Closed Bitcoin and blockchain: the future of money or overhyped? Join the debate


Are we facing the next frontier of currency? Like bartering and banknotes before it, blockchain could revolutionise the way we distribute wealth and account for our transactions. A recent World Economic Forum survey found that most experts think blockchain, the technology that underpins bitcoin, will become mainstream by 2025. But for every person who thinks blockchain is the future of money, there’s another that thinks it’s all just fantasy hype. We’ll be putting these opinions head-to-head.

The FT is hosting a debate that includes you, our readers, in an integral role. On Wednesday, September 14 at 1pm UK time, Izabella Kaminska of FT Alphaville will face Simon Taylor, co-founder and blockchain director of 11FS. Izabella thinks blockchain and bitcoin are an utter waste of time; Simon believes strongly in the future of crypto-currencies. The debate will be live for one hour, moderated by Carola Hoyos, editor of the FT’s report on accounting.

We want you to join in and help us write the story. Share your questions and opinions in the comments here (under Live Reader Comments), or by emailing, before and through the debate. Together they will form the front page story of the FT’s report on accountancy to be published on September 22.

Here is a terminology glossary for reference from Blockchain Technologies.

There are 4 minutes to go before we start our debate – so go get coffee/ go to the loo now and come back soon. Simon, Izabella and I are at our computer screens at the FT’s London headquarters and thrilled that we already have so many questions and comments. See you in a mo…

Welcome to our blockchain debate. Simon will be arguing that blockchain accounting and crypto-currencies, such as bitcoin, are the future, while Izabella will argue that they are an overhyped solution for a problem that doesn’t exist.

It’ll be my job to stop folks slipping down rabbit holes and using befuddling jargon.

Your job – dear FT reader – is to jump in with questions and comments. The more on topic they are, the more likely it is that Simon and Izzy will pull them into the debate.

Hello everyone :o)

Hello there

To start us off, here are some quickfire one-word answer questions for our debaters – Simon, you’re up first:

Will most Brits be paying for their coffee with crypto money by 2025 – yes, no, or maybe?

Carola, by 2035 maybe but it will look and feel very different to “bitcoin” as we imagine it today.

Will crypto money make regular folks more or less exposed to cyber fraud?

Hard to say, I’d hope less but the short answer is I don’t know.

Cop out!

Will blockchain accounting reduce or increase the chance of the next financial crisis?

If implemented right, significantly reduce.


Will blockchain widen or narrow the wealth gap between developing and developed nations?

I don’t think blockchain is the deciding factor there, but crypto currencies may be very useful for developing nations.

Cool – let’s come back to that later.

Will blockchain increase or decrease the gap between the poorest and richest Americans?

Again, blockchain won’t be the thing that influences that gap, policy will.

Izabella – over to you. After you answer these first questions, we’ll open it up to reader questions.

I was just unable to open a Word document because of an inability to navigate an unfamiliar pop-up window, which sort of sums up my view of blockchain and crypto. The problem is not the tech, it’s the human. Blockchain doesn’t solve the problem of human incompetence at the base level of the user.

1) will most Brits be paying with crypto for coffee? No. If they are, it’s because they’ve been enslaved into automaton drone mode by skynet.

2) Will we be more exposed to cyber fraud? I would say yes. The resilience of the blockchain is based on the resilience of the weakest link.

3) Will blockchain accounting reduce or increase the chance of the next financial crisis? Increase. It’s systemic and cartel-esque in nature, which creates single point of failure risk.

4) Will blockchain widen or narrow the wealth gap between developing and developed nations? Probably widen. Based on control and behavioural manipulation.

5) Will blockchain increase or decrease the gap between the poorest and richest Americans? Widen, for the same reason. Humanity’s preoccuption will always be status improvement. Don’t see how blockchain will stop that.

OK – thanks Izzy. Let’s get some of our readers involved, starting with the basics (which aren’t actually that basic). Here’s a question that comes by email from Dalley Joseph:

For beginners, what is Blockchain technology about? And how do you think it can shape the financial industry in the next decade?

Simon – this is your patch, right?

We confuse three things when we say “blockchain”:

1) Bitcoin – funny money from the internet that most regulators would like to crawl back from the hole it came from. Which is built on some incredible tech and ideas (and a little bit of religion).

