Can The Bank of England Compete With Bitcoin?

One of the perceptions of Bitcoin (which I wrote about previously) found by researchers is that potential users do not feel comfortable that there is no central authority controlling the currency. Not surprising, given this rather ironic perception, potential users generally did not understand how Bitcoin works and as there was no central authority overseeing it they felt to scared to use it.

Interesting then that the Bank of England is working with researchers at University College London, to define a centralised form of cryptocurrency: given these perception it is what some potential users might see as the best of both worlds.

The new cryptocurrency was first documented in a paper presented last month. It has been dubbed RSCoin.  And its not just theoretical as code for an implementation of the cryptocurrency proposed in the paper was also released.  There is considerable transparency in how this will work, which will hopefully reassure those that find central bank involvement unwelcome.

Anonymity vs Pseudonymity In Cryptocurrencies

I wrote earlier this week about some of this misconceptions around Bitcoin.  Probably the biggest is that if you transact using Bitcoin you can do so with total anonymity.  In the case of Bitcoin Users are confusing anonymity  with pseudonymity.

Part of the design of the blockchain that Bitcoin uses is that every transaction is visible.  The blockchain is highly visible.  The table below shows the very latest blocks that have been accepted into the Bitcoin blockcahin:

This data is drawn from a site called http://blockr.io/ but there are several. If you visit https://blockchain.info/ you can even see the latest transactions that have been submitted but not yet accepted into the blockchain. In most of these online systems you can drill down into each transaction, including the as yet unconfirmed ones.  Here's one chosen at random:

Perception Of Bitcoin: Not What You Thought

I've written before about crypto currencies such as Bitcoin: I am a self confessed sceptic  However, until now I'd never seen any form of properly peer reviewed study on what general users think of Bitcoin.  Yes it has a market capitalisation of something around $6bn but does that mean it is going to be popular outside of specific niche communities.

The research I recently came across would suggest Bitcoin has a long way to go before it gains the popularity that some would have us believe it has already attained.  The key findings of the study were:

• People who actively use Bitcoin did not necessarily understand how it operated
• Bitcoin users overestimated it's ability to protect a users anonymity - many not realising how transparent the transactions are
• Those who had not used Bitcoin g thought it "too scary" to use

Probably the most ironic finding was that Bitcoin users want government insurance of Bitcoin deposits.  One of the biggest selling points for Bitcoin was that it was decentralised and had no government involvement. 

If you put all of these findings together you do find yourself asking why people are using Bitco9in at all.  Some cadres of user we know use it to obscure transactions: the findings in the iOCTA report of 2015 were that 40% of criminal to criminal transactions within Europe used Bitcoin somewhere. But that leaves a lot of users who are using it for non-criminal purposes, many of whom appear to have based their understanding on high level descriptions or biased reporting. 

Even those involved in developing Bitcoin appear to think it is on its last legs.  But, despite my scepticism I'm not sure. I've heard others say it is doomed and will fail imminently - they've been saying that since it was first mooted in 2008/9.

If you are going to trust your personal wealth to a technology I would strongly advise that you have an understanding of that technology.  After all it's the technology that you have to trust as their are no people, no centre, no bank to whom you can turn.