The cryptocurrency may not be a threat to the world economy, but that should not stop regulators from protecting investors from it
Sifting the Yukon river for gold was a waste of time for most of the 100,000 prospectors seeking to make themselves rich in the 1890s. The same can be said of the bitcoin miners who dream of striking it rich by getting their hands on some of the extremely lucrative and painfully elusive electronic currency.
Relatively few people have managed to decipher the codes needed to extract bitcoins from the 21 million locked inside the mathematical problems set by its creator, the software engineer whose true identity is unknown but who goes by the name Satoshi Nakamoto.
Those who have employed enough computer power and code-cracking know-how can consider themselves rich now that the value of one bitcoin has soared from $753 last December to around $10,000. The rest have deployed huge amounts of energy and time for no return.
Should anyone be worried about this turn of events? Or will it go down as a moment in history when an asset was mined, some people got rich and … that was it?
And with mainstream financial exchanges looking to host bitcoin as a tradeable asset, or list derivatives of bitcoin on their trading boards, thousands more will be sucked in over the next 18 months.
Where ordinary investors, hunting in large numbers, seek a return on their savings in a high-risk environment, governments are usually minded to regulate.
The idea behind bitcoin was that it should be like any commodity that, once discovered, became increasingly difficult to extract. Like gold, it would become a store of value and make those clever enough to find it and believe in it very rich.
Blockchain technology has the potential to bring the world of finance into the modern world. And it cant come soon enough
Science advances, said the great German physicist Max Planck, one funeral at a time. Actually, this is a paraphrase of what he really said, which was: A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it. But you get the drift.
I always think of Plancks aphorism whenever moral panic breaks out over the supposedly dizzying pace of technological change. Which happens all the time nowadays, even though the data says otherwise. If you take as your measure of speed how long it takes a new technology to be adopted by 50% of US households, for example, then radios (eight years) and black-and-white TVs (nine) reached that threshold faster than PCs (17) or mobile phones (15).
So when we talk about the pace of change, it makes sense to distinguish between different kinds of innovation. If the change requires the building of infrastructure the electricity grid or the internet, say then the pace of change can be very slow. But if it just involves innovations that harness existing infrastructure new TV formats or smartphone apps the pace can indeed be dizzying, because they just piggyback on existing infrastructure. This is why Uber and Airbnb took so long to materialise: they needed smartphones, GPS and ubiquitous wireless networking before they became viable, whereas Facebook only needed the web. And the web itself spread like wildfire only because the infrastructure it needed the wired internet was already in place. No digging required.
Where the trope about accelerating technology-driven change really breaks down, though, is when you try to apply it to governmental, legal and commercial institutions. What you then find is a chaotic spectrum that runs from astonishingly rapid change in some areas to glacial inertia in others. On the governmental/regulation front, for example, data protection legislation is fighting a losing battle against the proliferating ambiguities of big data. Yet at the same time, we learn from Edward Snowden how far the NSA and GCHQ have been ahead of the technological curve while being at the same time supposedly answerable to government bureaucracies running the last but one version of Microsoft Windows (or even XP, for Gods sake).
Or take the finance industry. On the one hand, its banks are global institutions apparently able to move trillions of dollars between continents at the speed of light. High-speed traders spent billions of dollars digging a straight-line trench from Chicago to New York to shave nanoseconds off the time that it takes a buy-or-sell instruction to traverse a strand of glass fibre. On the other hand, it takes five working days to clear a cheque.
The cryptocurrency may have no physical form but the returns from trading it can be very real and for some theyre worth giving up your job for
On a sunny afternoon in west Beijing, on the auspicious eighth floor of a nondescript concrete high-rise, Huai Yang sits with the curtains drawn in his apartment, making his own luck.
For the past six months, 27-year-old Yang has worked mainly from home, mainly from his sofa, tracking and trading bitcoin, and watching the money roll in. The flat itself is modestly sized; Yang moved in in his pre-bitcoin days when he worked variously for a crowdfunder start-up, a branding consultancy and dabbled in hedge-fund management, all of which he describes as creative financial work. Now, though, his main focus is bitcoin, which is much younger, more fun, and much more money. Yang claims to make up to 1m yuan (116,000) a month, under the radar of the taxman, purely from trading the online cryptocurrency.
