Marc Hochstein, editor-in-chief of American Banker, recognizes that five years ago, when writing about bitcoin’s advantages, he failed to realize bitcoin’s limited throughput would undermine the benefits of low costs and near-real-time settlement. Average transaction fees now exceed $2.50 with confirmations sometimes taking hours.
Hochstein, writing in American Banker, hasn’t changed his position that bitcoin’s efficiencies have much to offer banking, but he now sees bitcoin’s most important feature as censorship resistance, a feature that has become important in today’s highly polarized political climate.
Hochstein still stands behind his 2012 headline: “Lightning fast, dirt cheap: bitcoin shows what banking could be.” Centralized systems that don’t require computers worldwide to achieve consensus on the state of a ledger can provide real-time, low-cost payments. Bitcoin may have already driven this to reality, as the Federal Reserve Faster Payments Task Force in 2012 did not provide same-day settlement among bank accounts.
Bitcoin’s most important feature, however, is not its cost or speed of transactions, nor its account privacy or its exchange rate with the dollar. Bitcoin’s key feature is its censorship resistance, which addresses a real problem. Centralization can offer efficiencies, but it presents points of failure that are vulnerable to social or political pressure.
Consider how governments forced banks to stop funding WikiLeaks. WikiLeaks was able to accept bitcoin donations, demonstrating the benefit of a decentralized system.
E-commerce providers span the ideological spectrum and can pressure payment systems and governments to stifle speech they don’t like. Two years ago, activists angered by a police shooting in South Carolina forced Amazon, eBay and other companies to stop selling merchandise, including toys, with the Confederate flag.
In an environment where payments are subject to veto by self-appointed middlemen, current politically correct social norms will become tomorrow’s control state. Hochstein points to the controversies over USAA, an insurer, sponsoring Fox News host Sean Hannity and Bank of America sponsoring an anti-Trump interpretation of Julius Caesar by Shakespeare. These are examples of financial institutions being enlisted in censorship campaigns.
In an increasingly polarized nation, eliminating a business relationship to appease a certain faction could undermine the company’s reputation with other customers.
Where politics makes people stupid, bitcoin was designed to make them apolitical.
If a lonely man in a wheelchair wants to pay a consenting adult in another city to strip in front of a webcam, the carceral left and the religious right cannot join forces to stop him from using bitcoin to get what he wants.
Hochstein acknowledges that terrorists can take advantage of bitcoin as well. Long-term solutions to terrorism, however, could fall outside the scope of financial services policy.
While bitcoin was designed to make people apolitical, politics could nonetheless undermine bitcoin. The bitcoin community is split into opposing factions over how best to scale bitcoin to allow faster transaction times.
Hochstein summarized the block size debate between the faction that wants bigger block sizes to allow faster transactions and those who fear such block sizes will centralize bitcoin mining and suggest instead a second layer to track small, frequent transactions separately. He noted the debate has intensified and will come to a head on Aug. 1 when a fork could begin that could split bitcoin into two currencies.
Hochstein surmises that a faster and less costly system for making international payments is needed, but it also needs one that is censorship resistant. He sees bitcoin as the best hope for censorship resistance.
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