Series #14
What is the role of currency? The prospects of Bitcoin?

Series #14 : What is the role of currency? The prospects of Bitcoin?

“Bitcoin”, or as some call it “digital currency” or “virtual currency”, has been widely discussed lately. As so many things go digital these days, will virtual currency as well become mainstream?

There are plenty of articles on bitcoin in a variety of media, but those of us who are new to the topic, may find the debate quite confusing in the context of the greater questions about the role of technology and currency in society.

For our #14 session of “Davos Experience in Tokyo” on April 18, we would like to talk about the place of currency, including bitcoin, in our lives. We want to keep the debate open to various currency-related issues, rather than focus exclusively on bitcoin.

Currency is often discussed in general terms, such as “the strength of the US dollar, Euro, Japanese yen”, or the way “exchange rates affect the economy and competitiveness” of certain countries. Would currency and exchange rates continue to play a significant role in the international financial market? Will virtual currencies such as bitcoin transform not only the structure of international financial market, but also the accessibility of financing to the developing countries? What impact will virtual currency have on our own asset

accumulation?

I believe many of us may have heard of bitcoin but do not quite understand its role and the mechanism behind it. That is why at out next session, we will have a guest with deep understanding of and experience with bitcoin. We have also prepared for you a helpful

reference list on the subject, which you would receive upon registration for the session at our website.

Currency is not some complex tool of the foreign exchange market, or a political question to be solely discussed at diplomatic tables with little relevance to our lives. Currency affects our asset value and thus has a great significance for our livelihood. It is a subject that each of us should think about.

At our next session, we would also like to explore not only the technological aspects of bitcoin, but also the currency’s implications beyond technology.

As April marks the beginning of the fiscal year for many companies and some of us may change career and/or place of work, the next session’s topic is a good opportunity for us to think about our financial status and outlook in the future. So please feel welcome to join us on April 18!

Video & Discussion


Summary

Session # 14, “What is the role of currency? The prospects of Bitcoin?”

【PART1】

The first session of the “Davos…in Tokyo” series for the new financial year, started with an announcement from Professor Ishikura about the new direction in her career. After retiring from the Graduate School of Media Design at Keio University, Professor Ishikura plans to work on various projects independently. She has been advocating the concept that the 21st century is an era, when individuals can collaborate on the global level and work without an affiliation to any organizations. Even though the idea is novel in Japan, a country where every aspect of life is driven by organizations, it is connected to the advances in global communications and digital technology.

Bitcoin, the digital currency independently born in 2009, is one example of a technology, which cuts through regulations and national boundaries. In the Japanese media Bitcoin has been covered as a new and sensational concept and only a few people are familiar with the mechanism behind it. That is why for our session #14 of “Davos …in Tokyo” we invited the head of Japan’s Digital Money Association – Mr. Yoshimitsu Jimmy Homma – to present some basic facts about the technology and the currency.

In his presentation and the ensuing discussion with the audience, Mr. Homma emphasized the following points:

  • Bitcoin is a disruptive technology, creating digital money designed to be distributed over the Internet. Unlike credit cards, it has been designed to take full advantage of current and new technologies.
  • Payments through bitcoin, whether direct or through exchange to a conventional currency, are cheaper and more secure than payments through credit cards or cash transfers.
  • Worth about $7 billion, Bitcoin is coming closed to Western Union, valued some $ 10 billion. However, it still has a long way to go, competing with the credit cards industry, worth about $ 200 billion.
  • Governments are still the main obstacle to the spread of bitcoin, because it has the potential to compete with national currencies and makes it more difficult for some states to control the money flow.
  • As an open-source technology, Bitcoin is transparent and well documented. Studying the mechanism and the technology behind bitcoin is a key element for the establishment of the currency as mainstream.

The main challenges ahead of bitcoin, pointed out by the audience were:

  • Insufficient network effect and low acceptance rate of direct bitcoin payments.
  • The need of an exchange mechanism to conventional currencies and the highly speculative nature of the currency.
  • Insufficient infrastructure.

【PART2】

After gaining a better understanding of bitcoin, we proceeded with a breakout session in five groups, covering the technology, price, legal and social aspects of the currency. The groups then reported back their insights and conclusions from the discussion.

On technology, the participants discussed the complex nature of the Bitcoin technology as an obstacle to the establishment of the currency. They have concluded that trust in the technology is a key element, making an analogy to Windows, which despite being a complex system is widely trusted and used. The group also discussed the advantages of early entrance and raised the question whether a latecomer with little technical expertise may benefit from bitcoin. Another case in point was security. The group concluded that while bitcoin is an appealing option, more regulation, security and confidence in the system are needed for it to take off.

On price, the participants discussed the origins of bitcoin, the demand-and-supply dynamics of the currency and its asset aspects. Used as means of anonymous payment on the Silk Road website associated with dealing in illegal goods, the supply and demand for bitcoin has evolved differently from that of a conventional currency. Furthermore, even though bitcoin would ideally be used as a currency, currently it is widely used as a kind of stock and investment. The group concluded that if bitcoin does not become widely used mainly as a currency, it might disappear, because as s stock on its own, it does not have inherent value.

The group discussing the legal issues associated with bitcoin concentrated on money laundering, consumer protection, tax issues and fluctuation risks. Our participants identified three main stakeholders – the buy and sell entities of bitcoin, the bitcoin community and national governments – and discussed the dynamics between them in case of legal conflict.

On the social aspects of bitcoin, our participants formed two groups due to the high interest in the issue. A common theme reported by both groups was the potential of bitcoin for developing countries, where many people lack access to basic financial services or cannot afford the high commissions of banks and credit card companies. However, the participants emphasized that this potential and desirable use of the currency needs to be distinguished from another consumer group, which uses bitcoin speculatively either as an investment or for illegal business. One of the groups noted the social risks associated with money laundering and the potential of bitcoin to circumvent international sanctions against some countries. Risks related to the lack of regulation, rudimentary infrastructure and the potential use of bitcoin to avoid taxation were also mentioned.

We concluded the session with a wrap-up discussion by Professor Ishikura and Mr. Homma. Mr. Homma compared the current state of bitcoin technology with Internet 1.0 and the TCP/IP protocol. He expressed confidence, that bitcoin will follow the evolutionary path of the Internet and soon many user-friendly applications will emerge, establishing the currency in the mainstream. On her part, Professor Ishikura noted that while bitcoin has seen predominantly sensationalist coverage in the Japanese media so far, more informative articles on the issue are emerging recently so this will lead to a better understanding of bitcoin and its potential in Japan.

The next two sessions of “Davos… in Tokyo” will be on May 30 and June 19, starting 19:30.

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