How Bitcoin becomes money: Jon Matonis interview

Jon Matonis, Founding Director of the Bitcoin Foundation and Vice President of Corporate Strategy at nChain, delivered a speaker session titled ‘How Bitcoin Becomes Money’ at PayExpo Europe 2017, which took place 4 & 5 October at London’s ExCeL. Here he shares a few elements of what was discussed at the conference.

Between December 2016 and August 2017 the value of Bitcoin more than quadrupled, leading to increasing interest and media attention to cryptocurrency. However, speculation continues into whether this exponential growth is an unsustainable bubble about to burst – or not?

At the same time, there are increasingly frequent news stories about merchants – from high street retailers and service providers to property developers – accepting Bitcoin as a means of payment.  So how does it work?

So how does Bitcoin work?

Money is exchanged over a peer-to-peer protocol, meaning no centralised institution is involved.

So how are payments made?

To make a payment or to send bitcoins to other users, individuals require both a Bitcoin address and a private key to authenticate the transaction. These can be obtained by registering a digital wallet through an online application and then creating a public/private key pair with a secure password.

Checking that the transaction is valid and that the buyer or sender has sufficient funds is done by a distributed consensus system of networked computers that confirm the transaction via a mechanism called ‘mining’. When a transfer is completed, a new sequence or ‘block’ is created in a visible data ledger called a blockchain.

Do cryptocurrencies need more or less regulation?

Increasing regulation on Bitcoin and cryptocurrencies will limit growth in overbearing jurisdictions. If you look at the online gambling and sports betting market in America for example, excessive regulations simply caused day to day operations to migrate to countries more tolerant in issuing gaming licences and oversight, such as Malta and Gibraltar.

For those that say Bitcoin supports money laundering and black-market activity, it should be noted that money does not do bad things, people do bad things. The Bank of England, Federal Reserve or an institutional bank would not be faulted for funds withdrawn to pay a ransom demand, so why should Bitcoin?

What does the future of bitcoin present?

In the short term, I see the price hitting or surpassing 10, 000BTC as Bitcoin becomes a more and more attractive opportunity for institutional investors.

In the next three to five years, user applications will become more user friendly, not merely for the techy or geeky. A crucial next step will be implement systems that mask the cryptographic complexity, which is often seen as an intimidating barrier to entry.  In the next ten years, I fully expect Bitcoin to be priced for everyday goods and services as the process becomes as simple as easy to use applications available today, such as Skype.

Related reading