Instead of triggering a revolution in finance, bitcoin has become a speculative investment vehicle, as Thomas Moser of the Swiss National Bank says in an interview with finews.asia. The original vision had involved something else.
Thomas Moser, bitcoin is on everyone's lips at the moment – what is your relationship with the cryptocurrency?
I came across bitcoin rather by chance in 2013, when central banks were still hardly concerned with the subject. I saw that there was something exciting developing here in terms of the idea and the concept, and I started reading into it.
What do you recommend to an interested investor who wants to understand bitcoin? Where should he start?
The first thing I read was Satoshi Nakamoto's white paper – for me, that's still one of the best papers out there on bitcoin. But getting the detailed technical knowledge took quite an effort.
Did you also buy a bitcoin?
At the time, I wanted to buy 10 francs worth of bitcoin to better understand how the currency worked. There was a café in Zurich in 2013 that accepted bitcoin as payment. But according to our internal guidelines, I would have had to wait for a holding period of several months. I didn't really think that made sense for a cup of coffee.
Bitcoin gained its importance not in daily use, but as an investment vehicle.
Since cryptocurrencies often have high price volatility, they are primarily used as a speculative investment opportunity and fulfill the functions of money only to a very limited extent. Bitcoin has also moved away from its original vision in other respects. Bitcoin was supposed to enable a new financial system without intermediaries and central counterparties. The motto was: everyone can be their own bank.
«Many do not want to be their own bank at all»
However, it has become apparent that many do not want to be their own bank at all and are very happy to use the services of intermediaries and central counterparties. Those who invest in bitcoin today will rarely download the protocol and run a full-fledged node on the blockchain. There are also no private miners at all anymore. Mining farms are now fully commercialized businesses.
Most investors buy bitcoin through a centralized trading platform and have the bitcoins stored by a wallet provider. You don't need to understand how bitcoin works to do this. Instead of traditional banks, new intermediaries are simply emerging in this alternative financial system. And like all intermediaries, these offer what the majority of users want: convenience – easy purchase, secure storage, attractive apps.
This rapid development, to what can it best be compared?
The internet. In 1989, if you wanted to use the internet, you had to know something about IT, and to create a website, you had to know how to program. As the internet began to be used by the masses in the mid-1990s, it became easier and easier to use, and new intermediaries appeared.
«The blockchain is not powerful enough in its current form»
Today, it is a piece of cake to operate. If digital currencies and blockchain become a mass product, we could see a similar development.
Where are we in the development of the blockchain?
We're pretty much at the beginning of mass adoption, probably about where the internet was around 1990 before development really took off. The technology is not yet mature enough for mass adoption.
What's the problem?
The blockchain is not powerful enough in its current form. The reason lies in the original vision of bitcoin, where strong decentralization is achieved at the expense of efficiency. The blockchain wants to do without intermediaries. However, this brings scaling problems. At about seven transactions per second, the current bitcoin system is simply too slow. By comparison, credit card company systems can perform about 10,000 transactions per second.
Second, the blockchain should be censorship-resistant, meaning that it cannot be manipulated or shut down by a single participant. To achieve this, each participant (node) must have a complete copy of the jointly managed account book stored locally. However, this means that every single transaction must be recorded at each of the approximately 10,000 nodes from Tokyo to Moscow.
«Bitcoin's innovation performance is proof that distributed ledgers work on the open network»
However, the series of information inevitably becomes longer and longer and each node needs more and more memory. This is not really efficient but serves the purpose of censorship resistance and decentralization. On top of that, the consensus mechanism used to reconcile data between nodes consumes a lot of energy.
So what does this mean for bitcoin?
It is important to understand that these aspects of bitcoin are not bugs, but features of the system. They are the costs of heavy decentralization.
Bitcoin's innovation performance is proof that distributed ledgers work on the open network. For closed networks, people already had a good understanding of how to synchronize information across all participating nodes in a decentralized way, but not for open networks. Bitcoin solved this with its special consensus mechanism (proof-of-work).
The high computing power associated with proof-of-work prevents a participant from simply making many copies of its node and exerting excessive influence on the consensus because that would be prohibitively expensive due to the high energy consumption. From this perspective, the high energy consumption is precisely an inherent security feature of bitcoin, not a bug.
What happens to these features with the development of the blockchain?
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