Interview with Andreas Antonopoulos on the Future of Bitcoin and Digital Currencies

Andreas M. Antonopoulos is a technologist and serial entrepreneur who has become one of the most well-known and well-respected figures in bitcoin. He is the author of “Mastering Bitcoin”, published by O’Reilly Media, considered by many to be the best technical guide to bitcoin. As an engaging public speaker, teacher and writer,  Andreas makes complex subjects accessible and easy to understand. As an advisor, he helps startups recognize, evaluate, and navigate security and business risks.

Andreas grew up with the Internet, starting his first company, an early BBS and proto-ISP, as a teenager in his home in Greece. He earned degrees in Computer Science, Data Communications and Distributed Systems from University College London (UCL), recently ranked in the world’s top 10 universities. After moving to the US Andreas co-founded and managed a successful technology research company, and in that role advised dozens of Fortune 500 company executives on networking, security, data centers and cloud computing. More than 200 of his articles on security, cloud computing and data centers have been published in print and syndicated worldwide. He holds 2 patents in networking and security.

In 1990, Andreas started teaching on various IT topics in private, professional and academic environments. Andreas honed his speaking skills in front of audiences ranging in size from five executives in a boardroom to thousands of people in large conferences. With more than five hundred speaking engagements under his belt he is considered a world-class and charismatic public speaker and teacher. In 2014, he was appointed as a teaching fellow with the University of Nicosia, the first university in the world to offer a Masters Degree in Digital Currency. In this role, he helped to developed the curriculum and co-teaches the Introduction to Digital Currencies course, offered as a MOOC (massively open online course), through the University.

As a bitcoin entrepreneur, Andreas has founded a number of bitcoin businesses and launched several community open-source projects. He serves as an advisor to several bitcoin and crypto-currency companies. He is a widely published author of articles and blog posts on bitcoin, is a permanent host on the popular Let’s Talk Bitcoin Podcast, and a frequent speaker at technology and security conferences worldwide.

 

Max Rangeley:  

What would be the ideal regulatory and tax system at the moment for Bitcoin, digital currencies, and blockchain technology in general?

Andreas Antonopoulos:  

I think the tax system really doesn’t need any special consideration whatsoever. There’s nothing different about using Bitcoin then there is about using Euros while in the United States, or using Yen while in Europe. If you’re a professional who operates a business that receives income from multiple countries, then you treat foreign currencies according to how you receive it. So for example, I’m in the United States, if I get paid in Euros I declare income at the point of sale at the price that I charge. Usually the price is quoted in US dollars, but if not I can convert it, and I pay income tax on it. If instead, I buy Euros in my brokerage account, hold onto them for a year and then sell them, then I pay capital gains. So depending on the use and contexts in which it was used I would either declare income or capital gains on a foreign currency if it was used as an investment. There’s no need to introduce any tax regime because you can do the exact same thing with Bitcoin, just treat it as a foreign currency. The only difference is it’s a foreign currency to every country. But other than that, you just do a currency conversion and pay income tax.

Max Rangeley:  

And I guess the Australian way of having GST, whatever it’s called, the sales tax, is incredibly damaging right?

Andreas Antonopoulos:  

Absolutely. It makes no sense. If you were trying to design a way to negatively affect the use of Bitcoin, block chain technologies, and the developments of innovation in a local industry in a country, probably the most effective way you could do that is to introduce such an arcane and illogical for taxation on something that is being used as a means of exchange. Most currency in the world is charged GST. I don’t see why Bitcoin would be. It makes no sense whatsoever. It’s burdensome, it leads to essentially making it impossible to use these currencies as means of exchange, they can only be used as long-term investments. Which arguably is a function that they’re not very good at because of volatility. It really means that only speculators can use Bitcoin in Australia. And if you wanted to create payment mechanisms, or retail, or e-commerce solutions on top of Bitcoin it would be wholly unsuitable. So that’s a terrible way to approach it.

Max Rangeley:  

Which countries or jurisdictions would you say are taking the most forward looking approach to this area at the moment?