2) Blockchain – that incredible tech, used in a more Swiss army knife like way. Something that is “tamper-proof” and a shared record of the truth.

3) DLT – DLT is to blockchain as vehicle is to car. It’s a wider subject.

Depending who you are and what you want to achieve you’ll risk debating at cross purposes.

What does it mean for you?

Do you need digital certainty? Do you need to KNOW something to be true and do you want maths to do that for you? Then you should look at DLT.

Agree with that entirely. The taxonomy created around blockchain is out of control. The term has lost all sense of meaning. It’s a propaganda tool, most of all. A marketing gimmick to imply innovation.

Commenter john 9973 wrote:

The big problem with Bitcoin as a currency is that there is no mechanism for lending it.

There are some, but they’re not profitable because Bitcoin has no concept of debt, which is either a) the point, if you’re a Bitcoin fan or b) pointless, if you’re in the rest of the developed world.

You are not supposed to agree, Izzy ; )

In response to @Occupy till I die’s question:

Does Izzy think the current banking system is fit for purpose, and if not, how can it be improved with Blockchain tech?

I am not an apologist for the current banking system. I actually think Blockchain is mostly being used by banks to try and circumvent the capital constraints we’ve imposed on them post-crisis.

Izzy – I think there is utility behind the marketing hype though — popular discourse says Bitcoin or nothing at all. Any sector that wants digital certainty (e.g. is this horse or is it beef?) can benefit if they look past the hype.

So regarding bitcoin as a lending tool: that’s not true. We see bitcoin loans popping up everywhere. In fact, the bitfinex drama showed the degree to which bitcoins were being fractionally reserved.

SO, FYI – we’re both dyslexic it turns out so bear with us.

I’ve also been impeded by a crap keyboard, as I’m not in my usual place.

Izzy, at least you’re in your own office building ;)

So – on the marketing hype. I think this is a great way to appear innovative for banks and distance themselves from their old reputation. They’re trying to be hip and cool. There is no proof of concept anywhere that has reduced costs at scale, so it’s all based on a hypothetical at this stage.

While we’re waiting, here is an explainer graphic comparing our current currency system to public and private blockchain systems.

Izzy – on PoCs and hype, Barclays did a live transaction last week: Barclays and Wave complete world’s first blockchain trade finance transaction

It’s not just hype.

The problem is all the press releases are.

Digital certainty is a bit of an illusion. All that crypto can do is limit supply of something. So it’s great maybe for quota control. I did a piece about tuna blockchain. But this ignores the fact that as soon as you quota control something, without enforcement in the real world, the dark markets can still take care of the rest. We’ve seen this with bitcoin. It’s not scarce because it’s highly replicable. There are a million crypto currencies. This is how the Weimar crisis started.

Well – most of the press releases ():o)

These trials are a fiction. They’re all operating in simulations or sandboxes. It’s like clinical trials of pharmaceuticals. Until you test them on actual humans with something at stake, it’s a meaningless trial. Call me when Barclays has transferred or committed $100 bn of value to the blockchain at its own risk.

Digital near certainty, then – the biggest operational gripe in banking (and most industries) is the asymmetry of data that all parties would really like to be symmetrical. Granted, there is some data they would prefer not to be symmetrical…but the cause of much of the cost and manual processes in industry and banking is not being able to adequately reconcile.

Those trials will grow, I bet by 2019 we’ll see real numbers, but doing big numbers takes time. Taking time doesn’t mean it’s insignificant.

Reconciliation is a subjective business. Have you tried to negotiate your way around a delayed cargo delivery because someone in Nigeria failed to inspect the cargo properly, or signed off on it when really it contained something entirely different to what the T&Cs said it had?

Note to readers: we’re updating the posts as we go and embedding definitions of words that may be unfamiliar to folks like me who don’t hold a membership to the blockchain enthusiast club. You can also find a full web glossary of terms – created by Technology Trends – here.

Those trials are as misleading as the Uber SD driving trials. Counting accidents is meaningless. Counting human interventions is what matters, but those stats don’t make headlines.

Some of it is, but a lot of it is simply, “Hey where did that piece of paper go with the info we needed?” Yes, in 2016, there are trades that fail because someone can’t find the email or piece of paper.

