The Leveling of Bitcoin

If the financial services industry was threatened at all by the advent of Bitcoin, it couldn't have launched a more effective attack on the online currency system than it did by giving a new documentary film, The Rise and Rise of Bitcoin, a screening on the first night of Sibos 2014 in Boston last week.

Daniel Mross, a wide-eyed Bitcoin enthusiast, serves as a main focus of the film directed by his brother Nicholas. Daniel is such an evangelist for Bitcoin that he dabbled in "mining," the practice of working on Bitcoin transaction processing to earn Bitcoin credit. This was more realistic for individuals in 2012 and 2013 before professional companies with more resources and bigger servers stepped in to earn income from the activity.

However, the Mross brothers' enthusiasm for Bitcoin blinds them to its flaws. They include just a short remark from one Bitcoin critic, Georgetown University professor James Angel, who points out that government backing of currency brings stability and trust that are not possible otherwise.

Largely, the film follows Charlie Shrem of BitInstant, a Bitcoin transaction facilitator, and Mark Karpeles, CEO of the Mt.Gox Bitcoin exchange, all the way up to the demise of their enterprises and their legal indictments (as well as Jered Kenner, CEO of the Tradehill Bitcoin exchange, which closed as well, although he did not face legal proceedings personally). The filmmakers don't take a position what the demise of these enterprises means for Bitcoin, which is a glaring omission, since BitInstant, Mt. Gox and Tradehill collectively were key pieces of infrastructure in the Bitcoin boom, and they were all legally barred from continuing to operate.

For all intents and purposes, Bitcoin has receded due to reputational, security and money laundering issues. The documentary, made with great enthusiasm for Bitcoin and an apparent desire to promote the currency, ends up exposing Bitcoin's flaws and problems without pointing a way forward for cryptocurrencies in general.

The one legacy that may survive Bitcoin is the "blockchain," the online, open-source ledger of its transactions, which the banking and financial industry is starting to pick up on. (For more about the blockchain, see Timothy Bourgaize Murray's reporting for WatersTechnology from Sibos). Also, the legal entity identifier, which Inside Reference Data covers extensively, resembles the 52- or 64-character coding used for Bitcoin transactions and embedded in physical Bitcoins that have been minted.

Bitcoin and cryptocurrencies aren't entirely without merit, and Bill Gates cited Bitcoin as a useful and valuable idea right at Sibos in its closing keynote, but added the caveat that it should be adjusted or emulated in another form to remove its money laundering issues. That's the very least that would need to be done to make Bitcoin or cryptocurrency legitimate.