Andreas Antonopoulos:  

Really no jurisdictions are taking a forward looking approach and the reason for that is quite simple, the most forward looking approach you can take towards a thing such as Bitcoin is to leave it the hell alone, because this isn’t something that requires government permission or blessing or endorsement or anything like that, it doesn’t require any additional regulation, it’s a self regulated mathematical system. So the most forward thinking thing the governments can do is recognise that they have limited power, limited understanding, and should stay the hell away from regulating things that they need to understand don’t have power over. Because any type of regulation at this point would probably be both premature and damaging to this technology. The most effective way to address this is the way most countries addressed the internet in the early days, which was just let it be and see how it evolves over a decade, and if things need to be changed in existing laws to address new realities then you change those things in existing laws. But to assume that you need to build some kind of special purpose regulatory framework for this new technology is really a bad way to start with this.

Max Rangeley:  

The UK and Switzerland seem to be doing less badly than some of the others. Which ones would you say are doing the least bad approach, if I could put it like that?

Andreas Antonopoulos:  

Probably the ones that have done absolutely nothing and haven’t really had any formal response to Bitcoin and are staying out of the fray, are probably doing the best. It’s hard to tell right now. I think that the US is doing a very poor job. The action that is being taken is being taken at the state level, which fragments the treatment of Bitcoin into 50 different jurisdictions, which makes the barriers very very high, and where those jurisdictions did take action, they took action that was entirely in favour of the incumbent banks and their methods of doing things. So they introduced regulations that treats Bitcoin as if it’s a banking system, which it isn’t. Which give full advantage to the banks, but really doesn’t give any opportunity for Bitcoin to disrupt the competitive environment.

   

Here we have an industry banking that has had almost no technology competition in the last 50 years. And the reason for that is because the regulators have effectively shielded the banking industry from technology competition. And along comes Bitcoin and you have an opportunity here to benefit customers by competitively disrupting one of the most entrenched insular corrupt and expensive industries, and backwards industries that exists, and what do the state regulators in the US do? They give them a helping hand to avoid competition from Bitcoin. That’s exactly what’s happened here.

   

In the UK there has been a lot of back and forth of the exact tax regiment in which creates a lot of uncertainty, which is completely unnecessary and damaging. But at the same time you’ve got this other situation whereby the banks have been able to essentially create an environment where none of the Bitcoin companies can open a bank account, or if they do open a bank account it gets closed. So the UK banks have frozen out Bitcoin from the banking system, and if anything, one of the things the governments could do is compel the banks to do business with Bitcoin companies, where there’s no justification for doing that, for shutting down the bank accounts. Essentially the banking industry is acting as a cartel and it’s trying to freeze out its only competition in the last 50 years and the government’s letting them get away with it.

Max Rangeley:  

If you look at the medium term, how do you think banks will adapt? Are their days numbered or do you think they’ll adopt block chain technology and carry on going? How do you envision that happening?

Andreas Antonopoulos:  

It’s a bit more complex than that. This isn’t simply a matter of banks saying, “Okay, let’s adopt Bitcoin technology and then we’ll continue,” or “Let’s not adopt Bitcoin technology and then it’s going to compete with us and take us out.” The very structure of banking, the architecture of banking changed irrevocably in 2008 when Bitcoin was launched. The fact that it is now possible to do the things that you can do with Bitcoin including transact across borders for very little cost in a way that doesn’t require intermediaries challenges the very poor architecture of banking. So banks as we know them are not going to continue to exist, and in fact you can say that about any industry. No industry as we know it will continue to exist perpetually. All industries are subject to the forces of competition and change and technological advancements. The fact that banking has managed to avoid those forces for 50 years doesn’t really mean much other than it was a temporary reprieve.