Bitcoin has no physical form but the rewards are very tangible; Yangs home is packed full of expensive gadgetry, most prominently a mega-sized flat screen smart board, over a metre wide, which Yang uses to chart bitcoins rise and fall in HD.
Normally, the graphs on Yangs screen show bitcoins and his own fortunes going up and up. At the time of writing, one bitcoin is worth 6,600 yuan (768) recent months have seen the value hover well above 8,000 yuan. The global worth of bitcoin is over $14bn USD (11.3bn), of which over 90% is in yuan, and Yang and his peers are cashing in. I want a more splendid life, he says.
The virtual currencys success reflects the continuing lack of trust in traditional banking following the credit crunch
When the boss of Wall Street’s biggest bank calls a bubble, the world inevitably sits up and listens, albeit with a sense of historically weighted irony: of course an investment bank boss would spot disaster after his industry presided over the last one. Jamie Dimon, the chief executive of JP Morgan, said last week that the ascendancy of the virtual currency bitcoin – which has risen in price from just over $2 in 2011 to more than $4,000 at points this year – reminded him of tulip fever in 17th-century Holland. “It is worse than tulip bulbs,” he said. “It could be at $20,000 before this happens, but it will eventually blow up. I am just shocked that anyone can’t see it for what it is.”
Dimon’s comments are an open invitation for derision from those who, rightly, point out that although JP Morgan may be top of the Wall Street heap, that heap is far from being the moral high ground. Under Dimon’s leadership, it has agreed a $13bn settlement with US regulators over selling dodgy mortgage securities – the instruments behind the credit crunch – and its run-ins with watchdogs include a $264m fine last year for hiring the children of Chinese officials in order to win lucrative business in return.
But it doesn’t make him wrong. Even the most basic description of bitcoin – an intellectual test on a par with describing a collateralised debt obligation – elicits mental images of a digital back-alley shell game. A bitcoin is a cryptographic solution to a complex equation. It is not as recognisable to you or me as a unit of value as, say, a dollar bill or a prize conker. There is no central authority validating the creation of bitcoins – instead, they are recorded on a public electronic ledger called a blockchain. If you regard the Bank of England as an all-powerful insurer for the pound, there is no such institution behind bitcoin.
This lack of a central authority is one of the reasons why Dimon cavilled in such strong terms last week. In the interstices of unregulated finance lurk ne’er-do-wells.
“If you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than US dollars,” he said. “So there may be a market for that, but it would be a limited market.”
But some of the perceived flaws behind bitcoin that alarm Dimon – no central authority, a public ledger of transactions – point to the foundations of a new financial establishment. In his jargon-busting lexicon of finance How to Speak Money, the author John Lanchester described how the high priests of ancient Egypt controlled agriculture – and by extension the economy – through a closely guarded flood measurement system known as a nilometer that was hidden behind a load of mumbo jumbo. Dimon, a modern high priest, faces a rival value system in bitcoin. It has no temple, no central authority and uses a rubric over which he has no control. In other words, it is an alternative financial establishment, whose popularity is inextricably linked with the ebbing of trust in the global system that was triggered by the credit crunch.
If bitcoin fails, or is discredited, another system will rise to take its place, without the imprimatur of Dimon or his peers around the altar.
First-time buyers beware: this rate rise could just be the start
House owners, and would-be house owners, beware. Change is coming. The majority on the Bank of England’s monetary policy committee against raising interest rates seems huge, confirmed at 7-2 last week. But the language is tightening around the nation’s finances.
Spare capacity in the economy – unfilled jobs and unspent money – is being whittled away more quickly than previously thought and inflation is still likely to overshoot its 2% target over the next three years. Yes, wage growth is running below an inflation rate that has now hit 2.9%, but all signs now point to that 7-2 split flipping the other way come November.
As the Bank said, “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”. This was firmed up the following day by Gertjan Vlieghe, previously the most anti-rise MPC member, when he said the bank was “approaching the moment” for an increase.
Market punters now think there is a 42% chance of a rise in November, and more than 50% in December. The current split on the MPC masks the weighing of trade-offs – between economic growth and inflation, post-referendum stability and curbing consumer debt – which is ever delicate and close to a tipping point.
A rate rise from 0.25% at present to 0.5% will be no disaster and would merely represent a return to the previous record low, which had lasted from 2009 to the EU vote. But what should sharpen borrowers’ minds is the thought of further increases – as hinted by Vlieghe. Inflation remains stubbornly high; something will have to be done to temper a consumer lending surge growing at 10% a year.
