One hundred and seventy eight years ago, Hans Christian Andersen wrote a political satire disguised as a fairy tale. That tale told the story of two weavers who persuaded the Emperor to pay them to make him a suit of clothes so amazing that only the stupid and incompetent wouldn’t be able to see them. Given the spate of news these days about Bitcoin, MPD CEO Karen Webster can’t help but see the similarities. Do you?
Try really hard now to connect these dots:
And don’t even get me going on the great negotiation between the imprisoned Silk Road founder and assassins for hire over allocation of exchange risk.
Yes, you really can’t make this stuff up.
But you can relate it to a popular children’s fairy tale, published by Hans Christian Andersen in 1837 – or at least I can.
The famous story of “The Emperor’s New Clothes” was a political satire disguised as a children’s story, intended to poke at the Prince for his haughty and arrogant style. Of course, as we all know, the Emperor’s New Clothes turned out to be his birthday suit, but marketed to him as so special that only the out of touch village idiots couldn’t see them. Not wanting to be classified as a village idiot, people (somewhat nervously) oohed and aahed.
So, without further ado, here’s the modern day version of that tale, something I’ll call:
Once upon a time, a bevy of innovators went to see the Emperors of Venture Funding in Silicon Valley. Once there, they convinced those Emperors of all things venture-backed to invest in a scheme so amazing, so transformational, and so incredibly innovative, that only the stupid, incompetent and ill-advised wouldn’t be able to see its potential.
Flattered to have been approached by such bright, energetic innovators and eager for the chance to parade through FinTech land with tales of their astute foresight, they opened their checkbooks wide and agreed to make investments totaling in the hundreds of millions of dollars.
Observers applauded the brilliance of the Emperors who could see a future that others couldn’t. Some eagerly invested alongside them, while others – seeing the flow of money in support of this brilliance – formed ventures of their own.
The future that they all envisioned was one in which a new currency, bitcoin, would rule the land, and its blockchain and underlying infrastructure would make moving money around the world between two parties fast and nearly free.
A decentralized, distributed infrastructure and protocol is how we move data over the Internet, the Emperors said, so why shouldn’t that be good enough to move the trillions of dollars that flow daily around the world in the pursuit of commerce? After all, technology – and the math that underpins the blockchain and its protocol – is foolproof and cannot be tricked.
And besides, bitcoin is so powerful, that by 2030, in just 15 years, it will become the world’s reserve currency, displacing the world’s most stable and valued currency, the dollar!
The influence of the Emperors of FinTech land has swept far and wide over the last few years – stretching from the halls of the most hallowed Financial Institutions around the world to governments that, intrigued by the idea, are fearful of being left out of playing a part in this century’s most brilliant financial innovation.
Now, it is true that this digital currency with all of the characteristics of cash – anonymous and pretty untraceable and instantly conveyed – is indeed, brilliant.
And like most brilliant innovations, it has inspired and ignited entirely new financial and payments ecosystems.
For instance, bitcoin was the currency of choice on the Silk Road to purchase illegal contraband, hire hitmen and otherwise fund nefarious activities – igniting an online underworld that needed a reliable method of payment to do so.
It’s the currency of ransom when malware is implanted on personal computers. In fact, experts say that cybercrime is a less friction-filled business now, since bitcoin as a method of payment makes it easy for sellers and buyers to interact.
Many of the exchanges are run by criminals eager to cash in on this innovation. As I said at the start, the operator of one of the largest exchanges, Mt. Gox, took millions of dollars from the exchange before bankrupting it and was just recently arrested in Japan. Two others who are running an unlicensed exchange are implicated in the hack of one of the largest financial institutions in the land.
Three of the board members of the Bitcoin foundation, its governing body, have had serious run-ins with the law. Maybe it’s just me but that doesn’t seem like a great track record.
But the Emperors remind those who raise these concerns and question bitcoin’s future, that it’s only the stupid, incompetent and ill-advised who simply don’t understand the power and potential of this massive innovation. Like the Internet, which in its early days was called the “Wild West,” they say bitcoin will evolve through this period and emerge as something that will democratize the movement of money.
It will be transformative!
When presented with challenges to the implausibility of having a single global currency that precludes the ability of any one country to use its currency to inform fiscal policy, the Emperors point to the developing worlds where locals have little faith in their own currency and would welcome an alternative. They ask you to ignore as irrelevant the fact that those countries have a reliable currency, called the dollar, that they could standardize on, if they were concerned about their own. Oh wait, many of them do.
They also point to the fact that Greeks embraced the bitcoin during its most recent period of financial crisis, asking you to ignore as irrelevant the debate now underway in Europe about the shortcomings of a Eurozone currency that does not permit a country to manage its own currency, and therefore control its own fiscal policy.
When pressed about the relevance of bitcoin — the currency — the conversation shifts to the merits of the bitcoin protocol, the technology that’s open source and cloud-based and enables a transparent movement of money – free (or close to it) around the world. They ask you to disregard the fact that building a global network to move money around the world owned by no one is both unrealistic and implausible.
They speak of the need for faster payments, and ask you to ignore the fact that faster payments initiatives are being incubated all over the world and that innovators are devising new schemes leveraging existing rails and rules to make that possible – safely and securely.
They ask you to ignore its lack of transaction volume as irrelevant, since like all new payments methods, it’s just a matter of time before it catches on. They ask you to ignore as unimportant the fact that the bulk of activity around bitcoin in its early days was as a speculative commodity whose backers hoped to see its value increase – only now to find themselves underwater as bitcoin hovers in the mid-$200s.
They also acknowledge the need for governance and operating rules, yet ask you to suspend disbelief that risk management and compliance efforts are costly, and when pursued will take the notion of “free” and make it irrelevant. They ask you to ignore as irrelevant the fact that the existing global money movement system has a well-tuned compliance and risk management structure that works and has helped to avert the bad intentions of bad actors around the world.
So far, in the land of the Emperors of all that is venture-backed, bitcoin’s infallibilities seem to ring hollow. It seems that only those true believers are enlightened enough to see its future.
It has taken longer than I ever thought it would for someone standing in the crowd, watching from the sidelines, to question bitcoin for what it is. It leaves many of those standing on the sidelines, questioning, wondering just what else must happen for someone to call out the equivalent of, “Hey wait, isn’t the Emperor naked?” One thing I’m sure of, based on past reactions to my writings and those of my colleagues on PYMNTS.com, I will be called ignorant, a Luddite, and probably a lot worse on Reddit.
In closing, I will mention, that after Hans Christian Andersen wrote his fairy tale, it was reported that the Prince bought him a ruby ring and presented it to him as a peace offering, and a way to have him think more favorably of him – and write less unfavorable things about him.
After that there was nary a cross word written.
BTW, I’ve always liked rubies…. ;)
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