  But now the banking environment has to face a new reality. A reality in which a globally connected payment and transaction system that is essentially free can compete against them. So the problem is they can’t under their current structure simply adopt this and transform themselves that’s into something that’s Bitcoin friendly or block chain friendly. And the reason for that is because the entire structure of banking has certain foundational assumptions in it that preclude it from operating in this new space.
  If you assume that you need to be able to identify everyone who sends and receive money under customer regulations, if you assume that borders are meaningful and that you cannot have the same payment system inside the country, extends outside the borders of the country, if you start with those assumptions then you can’t possibly just adopt Bitcoin. Because to adopt Bitcoin either the banks would have to change to become something unrecognisable or they would have to attempt to change Bitcoin and Bitcoin isn’t going to change for them. So this environment is now an environment of transnational, open, end-to-end, peer-to-peer banking, and banks cannot become transnational, open, end-to-end, peer-to-peer institutions, they simply can’t. That is the definition of the opposite of a bank, right?
  So in a world without banking intermediaries, what survives doesn’t look like what a bank looks like today. Now this may take decades, but the wheels are in motion so it’s just a matter of time, this change must happen and now the world will be affected. The question is will banks simply become much more narrowly focused where they do these very border defined, intermediary based heavy handed expensive transactions and the rest of world moves on to using digital currencies without them? Will some of them be able to transform? Will some countries fall further behind? This is a fundamental challenge, because the assumption especially among Western governments that they can control the financial system on an end-to-end basis identifying every sender and recipient of funds, being able to track the amounts of finance across the entire banking system, that is the operating assumption of regulators. They assume that they will live in a world where they can control who sends and receives money and can see who sends and receives money for every single transaction that happens inside the borders of that country and everything that crosses the borders.
  Well, that world no longer exists. It’s just a matter of time until the technology catches up, but essentially that world has been challenged to its core. So what are the regulators going to do now? Are they going to simply accept that in the new financial world you can’t control the sources and destinations of every financial transaction. And it’s a fairly modern assumption. Up until the last 15 years, the idea that a banking regulator would be able to get reporting on everybody’s sending or receiving more than $3000 on any transaction would have seemed bizarre. But that’s the world we live in now, only it’s already obsolete.
Max Rangeley:  

What will this development mean for national monetary policy? We generally adhere to the Austrian School of Economics. So we’re against the idea that central banks should set interest rates, we think it’s highly damaging. Will this type of monetary policy just become impossible if Bitcoin and other digital currencies become more wide spread?

Andreas Antonopoulos:  

I would argue that regardless of whether digital currencies become widespread, the interventionist central banking era is coming to a end in a most spectacular fashion. This is the week when the federal reserve acknowledged that it simply can’t raise interest rates. The illusion of control is beginning to crack and so the idea of all powerful central banking institutions that can define monetary policy. The big question here is not whether for example the federal reserve or the bank of Japan or the bank of England will raise rates, the big question now among most of commerce is can they raise rates? Can they even control rates? So Bitcoin is interesting in that it has arrived on the scene at a time when central banking in itself is facing its most serious existential crisis since the introduction of central banking. And Bitcoin is almost an afterthought, but certainly it’s going to hasten whatever crisis is happening in central banking, because the one most powerful tool that central bankers have right now is that they have complete monopoly over national policy and currency and that monopoly is now broken.

  And in the past when a central bank created a policy that caused hyperinflation at the basement of currency, it could take the entire population hostage with it by imposing strict currency controls, as we’ve seen happen again in America and Asia and in the pre-war ear in Europe. So now of course, increasingly it’s going to become the case that when a central bank takes a monetary policy like that, a good chunk of the population will simply opt out of the currency. And if you can’t take the population hostage, then the power of central banking is significantly diminished. We’re probably going to see that first on the periphery in countries in Latin American and Southeast Asia where as hyperinflation starts rearing its ugly head, you see more and more people being interested in capital preservation through additional currencies, and they’re simply going to leave.
Max Rangeley:  

Did you see Andy Haldane, the Chief Economist at the Bank of England, gave a speech about banning cash so that radical measures like negative interest rates can be implemented? And he actually specifically said that it can be achieved by the Bank of England issuing their own digital currency. So they’re actually thinking along these lines of–

Andreas Antonopoulos:  

Is this a person who has a degree in economics?

