Jon Matonis: Bitcoin Needs Its Own Version of LIBOR
Cointelegraph spoke to Jon Matonis on increasing the 21 million bitcoin cap, the importance of fungibility and privacy for Bitcoin’s success.
Cointelegraph spoke to Jon Matonis on increasing the 21 million bitcoin cap, the importance of fungibility and privacy for Bitcoin’s success and introducing a reference interest rate similar to LIBOR for the Bitcoin ecosystem.
Jon Matonis has been a mover and shaker throughout the Bitcoin space and beyond, especially since 2013. He has worked as a Founding Board Director for The Bitcoin Foundation and is currently an Editorial Board Member for CoinDesk. Matonis is also an advisor for major Bitcoin entities like Epiphyte, BitPay, and GoCoin. In addition, he’s also working on the pending global bitcoin exchange located in the EU.
Thus, what he says has a certain gravitas and experience that can’t be ignored. This is why his recent tweets regarding Bitcoin and the block size debate have led to some rumblings and controversy.
Cointelegraph reached out to Matonis to get some clarification on his stance of the limit and other issues he is working on to improve the mainstream utility of digital currency.
“The Bitcoin ecosystem will soon need a reference interest rate similar to LIBOR.”
- Jon Matonis
.@morcosa Block size hard fork debate is instructive because it's precursor to inevitable fork revising block reward that increases 21m cap.— Jon Matonis (@jonmatonis) June 19, 2015
Preventing the Bitcoin block reward from halving in July 2016 is the evil twin of a block size increase.— Jon Matonis (@jonmatonis) June 19, 2015
If Bitcoin Tx fees continue to be insignificant because of excess block capacity, either hashrate drops or miners demand more inflation.— Jon Matonis (@jonmatonis) June 19, 2015
Cointelegraph: Your recent tweets have drawn some controversy. It can be construed as you are advocating removing the cap limit of 21 million bitcoins. Is this what you are advocating?
Jon Matonis: Of course, I don't want to change the 21 million Bitcoin cap; I'm just saying that in the not-too-distant future someone will attempt it. One doesn't have to own BTC in order to propagate bitcoin software across the nodes in a propagation war. I would have preferred to have seen the existing BIP process utilized for this purpose so that the compromises can be worked out pre-propagation.
The rigorous infrastructure for code review and testing similar to the IETF is what Bitcoin protocol currently lacks and that's even more of a reason to reinforce the existing BIP process. It demonstrates code maturity. Yes, independent software propagation with time-released changes to hard fork the consensus chain should be there only as an absolute last resort. I simply think the trigger on that option was pulled too early.
“Accounts at a money service business or financial institution can certainly be linked to identity, but the individual coins (or coin subunits) themselves cannot be.”
CT: In your travels, you have worked with governments and regulators. How are they handling this new technology when it comes to integrating it with currently established systems?
JM: As I am a participant on the Gibraltar Digital Currency Task Force, I also get the opportunity to brief other government regulators on the limitations involved in regulating their national currencies and Bitcoin. Even though, they are usually smaller and more responsive regimes; the issues are mostly the same.
How do we guarantee the bitcoin balances held on behalf of customers when those do not fall under bank deposit insurance schemes? Mostly, this is being addressed through a combination of cryptographic proof-of-reserves, best practices on cold wallet backup and recovery, and third-party insurance underwriters.
Also, how can they be in compliance with the spirit of global AML if they do not have a method of verifiably linking client identity to inbound and/or outbound transactions?
There is not really an answer for this because handling BTC is similar to handling cash. Whitelisting, blacklisting, and redlisting are not suitable solutions either because they damage overall bitcoin fungibility. Accounts at a money service business or financial institution can certainly be linked to identity, but the individual coins (or coin subunits) themselves cannot be.
“[F]ungibility is the cornerstone of any viable payment system.”
CT: How important is Fungibility and Privacy to the functionality of Bitcoin?
JM: The problem with coin forensics is that it only provides an inconclusive statistical probability of taint that is not a very strong case. I refer to it as “Compliance Theater" because banks want to feel that they are doing something, but it is ultimately ineffective and counterproductive. Plausible deniability will always exist, and then there is the further issue of political enemies sending someone else tainted coins that could have the effect of tainting the entire wallet of the recipient. This route is fraught with dangers.
Privacy, which means coins unlinked to identity, is a prerequisite for fungibility. And, fungibility is the cornerstone of any viable payment system. Therefore, governments that are proposing to regulate the way that their national currencies are bought and sold for bitcoin in their jurisdiction must take extra special care in preserving overall Bitcoin fungibility. It becomes incumbent upon them to play a role in maintaining, not harming, Bitcoin's fungibility.
CT: So what are you working and focusing on now?
JM: The Bitcoin ecosystem will soon need a reference interest rate similar to LIBOR. I am promoting the concept of BIBOR (Bitcoin Inter Broker Offered Rate). This reference rate is important in striking contracts, making loans, and for brokers providing bitcoin to potential short sellers. According to broker loan rates, the current implied annual interest rate for bitcoin is 26.5% (.0644 per day compounded x 365 days).
Jon Matonis will be speaking at the London Block Chain Conference on Wednesday with the focus of how the innovations of block chain technology can be integrated into large corporations and financial startups.