There's general agreement that Bitcoin has the potential to disrupt and transform the practices and institutions on which the current financial system is built. Whether you are an enthusiastic advocate or a staunch traditionalist, wealth advisors – especially those with fiduciary responsibilities – have an obligation to get educated on the digital currency and understand the implications for themselves, their practice and their clients. To learn more, Hannah Shaw Grove, executive editor of Private Wealth magazine, recently sat down with David Berger, the founder and CEO of the Digital Currency Council, a professional association dedicated to cultivating best practices in the digital currency economy through the training and certification of financial, legal and accounting professionals.
Grove: The Council has attracted almost 1,000 members in just a few short months, pointing to strong demand from professionals for information and governance in an area that is still largely undefined. What was the genesis of the Digital Currency Council?
Berger: I’ve been following Bitcoin over the last 3 years. In my previous role as CEO Americas at Campden/Institute for Private Investors, many ultra-high-net-worth investors expressed an interest in Bitcoin. They had lots of questions and were intrigued by the potential, but when I spoke with their wealth managers I was met with shoulder shrugs and a general lack of knowledge. It became clear to me that advisors and other financial professionals would need to develop an expertise on digital currencies because their clients would demand it.
Grove: Can you briefly describe how Bitcoin works today?
Berger: Bitcoin is colloquially called “e-mail for value.” If you think about e-mail, it’s a technology, a network, and a communication. Similarly, Bitcoin is a technology that today primarily facilitates a transaction network. The unit of account that is utilized on that transaction network is also known as a bitcoin, typically denoted with a small “b”.
The technological breakthrough that underlies Bitcoin, known as the blockchain, is a transparent open source accounting ledger. The “magic” of Bitcoin is that it allows the transfer of value online without the support of a trusted third party, significantly reducing the friction and fees typically charged for facilitating such transfers.
Grove: I have heard that Bitcoin can change the types of risk traditionally associated with being a buyer and a seller. Is that the case?
Berger: Bitcoin flips the concept of risk on its head. It requires trust in math – an algorithm – not a third-party intermediary to complete a transaction. Further, much like cash, transactions are irreversible once conducted, eliminating the potential for charge-back fraud that plagues many merchants who accept credit card payments.
Grove: It sounds like Bitcoin has huge implications. Can you elaborate?
Berger: Bitcoin has the potential to enable new and disruptive business models across the global economy. Most immediate is the application of micropayments or small payments not feasible with credit cards due to the minimum fees charged by card companies for transactions. Remittances are also almost certainly to be disrupted. Already today more value is transferred each day over the Bitcoin network than through Western Union. In sum, as Bitcoin adoption increases, charging high rents for standing in the middle of a transaction or permitting the use of a proprietary transaction network will no longer be a sustainable business model.