Households might cope with a move to 0.5%, but if a rate increase augurs a sustained move against cheap borrowing and persistent inflation, then a wider rethink of ambitions, from getting further up the housing ladder to buying a new car, will be needed. And for those not on the housing ladder, hopes of a step up could be extinguished altogether.
Disney hopes its Star Wars choice will use the force wisely
Disney’s choice of creative talent in recent years has been impeccable, having handed the Avengers franchise to Joss Whedon and employed Lin-Manuel Miranda to co-write the music for Moana. But its decisions over the Star Wars universe have unravelled of late.
The director of Rogue One, Gareth Edwards, was sidelined during reshoots, while the directing duo behind the new Han Solo film, Phil Lord and Christopher Miller, were fired altogether shortly before shooting finished. Most recently, Jurassic World helmer Colin Trevorrow was yanked off the final Star Wars instalment before filming began.
Last week, Disney announced it was handing the final film in the latest Star Wars trilogy to JJ Abrams, the creator of Lost and director of The Force Awakens, the film that launched this Jedi triptych. Abrams is a conservative choice, by Disney’s recent standards. But what the studio needs right now is a safe pair of hands on the lightsaber.
The future of banking fits in the palm of your hand! But is it all that new?
Banking doesn’t usually inspire chat-up lines in pubs, or nightclub-style virtual queues of young people looking for a quick way in. But one London-based startup has managed to become quite the conversation starter in London’s pubs and beyond.
Monzo lives entirely on your phone and is geared toward a generation accustomed to doing everything with that device. Unlike many other apps, there’s no waiting until the next day to see what’s left in your account after a big night out, because the balance updates in real time.
It’s not the only app-based bank out there, nor the only bank challenging traditional institutions. The actual product isn’t wildly different from what you can get at ordinary banks on the high street. “There’s no rethinking of product, not redefining identity,” said expert in emotional banking and Chief Growth Officer at Temenos’ Marketplace Duena Blomstrom.
Yet somehow, Monzo has managed to use its distinctive hot coral-coloured card to garner a buzzy, dedicated fanbase who chat to each other on message boards and meet up IRL — which definitely isn’t happening for the old high street banks. And, it’s the startup that’s being lauded as potentially the UK’s answer to American tech behemoths Facebook and Google.
It once famously crowdfunded a £1 million investment round in 96 seconds, and since its inception in February 2015 it has almost half a million users. All this just with a pre-paid card (current accounts are now being rolled out) and an app. The company reported almost a £7 million loss in it’s last financial year — and while that isn’t entirely unusual in the early years of new ventures, it can be risky for investors.
Mashable met CEO Tom Blomfield at Monzo’s Shoreditch headquarters on a rainy Wednesday to find out more. The lobby smells like pulled pork from the street food vendor brought in for a twice-weekly employee lunch, and the young coders and designers queue up.
“From the very early days we wanted to do a couple of things differently. One was involve our community in basically everything,” Blomfield said.
“Second is being really transparent about everything, whether it’s a product road map or around our license application, or plans for the future, or ATM charging. Community and transparency seem to go hand in hand,” he said.
Monzo’s transparency recently came into focus when the company made headlines for taking away a feature that had been there from the beginning — free ATM withdrawals abroad. Some customers were angry and threatened to leave the company over it…
. @monzo will now charge 3% fees for withdrawal abroad (after the first £200). Main reason to use it is gone. Hate these bait and switch. 🙁
Blomfield seemed to take that as a reminder that there are powerusers, and then there are the casual users, and Monzo can’t just cater to the most engaged. “Even the vote on the ATM fees, you had to register on the community forum, which something like 15,000 people voted, but we have a userbase of half a million now,” he said. The company is looking at ways to bring the community more into the app to remove the barrier of registering on a forum in order to participate.
The fees issue and sporadic outages will put Monzo in the mainstream press but according to Will Beeson, head of operations and innovation at Civilised Bank, Monzo’s continued transparency works in their favour.
“There’s a level of openness — transparency, openness on how products priced and delivered, and how issues are resolved. With the few outages with the prepaid cards, they’re very quick to put up their hands and accept responsibility,” Beeson said.