You won’t replace all reconciliations, but replacing a lot has value.

Blockchain can’t stop document complexity. I did a post about shared drive abuse after trying to organise Camp Alphaville with multiple people having control of database creation. It was a tragedy of databases. Too many for any single person to monitor. As long as one person has control over origination it only adds to confusion (IMHO).

Here’s the post: http://ftalphavill…narchy-blockchain/

To answer @Boncoeur’s question:

Any links to examples of fractionally reserved bitcoin?

The best example of fractionally reserved bitcoin is Mt Gox. But all the Exchanges and wallets are in the business of fractional reserving. At Bitfinex the clearest example was stock lending. Even if you’re not naked shorting that doesn’t stop the build up of multiple simultaneous claims over one existing asset.

Agreeing a contract and then processing it are two different steps. Getting everyone to agree what it should be takes months in most high value contracts in financial markets… But then actually processing it once all parties have signed it should be trivial, and yet its not.

ISDA (International Swaps and Derivatives Association) quote 90 hours to process a middle and back office contract once agreed. On R3′s corda (and most platforms like it), that would be minutes, for admin steps or computers that don’t talk to each other well enough.

If the benefit here is getting computers to talk to each other better, faster cheaper… it’s not a panacea to solve world hunger, but it is useful.

Izabella – can you give us your fab pirate analogy?

Reader question here from Mr. T:

The main issue with SWIFT, SEPA and trade settlement protocols is it is too slow and often too manual in this day and age. Payments and securities settlement should be instant or near instant. Not T+1, T+2 or T+3. Will blockchain really deliver instant settlement? or what timeframe for settlement do you envisage? – Ciaran

Common misconception is that SWIFT or SEPA are slow. They’re not: SWIFT is instant in its messaging. It’s the bank systems (and checks like KYC) that slow the system down. This would be true for any Blockchain too. This is why when Santander did their internal trial of Ripple transactions they were T+1 not instant.

I’m actually very dubious Blockchain will speed up international settlement any time soon.

My general view is this. Bitcoin’s key innovation was the Proof of Work concept because of how it solved the corruption problem. This is akin to a deposit or reserve “skin in the game system”. Only if you have committed provable energy to the network, can you have a stab at influencing the payment. This is a great correction mechanism. But it’s EXPENSIVE. Bitcoin is a hugely costly system as a result. It’s also hard to scale unless you create layered escrow systems that introduce trust and competitive arbitrage advantage with those who operate on lower reserve limits.

I’m willing to concede that bitcoin may have a limited use case in servicing this expensive luxury No Man’s Land trust-less market. It’s the market the Romans serviced with gold. But any social system with aligned prosperity and cultural incentives is always better served by a trusted clearing system. We trust each other, that’s why we socialise imbalances through trusted systems.

The private blockchains strip out the only innovation here, because they claim it’s too expensive. But by doing so they strip out the only innovation that actually keeps the system honest. This makes it a jedi mind trick designed to cut out the other way we’ve ensured skin in the game is achieved…regulation.

Bitcoin’s proof of work limits corruption of data events to one in 30 billion years. I’d argue that’s overkill given an extinction event is one in a few hundred million years!

Per a whitepaper here by BigChain.

That anti corruption capability is available without that expense, like everything is a design choice when designing a system.

So PoW – I use the Yap stones of Micronesia to explain this. The effort
society had to commit to moving these big stones, kept the system honest because no one could move them single-handedly.

So look at the Yap stones. They too got corrupted, because soon enough the society realised they could create swap claims over Rocks to save on energy costs. This is how risk entered the system, and this is tantamount to the point that even if you create a full reserve system, all you do with it is create an incentive to bypass it via a swap substitute or dark market. Shadow banking. Hello.

Here’s a question from BitcoinByte:

Should a currency be decentralised or can a state issue it?

Really depends on your world view. Both have benefits, both have drawbacks. My own view is Bitcoin is a great option for the long tail of currencies that suffer from hyperinflation, but it won’t displace major currencies any time soon.

I actually partially agree with Simon on that.

Izzy, this is what you mean by Proof of Work?

