Bobby Lee, CEO of bitcoin mining and exchange giant BTCC, said he can see the day when banks will hold on to his bitcoin – because in the future they will have adapted to the new technology. He told IBTimes UK: “In the end I may still want to trust some companies to hold bitcoins on my behalf. It’s normal for us to diversify and distribute our assets across different entities – companies, banks, accounts.
“So it’s very likely one day when most people in the world will own digital assets, for them to have their assets held by banks. This system is not anti-bank, it’s pro-innovation.”
Lee agreed that this could occur via cold storage vaults filled with cryptographic keys. He added that banks’ IT infrastructure has constantly been upgraded over the years and in the future they can also be expected to hold more private keys that access real money and real value.
“They do that already by the way, when you have credit cards; there are private keys that are used for communication between the credit card merchant processor and the banks and websites like Amazon. So this is already happening.”
Lee said banks have a reputation for being innovative. He pointed out that banks embraced credit cards when they were far from ubiquitous, and people still operated with things like travellers cheques.
“I think banks will definitely change their business models to adapt. They may not be the fastest ones but they certainly embrace innovation. This is an unstoppable force – the digitisation of money. And there is no reason why banks should refuse or refrain from coming on board this train. I’m hopeful, I’m optimistic.”
Lee believes bitcoin is emblematic of “a revolution at the humanity level”. The period from the introduction of electricity until versatile motors totally transformed society was over 20 years. Interestingly, it has taken about the same time from the start of the internet to the discovery of bitcoin – a temporal pattern which suggests something of its importance, noted Lee.
With reference to the way information is shared on the internet, he said: “Bitcoin is the world’s first digital asset. We know it’s in the early days, but now you can move assets at the speed of light.”
Regarding a shift into the mainstream, Lee agreed this would be at the behest of regulators, but again invoked a tireless optimism that, in the end, people will choose to do the right thing.
“It takes time for society and governments and the regulators to wrap their head around it – what should be regulated, what shouldn’t be regulated. I have faith in society that we will do the right thing in terms of how to promote the technology; how to get the innovation and the productivity increases, yet not make society worse off.”
In terms of recent regulatory declarations by the likes of the Commodities and Futures Trades Commission and the European Court of Justice, he said: “I think it’s coming along. It will never come along as fast as people like. It will never come along as easy or as plain and simple as people like.
“It is happening at a decent pace; the US is not sleeping behind the wheel. Different states like New York and California are starting to address it and those are the right states to be at the forefront doing this.
“And then you have other countries in Europe just recently talked about bitcoin not requiring VAT so of course that’s the right thing. But it took two or three years to come to that – in my opinion – obvious conclusion.
“But I don’t fault them for it. You have to be prudent, you have to be measured in how you deal with something so radical and different and revolutionary. We are going to do a few turns before we get there.”
BTCC changed its name from BTC China to help with a new international focus. Lee was at the Money 20/20 conference in Las Vegas to announce the launch of Pro-Exchange, a leveraged spot exchange for professional traders to hedge their positions, protect against volatility, and so on.
Lee said: “Essentially it allows you to buy on margin with 20 times leverage. I don’t know if it is technically the most because there might be some platforms out there doing more. It’s the most leverage from any of the existing spot exchanges in terms of the large, mainstream players.”
Bitcoin trading takes place on a rather grand scale in China, a factor of the large amount of mining that takes place there. Lee said: “There is a lot of mining that goes on in China. However, I caution you: do not read too much into the high trading volumes. China has decent high volumes but unfortunately two of my competition exchanges – I never like saying this – but they are artificially inflating their volumes through the technique of wash trades.
Lee said Okcoin and Huobi are known for inflating trading volumes artificially, basically selling from left hand to the right hand.
“They use it for bragging purposes. They try to outdo each other. It’s not regulated yet so they don’t get slapped on the wrist for doing that. China does have big trading but we are not talking about orders of magnitude higher. If you were to believe the numbers you would think the world is 95% Chinese.
China is however host to the majority of the largest bitcoin mining operations on the planet. So is this down to cheap electricity?
“To tell you truth electricity is not necessarily cheaper in China than other countries. On a measured basis it’s similar. It’s just that the overall Chinese cost of living is lower; the price of things, goods and services is lower in China. So it is a little bit cheaper. That’s also due to the exchange rate condition.
“The other reality is in China there’s a lot of what I call abuses of the system. So, for example, if someone is able to steal free electricity, they can tap into a city grid, or some private electricity source or even at the power station – you could tap into free electricity and get it for free. Then of course then bitcoin mining becomes very profitable.”
Lee said he has not actually seen this illegal and surreptitious activity, adding that its hard to prove. “You see this in developing counties, you see these poor neighbourhoods where people run a line to the local electricity pole on the street and are watching television and powering their refrigerators from that.”
The fact that so much of the network’s hashing power is controlled by a few players, concentrated in one place, has led to concern that Bitcoin’s decentralisation is becoming compromised. Lee said there is difference between the perceived centralisation of bitcoin and what he calls its uncontrolled centralisation.
“Bitcoin is a fair game. Whoever wants to put up the capital can buy the mining machines and can mine and participate in the bitcoin mining network, and have a say at the table. In recent years there has been larger and larger players spending more capital, buying more machines and putting them on the network and having more centralised bitcoin mining pools.
“This kind of centralisation is just natural. In a free society, a free market, people get bigger obviously, but the small players are still allowed a play. They are not excluded from the game. It’s just that some people are willing to go above and beyond and become a big player. If you want to come in with $100,000 you can buy the equipment and be a big player yourself. There is no stopping you doing that – as opposed to some old boys’ club that no one else is allowed to join.”