Max Rangeley:  

Sorry?

Andreas Antonopoulos:  

Is this a person who has a degree in economics?

Max Rangeley:  

Not only that, but his tutor was one of our contributors, Professor Kevin Dowd who is a top economist.

Andreas Antonopoulos:  

I’m not an economist but I would start questioning the– My arguably non-professional grasp of economics says very simply that cash as a means of exchange– tokens, abstract tokens that operate as a means of exchange in an economy arise spontaneously and have arisen spontaneously throughout history in every culture, including among primates. Even monkeys eventually can be taught to use cash, and cash is a cultural artifact that arises spontaneously. To ban cash is to assume that people will not simply substitute the paper money with another form of cash. And in times of low liquidity, we’ve seen that, in fact, other things take the place of cash. Famously, in some parts of the United States and urban population areas, Tide detergent became a means of exchange for short periods of time in concentrated areas, we’ve seen gold take on that role.

  And the idea that now where there is the technological ability of anyone in the world creating a global, unforgeable and instantaneous currency system out of software, and therefore not only can you create your own currency but you can create a currency that is instantaneously transmissible at great distances and electronic, that you can somehow ban cash, that defies fundamental economic principles. I don’t understand how a trained economist can even think that you can ban cash– I mean you can ban the– what’s it called? You can ban the officially regulated national currency and you can increase the supply but all that would do is it would create demand for an alternative system. And unless you are prepared to switch off the internet, you can’t stop alternate assistance from popping up. So this is completely absurd.
  And it’s even more absurd that somehow endorsing that with a digital currency by the Exchequer would not simply result in people saying, “That’s interesting. Your digital currency can only be used inside the country, is of limited transmitability, is of limited exchangeability, and is not recognised anywhere else. But since you’ve introduced that concept, why don’t I use Bitcoin which is global.” Not just access and endorsement– I’m just shocked that people who are supposedly trained in the science of economics can say things like that, to not be challenged by other economists and say that that’s —
Max Rangeley  

This is the paradigm they’re working in. Some of the others– who is it? I think Rogoff, and there’s a few others that have talked about this. Essentially what they’re moving towards now is, because ZIRP hasn’t worked, they’re talking about NIRP, that is negative interest rates.

 Andreas Antonopoulos:  

The problem is, what’s to stop people just putting their cash under a mattress. So in order to have sustained negative interest rates–

You have ban cash, you have to ban cash, you have to ban safe– safe deposit boxes is another thing, right?
Max Rangeley:  

Yes.

Andreas Antonopoulos:  

A classic example is people who have their wages garnished or under some kind of court order, will take their cash earnings and go into the bank every week and instead of using a bank account they’ll have a safe deposit box. And they’ll go in and literally just stack piles of cash in there so that it’s outside of the purview of the economic system. The idea that the solution to a monetary crisis has become so extreme that you would have to implement totalitarian measures of control over finance and that that doesn’t strike people as indicative that you have an extreme crisis, that you have to take such extreme measures– I just find that astonishing. I find it astonishing how easily British politicians can take totalitarian positions in many aspects of life, and I find it astonishing that they’re not challenged when they propose totalitarian measures as a solution to a monetary crisis. If it’s gotten that bad, don’t you think that you have to address some of the root causes rather than plastering over the symptoms?

Max Rangeley:  

Absolutely. So back onto Bitcoin and the block chain, What types of innovations will happen on the Bitcoin block chain or versus people setting up their own block chains, whether it’s Etherium or also some of the more small scale ones or even some of the things that the banks are doing for themselves. How would you say the Bitcoin block chain can be used for a lot of those?