I guess I’m not one to answer what the right incentives for a design of a system should be, but I do know banks and the economy as a whole suffer from silly issues in finance, like not being able to prove the date and time that something happened. Solving that has merit. Yes, there is scope for it to be abused, and used well. Much like the internet, technology is neither intrinsically good or bad, it just is.

I just don’t think it will help the inflationary currencies all that much, because the key thing that will help them is the ability to create prosperity, which is constrained by other more egregious social problems. Many currencies don’t use domestic currencies because they don’t trust them. Doesn’t mean their socioeconomic problems have been solved.

Carola – yes. those are the Yap stones.

I like the idea of a censorship resistant record (e.g. bitcoin) for something like land registry in emerging markets. If I can prove the legal title hasn’t been fraudulently changed that’s a good step. It doesn’t end fraud or crime, but it makes some types of it harder.

Simon – the problem with that view is that finance is subjective and social. And you can’t strip that out of the system by making it wishfully comply with some sort of idealised protocol.

Simon – we can prove title already. It’s called registering it with a trusted notary or foreign accountant.

Izzy, less so in a country where the government may come along and just edit that for you.

How does an emerging market edit Accenture’s accounts?

That’s why precarious countries contract using English law, and arbitrate in foreign courts.

Off-channel comment that the emerging market goverments can edit with a gun. But this is precisely my point. The gun power dominates. Whether something is on a blockchain or not is irrelevant.

I will refer to the standard Polish case, which is the confiscation of property by the communists. Apparently if I’d used a blockchain I could prove that I should be a major Warsaw landowner, and then could retire for ever more.

And those are good solutions, but they’re not limiting manipulation, a record shared outside of that, could limit it further, and can provide transparency to what happened when and where, harder with existing records (not impossible, but harder).

Sadly, this is not reality. I have the proofs of ownership. My granddad DID own the property. But in the interim if the property was changed into a primary school and the judicial authorities think I am too removed from the property to have a valid claim, that would make a primary school homeless. Who’s right?

The point is that there is no such thing as a foolproof record, because records are contextual. As is value, and property. We respect property rights as best we can, and it’s awful for someone’s house to be sold from under their nose. But I actually think blockchain would empower this sort of theft, because you could go down the ethereum THE CODE IS THE LAW route. Steal someone’s private crypto key from their computer and claim THIS HOUSE IS NOW MINE!

Law matters. Interpretation of the law matters. And for as long as people disagree, there will be a need for lawyers, arbitration and thus due diligence. All of which costs.

I’m not one to say who’s right in that situation, simply to say, there could be no doubt in the fact (although the example you outline shows little doubt already, there are others where doubt is an issue)… e.g. Is this really a blood stone or an ethical diamond? Today, paper based process, subject to fraud and internal fraud at the Gemological Institute of America even though the object itself (a diamond) never changes, if you change it you reduce its value.

n of m signatures is a technical term for “many people need to sign something digitally” meaning you’d get around the stealing keys issue.

Yes – that didn’t work for bitfinex. Because it exposes to what I call the Superman III problem.

Blind signing is meaningless. You need conscious inspection – or else you get to blind signing and thus the chance for exploitation.

Tech can provide a digital fingerprint of a diamond, inspection that is unconcious.

(Superman III – fyi — has the scene where Richard Prior hacks a computer using a double key attack by getting the other key holder so drunk he doesn’t know what he’s doing).

n of m isn’t 2 ;)

English please, Simon. I just about know what you mean. Perhaps explain with ‘gun to head’ analogy.

Holding a gun to the head of 2 people (or getting 2 people dunk) is very different to 6, 12, 24 or 2,000 who also perform some maths to verify the record hasn’t changed.

“n of m” doesn’t solve the blind signing issue. The more parties involved in cross checking transactions they have no real vested stake in, the more likely you have to introduce thresholds if you want scale. And thresholds can be abused. If thresholds are too low you need to employ a shed-load of human verifiers. If you set them too high, then you introduce risk opportunities.

john9973 – Intent is absent from some smart contracts, but not code that is delegated from the legal prose (e.g. Ricardian Contracts)

It also doesn’t solve conventional wisdom problem, or the group-think problem, where everyone collectively acts stupidly. Aka Libor.

Izzy – this is the point, designing the right system balancing scale and efficiency is a trade off.

It is always a trade off but the variables are moving targets, hence we have an FOMC board.