While the commitment to transparency underpins everything they do, clever marketing that captures the zeitgeist has really boosted their profile.
“One of greatest challenges for fintech is getting the word out,” Beeson said. “I’ve seen millennials on the Tube — and even more on the Overgound [the main train line in hipster East London] — and it seems like every other person is tapping in and out with a Monzo card,” he said.
“Leveraging social media was really smart. You get the buzz, and other challenger banks playing on that aspect,” said Ghela Boskovich, head of fintech and regtech partnerships at Startupbootcamp.
One idea that generates buzz is the Golden Ticket. Normally there’s a waitlist for Monzo, but users can get a Golden Ticket (yes, inspired by Willy Wonka, according to Blomfield) which they can give to a friend to skip the queue.
@monzo I reallllllllly want a golden ticket… is there any way I can get one :((
This Mashable reporter can confirm that the Golden Ticket become a talking point in offices, at the pub, and online. It’s been a big success for Monzo.
“Something like 45% of our signups in any given week are driven by Golden Tickets,” Blomfield said.
Another feature that makes Monzo different is their fluency in emoji.Like other things at Monzo, it came about organically, but people really liked it so it stuck around.
“The emoji crept into our customer support language. That’s how our customers communicate,” Blomfield said.
As Blomfield tells it, Monzo co-founder Jonas Huckestein was working on a holiday Sunday afternoon and thought it would be funny to include an emoji on push notifications. So he wrote the code and pushed it out to the 3,000-4,000 users at the time.
“It was just to sort of amuse people really but it was surprisingly delightful,” Blomfield said.
He spent a few hours going through the Mastercard-supplied list of merchants and matching up the emoji and it has continued from there.
“There are all these little easter eggs. Totally pointless, no economic benefit at all, it’s just sort of lovely. It makes me smile,” he said. There’s no masterlist at Monzo but developers might add custom combinations for places (certainly British pub names are ripe for that kind of thing).
Not all features are 🔥.
Blomfield said they had high hopes for the Monzo.me feature — a web link that lets anyone send a Monzo user money. “But it drives maybe a hundred users,” he said.
As Monzo grows, it’s important to continue to appeal to a wide base of customers, and not just the superfans.
“When we do product feedback sessions, we need to make sure these people are a diverse representation of our customer base, and not just tech nerds in Shoreditch. It’s easy to just grab three dudes with dodgy beards off the street and see what they think,” Blomfield said.
He also said that the original categories for expenses reflected a very male perspective, and that going forward the categories would be more representative of a diverse set of needs.
While all these features seem pretty cool they haven’t yet resulted in a payoff. But Monzo has jumped into the fray at a good time.
In 2015, the European Union issued its second Payment Services Directive (PSD2) regulations, and the UK Treasury took those and just ran with them. On Jan. 13, 2018, nine big banks in the UK must disclose their data to licensed startups. (Wired has an excellent explainer on the topic, if you are interested in reading more.)
With that all that sweet, sweet data becoming suddenly available, of course there are questions of privacy and security. Blomfield is very much aware of this and its importance. He said that Monzo won’t share anyone’s data unless they want them to.
“But there might be times when it might be advantageous to do so like for a gas or electric switching site, so you can get a better deal. So we always try to give you that choice, that opt-in, and if you don’t opt in we won’t share your data,” he said. But he said that what happens to your data after it’s shared with another party is basically in their hands.
“It’s easy to just grab three dudes with dodgy beads off the street and see what they think.”
The Monzo machine got in the game early, and it’s in a good position to capitalise on this sea change in banking data. When asked if Monzo has the potential to be a Facebook or a Google, Startupbootcamp’s Boskovich points to the data.
“The user is really engaged with the app. It collects enormous amount of data, like Facebook and Google collect data. Monzo also sees the transaction and can overlay it with behavioural data,” she said.
“But the regulations under PSD2 and General Data Protection Regulation (GDPR) are still going to apply to Monzo, the same way as it would apply to anyone else,” she said.
So will Monzo and its crowdsourcing superfans get rich off the incoming treasure trove of personal data? Will it get absorbed into a Google or a larger bank? Will customers get tired of chatting about their brightly coloured bank cards and the relevant emoji on their push alerts?
It definitely feels like an exciting time to be in banking (who would’ve thought?) and we’ll see if the future comes up hot coral.