis. It’s vital for those of us who see the benefits of blockchain and cryptoeconomics to counter the narrative floated by those entrenched in the somewhat archaic financial technology that has benefitted behemoth organizations such as Blackrock, Citi Group, Berkshire Hathaway, and UBS. You could argue that these institutions have a vested interest in preserving the status quo with their securities clearing operations, foreign exchange interests, central bank influence, and overall economic power after decades of financial sector dominance. The different way of thinking about technology facilitated by blockchain has provided these titans with a reason not to understand the technology’s transformative nature. This antiquated form of power and wealth can have the tendency to discourage intellectual curiosity. We speak about the competitive advantages of large, western-oriented financial service institutions advancing their own agendas into struggling economies and providing an extension of their own operations to the populations within the developing world, also known as the “unbanked.” With the open source nature of blockchain technology and its gradual proliferation throughout the developing world, what would stop a financial institution based in Uruguay from creating their own utilization of blockchain technology to facilitate their own economic pursuits? Could certain Western-based financial behemoths understand this dynamic and use it as yet another reason not to embrace the advantages of the technology? As a result of vilifying cryptocurrencies, they dampen any threat to their own economic dominance but also inflict collateral damage on the overall blockchain and the positive benefits it has the potential to provide the developing world.
These benefits are important and varied: blockchain facilitates the transfer of value, and the complex algorithms make it possible for entities all over the world, regardless of the country they inhabit, to share a global common currency. No longer are central banks responsible for reacting to economic developments that force them to increase or decrease local levels of currency creation: competitive devaluation schemes benefitting the country initiating such moves would be taken away. Also, with an immutable record of each cryptographic transaction, financial crime investigators have a new tool in their arsenal; individuals susceptible to corruption will now have to think twice before they engage in activity that runs counter to ethical behavior.
The popular interest in cryptographic currency igniting fantasies of instant wealth is a hook that at times I can exploit to generate interest in the underlying technology. In my experience, there are those few who can see the value of this technology, but unfortunately, the majority can’t seem to get beyond sensationalized headlines generated by financial industry titans and beyond. This translates as a double-edged sword. I convey to the nonprofits I work with that their board members who are employed within the private sector will be asking what they’re doing to prepare for blockchain adoption. However, those board members who think along the lines of finance industry titans who disparage the technology from the position of ignorance will use their weight to counter moves to exploit the technology for the greater good.
On a personal note, within my Arlington, Massachusetts community, and especially since my founding of BlocAlt Consulting, I am known as “the bitcoin guy.” As I indicated before, I can use that moniker as an “educational hook” to spread the gospel of blockchain technology. In a February 8, 2018, article Nathaniel Popper wrote for the New York Times (Popper-New York Times), he reported that David Yermack, a professor at New York University who first began to offer courses on cryptographic currencies in 2014, said he was teased by his colleagues for offering classes on bitcoin. Yermack goes on to state that within a few months he was invited to Basel, Switzerland, to speak with central bankers on bitcoin. The joking stopped shortly after that. I would love for there to be a “trip to Basel” moment for certain financial services industry naysayers who maintain a significant amount of influence worldwide and could use that influence to promote blockchain for the benefit of all of society.