Andreas Antonopoulos:  

This is a really important point that I think we’re going to see play out in the next several years. But there’s a balance to be had here, which is that the effort required to create a secure block chain is enormous. And so far we’ve only had one block chain arguably that has reached the point where its security is of a scale that it can withstand global level attacks against it, and that’s Bitcoin. Now the idea that you can bootstrap a second currency to the same level of security requires a big leap of faith, and there may be some that achieve that, but in order to do so they have to be so strongly differentiated from Bitcoin and it must be really difficult to implement those same features on Bitcoin because the cost of bootstrapping another whole block chain is very very high. So for anybody who is designing such a system or deciding whether to adopt such a system, the question becomes, “Should I spend the extra effort to try to bootstrap a global security infrastructure for this, or is it worth sacrificing some efficiency or finding a way to somehow piggyback it onto the existing secured block chain, and then benefit from that existing security.”

  And this is really the conundrum that any designer faces. If you bootstrap from the existing system, not only do you benefit from its security, but its security then increases because of your own contribution. And this is a network effect, this is Metcalfe’s law. This is the idea that as a network increases in size and has more participants, its value increase exponentially. So that early advantage that Bitcoin has is very very hard to overcome. The idea that bank based closed currencies are going to compete with that is frankly laughable to me. It’s like saying  that someone is going to build an intranet that is as rich and interesting as the internet, and therefore people will change from the internet to running that intranet.
  And while you see some of that happening with Facebook, and in the early days we saw CompuServe and AOL have a go at that, eventually the result is that the internet has always won because it has a richer environment for innovation. If banks create their own private chains, they’re creating currency intranets. And these may be useful for internal purposes, but they’re never going to compete against a global open system. So eventually they’re either going to connect to a global open system, or they’re going to remain limited in use for internal purposes. So I really don’t see that as a challenge.
Max Rangeley:  

What do you think the effects of the fork are going to be?

Andreas Antonopoulos:  

While we don’t know if there will be a fork– I think a lot of people who have a limited understanding of Bitcoin find these really academic worst case scenarios and emphasis them endlessly and look at it and say, “If there is a 51% attack, that’s going to be the end of Bitcoin,” or whatever. The truth is that Bitcoin is a dynamic, adaptive, anti-fragile ecosystem that is extremely broad, that has enormous levels of support from somewhere between half a million and a million and a half people who are invested and involved in it. And within that system we’re going to see equilibrium reached dynamically. So what that means is that I expect that even if you have very acrimonious debates over the size of the blocks and things like that, eventually these are all going to converge on a commonly accepted answer.

  Even the most ideological of participants in this conversation, at the moment when they’re seeing the network consensuses about to swing one way or another, are going to look at where the prevailing winds are and they’re going to join the majority. Because you can keep an ideological position but if you go against the majority consensus you lose badly. So I think that fork is going to get resolved, if it happens. If you don’t see consensus and convergence happen before the fork, and the fork is a non-event, essentially simply a network upgrade that has already garnered full consensus before– to activate it. And if not it’s very quickly going to converge on a majoritarian position. That’s built into the protocol. So I think all of the doomsday scenarios about the fork and the debates here are wildly overrated as crises, and the risks are wildly overrated and in the end, I think not much is going to happen.
Max Rangeley:  

What would you say are the most exciting blockchain innovations that you’ve come across so far? First of all using the Bitcoin blockchain and then second using other blockchains.

Andreas Antonopoulos:  

I think the thing we’re seeing right now is that a lot of the innovations that are most interesting to me as a computer scientist are technical innovations that enable features, and not applications. Meaning that the things that excite me the most in the last year or two have been things like hierarchical deterministic wallets, multi-signature technology, delayed execution transactions, lock time and sequence based transactions. Those three capabilities together have opened the door for a vast array of possible applications where designers can take these core capabilities of the network and mash them together to create completely new applications. So for example, the combination of those three technologies has been used to create payment channels which are a mechanism for implementing extremely fine grains, micro-transactions, both in terms of the size of the transaction and in terms of the timing of the transaction for the delivery of metered services. Meaning for example, streaming video, wifi services, or any other type of service where you can meter by the minute, a second or even the hundreds of microseconds or milliseconds sorry.