So what happens to all those accountants at the Big 4 – Deloitte, PwC, E&Y, KPMG – and others in world of distributed ledger accounting?

I think the Big 4 tools will change but practices will be very similar.

So my view is that bitcoin is basically a single entry system. It takes us to the world before Luca Pacioli. You can track one side of the ledger perfectly, but this gives you no control over the other side. We don’t know if there is a delay in the delivery. Also, the real delivery of goods takes time.

If I pay on eBay using bitcoin for a pair of shoes and then don’t receive them, eBay takes the risk. It has the ability to withhold funds until the shoes arrive. If I was to do the same trade on the open internet using bitcoin, it would be a caveata emptor nightmare for everyone which would paralyse trade.

They’ll use a new tool to ensure a thing happened and they can show their working in maths as well as with Independence (or in some cases a stamp).

In a world where we still frank letters for international trade, and that postage alone costs 40Bn, better use of digital signatures, and proof of tamper resistance is a good thing.


Treasury Map. This is up here for a reason

So my point is that there is nothing new under the sun, and that a lot of these “solutions” are very similar to those we’ve always come up with to regulate incentive and game theory problems.

From a game theory perspective, little is new… what is new is the tool we use to implement a given solution. This isn’t magic.

In response to roddy123′s comment about n of m:

Simon – but it reinforces Izzy’s point that a lot of the tech is old – but is just being repackaged. Also the risk with smart contracts is that they interact with dumb humans. And surely we are introducing complexity.

I know it’s been around, but embedding it in a smart contract, with workflow and shared records is novel.

Pirates didn’t trust each other either. They also couldn’t be trusted by civilised states. They had no honour apart from honour amongst thieves. This meant they were dependent on loot access for value transaction. But loot is hugely cumbersome to transport. How they resolved this social banking problem involved hiding treasure and then spreading the clues about.

So, I see this as intrinsically part of the bitcoin/blockchain solution. It works well, but it’s also super inconvenient and costly. Banks claim to represent the civilised social state and thus don’t need these cumbersome pirate treasure map tactics. They have claims on real people. Except we know this doesn’t keep them honest, because 2008. So then the question becomes, why blockchain? Blockchain does nothing but circumvent the rules we have imposed on them to keep them honest. (There are real blockchain moral hazard issues as a result. Akin to those that plagued libor.)

In closing, Simon and Izabella, why is this all so confusing?

Is it because – like Enron – it doesn’t work and will implode, leaving a few people rich, a few in jail and quite a few out of a job?

It’s not you, it’s the experts – if you ask 10 different people, you get 10 different answers on what “blockchain” is. Consider who you are and what you want to achieve.

I view blockchain as a collection of ideas and tech that can help to solve problems of provenance (change over time) and state (is something really true and do we agree?).

“Blockchain” in my view is NOT Bitcoin. It’s not perfect, it’s got a long way to come, it’s a toddler and it’s falling over everywhere. But if you want contract clauses to execute automatically and to know WHEN they executed and WHO agreed, blockchain is a tech set of ideas you should look at.

I’m going to cheat with my closing comment. I am going to cite a chap called Dan Conner who has realised blockchain is largely a waste of time and is advocating something called a concurrence ledger instead. As he states,

The blockchain and consensus protocols are artifacts of the Bitcoin system where their use made sense, but their continued use will keep blockchains from being implemented in some applications. Issues with consensus protocols center on four main areas: an organization is forced to rely on its direct competitors to process every business transaction; it is expensive to prove the non-repudiability of the system during a legal dispute; transaction processing times can’t be guaranteed and the order of transactions can vary unpredictably due to system usage; and intelligence about the organization’s business dealings are provided to its competitors in the network. Distributed concurrence ledgers are designed for situations where these issues aren’t acceptable.

Simon’s gone. So I get to have the last word. Mwa ha ha. I achieved this by using trickery, cunning and familiarity with FT systems.

Thank you Izabella and Simon, and to everyone who submitted questions and comments. The debate – and your comments – will form the basis of the main story of the accountancy special report. It will be published on and in old-fashioned paper on September 22. Keep an eye out for it!

Actually, our readers get the last word. You can continue the conversation even after the debate is closed in the comments below.