Bank of England

Senior Bank of England advisor rubbishes Bitcoin

One of Mark Carney’s senior go-to thinkers has used an op-ed in The Financial Times to explain why “bitcoin fails the innovation test”.

Huw van Steenis – a former senior banker at Morgan Stanley and Schroders, and now senior advisor to the governor of the Bank of England, Mark Carney – has used a column in The Financial Times to relay his personal take on Bitcoin. In it, he cites five criteria against by which he seeks to judge it in terms of it being a “genuine financial innovation.”

Specifically, he asks:

“Is it cheaper?”

“Does it offer better service?”

“Is it faster?”

“Does it democratise access?”

“What are its side-effects?”

Steenis then takes time to shoot down Bitcoin’s performance in all of those self-chosen metrics, based on well worn arguments that observers in the space will have heard before: transaction times during the boom on 2017/18, price volatility, transaction fees and power consumption in mining.

While these are all points worth making, Steenis – who seems to use the term ‘crypto-assets’ and bitcoin interchangeably throughout the piece – pays no attention the the plethora of altcoins that seek to address the very issues he brings up. This is, it would seem, a function of judging cryptocurrencies in terms of the financial impact they are having at present, more than in terms of their potential as technological innovation – perhaps what you should expect from a man of Mr. Steenis’ pedigree and position.

However, comparing a technology which is less than a decade old to the tech underpinning modern credit card and payment systems, which have been operating for several decades now, seems somewhat unfair as a contest.

What’s more, beyond a somewhat pejorative observation that “This is not to say smart engineers and computer power will not bring solutions to some of these problems…”, Steenis also neglects to acknowledge any of the work being done on Lightning Network transactions and other innovations within the bitcoin ecosystem itself that has occurred already this year. Nor does he address the headway that Ripple and its XRP crypto appear to be making into the back-end systems, of banks – even as they prepare to become even more customer facing.

“The broader point is this,” he concludes, “financial innovations are only as good as the customer problems they solve and they depend on standards adapting.”

This is a truism it’s hard to argue with. However, it offers a somewhat blinkered view on the potential of Bitcoin to be innovative going forward as well as the wide number of alternatives to it that are already out there. His view, though, is especially interesting as the Bank of England Task Force on Cryptocurrency prepares to report on its findings during Q3 this year. Its opinions on the matter could go a long way to shaping policy that could encourage or stifle blockchain innovation in the UK.

Whether Steenis’ take on the matter is bellwether for the wider opinion within the BoE is unclear, however. Given Mr. Carney’s similarly crypto-sceptic comments, it seems unlikely that he is an outlier simply wanting to make his stance clear amid shifting sentiment. It’s certainly an opinion that suits the FT‘s worldview (and he is noted as writing this in a “personal capacity”), and it is also one that will no-doubt resonate across the somewhat rarified financial stratosphere in which he moves.