  And where you can say, for this service you’re going to pay $1000 every 200 milliseconds, meaning five times per second. And the fact that you can build these payment channels now to do fine grained micropayment billing of metered services is an astonishing innovation. And it came out of the combination of these three primary features. And that’s just the first we’ve seen of those features. So I think we’re still seeing very fundamental research based innovation in the core building blocks of Bitcoin, and it’s not immediately obvious what applications these will have, but they enable very very complex applications. It’s akin to the early 90s when you started seeing developments in the protocols on the internet for implementing video and voice, and this was still at least five years before the introduction of YouTube, live and streaming video on the internet, video conferencing, Skype or any of those technologies. And you could see they were opening up those types of potential, but between that time and essentially the demise of the TV industry as we know it, may take a decade or two, but the writings on the wall.
  So I’m looking at these fundamental block chain innovations. In terms of the broader block chain, I’m very interested in two areas of research. One is smart contracts are related to Etherium. I think there’s a lot of interesting things going on there. And the other one is in the use of block chains to do various forms of asset registration, whether that’s registering ownership of a bicycle, a car, or a piece of real estate, and being able to transact and track the ownership of real world assets on a block chain. So those are all advancements that I think are very interesting. But quite honestly the innovations that will be shocking to people are still many years out, and it will be the types of innovations that depend on broad availability of these visual currencies and probably adopted across a big population with mobile wallets. And then you can start seeing applications that simply have no parallel in today’s technology. And I think that’s when it gets really interesting.
  If you compare that to the early intranet, and the early intranet you could predict that people were going to be doing video conferencing perhaps, and you could predict that people were going to use the intranet to do publishing, but things like social media, crowd sourcing, those kinds of developments you could not predict. You couldn’t predict them because no such thing existed before, and because in order for that to exist you had to have a certain level of momentum on the internet. I think we’re going to see the same thing with digital currencies. Once you get to a point of adoption that’s deep enough within populations, you’re going to start seeing the emergence of applications that have no parallel in today’s payments and financial systems, because they simply can’t be done with today’s technology.
Max Rangeley:  

Thanks, Andreas. Was there anything else you wanted to talk about that you think would be interesting for our newsletter?

Andreas Antonopoulos:  

To me, the interesting and fundamental question that arises with digital currencies is this, we’re now facing a future in which two possible outcomes will exist. One is– or rather I’m going to rephrase that. The future of money is a digital currency. That’s a fact that I think is clear and evident. No matter what happens, 10 or 20 years from now, digital currencies will be the dominant form of currency. The question is what kind of digital currency it will be. So there we have a choice as a society. We can either have a digital currency that is centrally controlled, that is controlled in terms of institutions and has built in a level of surveillance and totalitarian control that we’ve never seen before, that is unprecedented in history that essentially gives governments and banks the tools to be able to see every single financial transaction happening by every single person in the country or beyond in real time, and at the same time be able to, without really any control over that power, freeze, confiscate, seize the money of any individual. That’s one possible future. But we’re heading very quickly in that direction. And at the moment, the only thing that escapes the grasp of that kind of system is cash, and clearly you’re seeing people who are already toying with the idea of trying to ban cash. And they seem very comfortable with this idea of totalitarian finance.

  The alternative future is a future where currency is controlled by individuals. It is transnational, it is borderless, it is global, and it opens the possibility of economic inclusion to populations that have never had access to finance before. Possibly bringing somewhere between two to four billion online into an international financial system who have never had access like that. And it completely removes the ability of governments to do surveillance and control the finances of individual citizens. And if you look at it from that perspective, that’s a pretty stark choice. So the bottom line is, the future of money is digital. And there’s two possible futures, one is people-centric, network-centric, peer-to-peer, decentralised and resilient. And the other is control-centric, totalitarian surveillance based, money that is enormous power to government, and is at a very fundamental way incompatible with democratic institutions. So I’m very much in favour of doing the peer-to-peer decentralised version of that future. Because I think that’s also hopeful and optimistic, but also because I fear that the alternative is a totalitarian nightmare.