Venture capitalist: Global banks should take action to address China's strong demand for Bitcoin

Investor Fred Wilson, co-founder of Union Square Ventures, believes that banks that favor private blockchains are missing out on the most important opportunity offered by Bitcoin.

Wilson told Nathaniel Popper of The New York Times during CB Insight’s ‘The Future of Financial Technology’ panel that the transformative value of cryptocurrencies will be in public blockchains, according to The Observer.

A private blockchain replicates the distributed approach of a public blockchain, but hides it inside a server, where its creator has the authority to maintain a copy.

Private blockchain?

Wilson is a successful investor who has invested in Coinbase, Twitter, and other technology companies. Private blockchains are comparable to computer services that run on the internet. He said:

“The revolutionary value of virtual currencies will come from ‘a globally distributed public blockchain’.”

Wilson is not surprised that financial firms are interested in new blockchain applications. He sees these firms jumping on the bandwagon, a trend he calls "dumb money."

He admits that he is not a restrained person, but rather a speculative and ambitious one. Wilson has invested in Twitter, Etsy, Tumblr and Zynga. He describes three moments of God's favor in his career: the Mosaic browser, Bitcoin and social networking.

Wilson doesn’t pin all his hopes on Bitcoin, but he said the way the virtual currency puts value on the network is what makes it so important. He pointed to Ethereum as Bitcoin’s biggest competitor.

Virtual currency brings change

He said virtual currencies overcome the troublesome nature of money on the Internet. He had not invested in Bitcoin for 18 months before learning about it. It was not until he invested in Coinbase that he felt that 'the next investment had come.'

Wilson and Popper noted that banks are investing in blockchain to make interbank settlements more efficient. Banks are also using blockchain technology to control global remittances.

Even more intriguing than those areas, Wilson said, are apps like Venmo that put money on people’s smartphones, much like Bitcoin does.

"That's exactly what's happening with this revolution. It's happening right at the edge of the network."

While attention has turned to non-financial uses of blockchain, Wilson said people have made misjudgments about the ability of public blockchains to track money.

Bitcoin continues to expand

Wilson pointed out that the scandal has damaged Bitcoin's reputation. Even so, the world has not left Bitcoin. The price of Bitcoin is constantly breaking records this year.

Popper said many critics believe that Bitcoin's success as a currency is driven by China, which controls half of the voting power in the Bitcoin network.

Wilson responded by saying that Bitcoin would prove more useful in countries with less democracy and weak fiat currencies. He said China’s strong demand for Bitcoin should push the global financial system to take action.

What should the big banks do?

Wilson said that if 50 large banks pooled their computer resources, they could potentially control 30-40% of the Bitcoin market share. Therefore, global finance would be able to control the Bitcoin network, rather than locking Bitcoin behind the 'Great Firewall of China'.