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When Nathaniel Popper walks into the Old Shoreditch Station café to talk about his book, Digital Gold: The Untold Story of Bitcoin, he points with embarrassment at the Bitcoin ATM that is mounted on the wall by the bar, its power cable hanging out sadly.  His publicist has arranged for us to meet at the café specifically because it is one of the few London businesses (mainly out East) that accepts the currency.  But Popper, a journalist for The New York Times, acknowledges that Bitcoin ATMs are a bit of a gimmick, and a very minor part of the currency’s story. 

The present excitement about Bitcoin is not about using it to buy a latte, for which cash and cards work quite well, but whether its mechanism or network could change the way transactions happen in banking, property and even law. 

Since its emergence in 2009 from a small circle of libertarian hackers, Bitcoin was — thanks to its anonymity — mostly associated with buying drugs, mainly on the online bazaar Silk Road, which has since been shut down.  Its operator, Ross Ulbricht, was sentenced to life in prison last month, a decision that Popper says was not a surprise, given how many big-time drug dealers sold their wares on Silk Road. 

Now the people most interested in Bitcoin seem to be the strategists and technologists down the road from where we are sitting in the City. 

London has been central to the Bitcoin story from the beginning.  The first Bitcoin transaction had an encoded reference to a story in The Times that day about bailout talks in January 2009. “ It was a cheeky way of marking the date while also hinting at the corruption of the existing financial system,” says Popper.  Recently, George Osborne has attempted to make London a Bitcoin hub by assigning 10 million pounds in his budget this year to support research in the area.  Popper says it’s a small sum, “but it has been enough to mark London as the leading contender to be the centre of the next stage of Bitcoin’s development”. 

Popper says the recent excitement in financial circles derives from Bitcoin’s underlying technology, which allows one person to transfer Bitcoin to another person anywhere in the world, while a public ledger called the “blockchain” definitively records the transaction so everyone sees it.  The blockchain commands confidence because it is an indelible record, which is verified by a network of computers instead of a bank or government. 

“It’s the ability to make any kind of transaction with anybody without relying on a third party,” he says. “ It’s the quality of cash — you can give a 20-dollar bill to somebody that you don’t know and the transaction is over, they don’t have to do anything else, which was never possible in cyberspace.” 

That simple transaction mechanism for moving value from one place to the next without government interference or a three per cent charge from a credit- card company or wire service is part of the reason that Wall Street and the City are now taking a serious look at Bitcoin and its blockchain technology. 

The day before we meet, Barclays announced a deal with a company called Safello, which runs a Bitcoin exchange and has been part of the bank’s financial tech accelerator in London, to look at how the blockchain could be used in conventional finance.  In April, UBS said it was opening a research “lab” in its Canary Wharf office to examine the same question, and last year Goldman Sachs convened a private conference with its biggest clients and including a former head of the Bank of England to explore virtual currencies.  Popper says the conference reflected “an increasingly widespread fascination in financial circles with the blockchain concept” — the concept of a financial network that doesn’t have a single point of failure. 

To have major banks deploying employees to work full time on Bitcoin is quite something — and it might make some of the currency’s more anti-corporate early developers weep.  Popper says there are two areas where the banks tell him Bitcoin might be very useful for them — first, clearing and settlement — the very complex ways in which trades get administered, where “the Bitcoin network promises to cut out all the people in the middle”. 

It would work because the blockchain is so transparent — so two banks might agree that one Bitcoin in the chain is linked to a certain chunk of bonds or stock, and as soon as ownership of that Bitcoin has changed hands on the blockchain, the deal is done, cutting out all the need for lawyer and observers to check the trade on both sides.  Popper’s day job is covering Goldman Sachs, and he says the bank is anticipating this kind of development “sooner than I thought”.  He says: “I met with the people there two weeks ago and the two estimates I heard is, that ‘We’re between two and five years away from that’ and ‘We’re between 12 and 24 months away from that.’” 

He tells a story about two banks that couldn’t transfer a big chunk of money during the crisis because it was a national holiday.  A transaction that takes place via the Bitcoin network should never take more than 10 minutes to complete, even if it takes place at 2am on a bank holiday during a general strike. 

“The question is going to be: are they using Bitcoin the currency, or Bitcoin the network, and the ideas behind Bitcoin, because they could use the ideas without using the currency itself,” he says.  Some banks have looked into the possibility of creating their own blockchain, although it is not known whether they could replicate the strength and security that the Bitcoin network is afforded by the massive computer power that it gets from all its users around the world.  If they use the Bitcoin network, that would be good news for the currency. “ I think that’s a real possibility, that the banks need to own it because they want to be able to use it for quick transferring.  It’s almost like the price of admission to the network.” 

The other area banks are interested in is consumer payments. “ That’s this view that Visa, Mastercard and Amex are oligopolies that kind of have inefficient systems,” says Popper, and that Bitcoin’s efficient transfer mechanism — just changing the identity of who owns a certain number of Bitcoin on the blockchain — could disrupt the market.  Popper owns Bitcoin himself, but only “enough to play with, less than two”. 

To the sceptics, Bitcoin resembles the famous Tulipmania buying frenzy of 17th-century Holland — a speculation bubble that took off precisely because the commodity at the heart of it was accessible to anyone however little capital they had.  In 2013, Bitcoin saw a price collapse so spectacular that many thought all confidence in the project would be lost.  It has now been stable for some months, and there is less focus on the price because of the financial industry’s interest, which is less about speculating on Bitcoin as a commodity than using its network, or system, for new things. 

“Everyone is betting on Bitcoin based on what it is going to be in the future and it’s still not clear what it is going to be,” Popper concedes. “ It could be this thing with Wall Street, it could take off more in the black markets, it could become this way that people transfer money or immigrants send money home, but it isn’t any of those things right now, except the black market.” 

Popper says he isn’t a gambling man, and would be nervous about recommending anyone to buy Bitcoin.  But he says: “The number of sophisticated developers working on this in Silicon Valley and Wall Street — it just seems when you have that many smart people working on something, they are going to come up with something good that is going to make it more useful.” 

The final paragraph of the book describes a meeting between Wences Casares, a technology entrepreneur and Bitcoin advocate, and Bill Gates, at an exclusive conference last year.  After Gates dismisses Bitcoin because of its anonymity, Casares pops back at the Microsoft founder, telling him that his programmes in developing countries should be using the free transfer that Bitcoin offers rather than ones that charge a fee. “ You are spending billions to make poor people poorer,” Casares says to Gates. 

Moments later, the conversation ends with Gates saying to Casares: “You know what?  I told the foundation not to touch Bitcoin and that may have been a great mistake.  We are going to call you.” 

@joshi