Chris Skinner's blog

Shaping the future of finance

Will Cyprus become Bitcoin’s global financial centre? An interview with Jon Matonis of the Bitcoin Foundation

Chris Skinner Author Avatar
by
IMG_4466

As mentioned in the previous two blog entries:

(we have a whole Bitcoin section on the blog if interested)

Jon Matonis, Executive Director with the Bitcoin Foundation, spoke at our Polish Financial Services Club meeting last week.

IMG_4466

It was challenging timing, as the issues with MTGox and other exchanges had just come to light.  What issue was this?  It’s best described in this week’s Economist:

The problems began with the discovery of a flaw in Bitcoin’s code at the start of February. Bitcoin is, in effect, a giant shared transaction ledger, recording who owns each individual unit of the currency at any one time. Everyone must use the same copy of the ledger—known as the “blockchain”—to prevent the same coins from being spent twice. The flaw, known as “transaction malleability”, muddles up the ledger so that successful Bitcoin payments do not appear to have been made. This could make it possible for hackers to trick badly-coded software—such as the proprietary Bitcoin wallets used by some exchanges—into sending money repeatedly.

To avoid any losses, most exchanges ceased all withdrawals while they checked that their software was secure. That sparked a panic as rumours spread that Bitcoin was fundamentally broken or that hackers had made off with customers’ money … fixing it is technically simple but harder in practice, as it means getting a large majority of those running Bitcoin to accept new rules at about the same time. In the meantime, vigilance—and safer wallets—can prevent hackers.

This occurred right on the back of Jon’s colleague Charlie Shrem, Vice Chairman of the Bitcoin Foundation, being arrested on money laundering charges in the USA.

Not a great time to be advocating the Bitcoin network and its future.

But Jon more than stepped up to the task.

The flow of our conversation began with a discussion about the background to Bitcoin and Jon’s involvement in it – he is ex-Visa and intimately understands payment networks having set up Visa’s foreign exchange desk.

Jon describes bitcoin as money without government which gives you one insight.  This is because bitcoin does not need a central bank authority to bless something with value.  (Another definition is cloud-based money, which I also like).   

Jon reinforces the fact that Bitcoin is also an experiment.  That’s an important underline as no-one should bet the farm on Bitcoin, but feel free to play with it.  This is a fledgling economy, not a robust one, and so you should expect the trials and tribulations we’ve seen with Bitcoin to date.

We then discussed a little about the different views of governments towards Bitcoin, and I asked Jon whether this was a currency with value or a financial instrument or something illicit and illegal.  Intriguingly Jon responded that bitcoin is a little bit like gold and silver, with XBT as its denomination for trading.  This is because other units of value are traded with government relationships – USD, GBP, JPY etc.  Because Bitcoin is non-government related, it should be given an X-rating which is the only rating that is non-government related.  For example, the other X’s are XAU for gold and XAG for silver. 

Only 2% of trading in bitcoin is in the USA, even though the US has the most Bitcoin nodes.  This means that most US users are trading their coins overseas in Japan, Slovenia, Bulgaria and Cyprus, which are the largest exchanges.

The result is a form of regulatory arbitrage, with different countries taking the opportunity to gain business as other countries deny such business.

Jon likened it to the way in which online gambling has developed.  When George W. Bush’s administration outlawed online gambling in 2006, that should have protected Atlantic City and Las Vegas and seen the end of online gambling shouldn’t it?

Not at all.

In fact, the main countries that offer online casinos today are Gibraltar, Costa Rica, Antigua and Barbuda, Curacao, Malta, the Isle of Man and a small Indian reservation in Canada called Kahnawake.  These online services are fully regulated, authorised and taxed.

Taking Gibraltar as a good example, Jon noted that the bans in other countries such as the USA fuelled this small island’s trade such that today, online casinos employ 12% of the island’s workforce!

The bottom-line therefore is that as country’s try to squeeze the life out of cryptocurrencies such as bitcoin, other country’s will breathe life into it, such as Slovenia and Cyprus.

We talked about a lot more stuff and you can hear the whole 30-minute conversation with Jon on this podcast.

 An interview with Jon Matonis of the Bitcoin Foundation 

I promise you it’s well worth the time.

IMG_4445

 

 

Postscript

If you still haven't had enough of Bitcoin, read Simon Taylor's blog today: Why Bitcoin scares the crap out of governments.

 

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

What is the future?

Learn more

Learn more about Chris

About Chris Skinner

The Past, Present And Future Of Banking, Finance And Technology

Fintech expert Chris Skinner: countries need digital transformation to remain competitive

Join me on Linkedin

Follow Me on X!

Hire Chris Skinner for dinners, workshops and more

Learn directly from from one of the most influential people in technology, gain insights from the world's most innovative companies, and build a global network.

Chris’s latest book

Chris Skinner’s ‘Digital For Good’ Book Launch Event – CFTE

Top 50 Global Thought Leaders and Influencers on FinTech 2023

Chris Skinner
Commentator, CEO of The Finanser and best-selling author at The Finanser

Thinkers360 Thought Leader

Contact Me

Global Awards

Lifetime Achievement Award

Global 100 - 2024 Winner

Chris Skinner - Financial Markets Advisor of the Year - The Finanser - UK 2023

Best Financial Markets Advisor of the Year 2023

30 Best Regtech Blogs and Websites 2023

Kids creating the future bank | TEDxAthens

Captain Cake and the Candy Crew

Captain Cake Winner of a Golden Mom’s Choice Award

TWO-TIME WINNER OF A MOM’S CHOICE GOLD AWARD!

Alex at the Financial Services

Gaping Void's Hugh MacLeod worked with the Finanser