The Bitcoin rule of thirds, and what Bitcoin tells us about the future of money

In my presentation to Seamless Payments in Australia, I made reference in passing to the nature of the Bitcoin universe and how informs thinking, so I thought I’d take the time to explore that thinking in a little more detail to explain my comments.

I don’t have the exact figures to hand, but as I understand it the Bitcoin coinbase breaks down roughly into thirds…

 A third of them are lost (well, last year 23% but I think it will get worse as more people forget their passwords). This is because (like me) someone wiped their old phone wallet away and forgot to transfer it over to their new phone wallet first or because they accidentally threw away the old hard disk with all the Bitcoins on them or because the dog ate the Bicoin cold wallet or because they died or whatever. As Jonathan Levin of Chainalysis, who I regard as the “go to guy” for tracing Bitcoins, told NPR in January: “For the people that have lost their bitcoins, I say tough luck”.

(These lost Bitcoins, as my good friend Steve Bowbrick rather eloquently observed, are like treasure in sunken galleons waiting to be discovered by an intrepid explorer in the very latest kind of submarine. Which, in this instance, would be a quantum computer. It’s not only Bitcoin tucked away in these sunken galleons, by the way. There’s half a billion dollars in Ethereum stuck in just one Ethereum address: it’s the address “0”, essentially. In July 2016 someone accidentally sent ETH 1,493, currently worth more than a million dollars to that address. And thanks to the magic of the cryptography, it will stay there until the quantum submarine can uncover it.)

Another third of the Bitcoins are in the hands of the .0001%, the cryptoscenti. Bloomberg estimated that a few hundred people at most own these Bitcoins, but I’ve heard estimates that fewer than 50 people have the lion’s share. These are the people who have every interest in driving the value of Bitcoin higher so that they can cash out at a steady rate. If they dump their coins, that will drive the price down (a row has just been going on about the sale of the Mt. Gox assets for this very reason), so they need a rising market where they can convert Bitcoin to one Lambourghini at a time.

Meanwhile the other millions of Bitcoin peasants scrabble for their share of the remaining third. This distribution makes America look like a kibbutz in comparison and stands testimony to the deranged nature of utopian projections around this “digital gold” for the masses. So, to get to the question that I was asked on Sky News a few weeks ago, what does the Bitcoin market tell us about the future of money?


I’m not sure that the state of Bitcoin, or indeed the history of Bitcoin, tells us very much about the future of Bitcoin or money. It’s not anonymous enough for criminal enterprise on a large scale (and there is every evidence that criminals are turning to crypto alternatives) and it’s not functional enough to be a mass-market medium of exchange. If it is to remain a store of value beyond speculation then it must be useful for something and I’m at a loss as to what that something might be, although I’m perfectly prepared to believe that it’s because I grew up in an era of chip and PIN cards and ApplePay.

Does that mean that we should ignore it? No, of course not. There are many different ways to look at Bitcoin and it deserves study as a much as a social and political phenomenon as it does as a technological and economic one. What’s more, it does tell us something about the future. In yesterday’s Financial Times, Benoît Cœuré and Jacqueline Loh from the Bank for International Settlements (BIS) said that “while bitcoin and its cousins are something of a mirage, they might be an early sign of change, just as Palm Pilots paved the way for today’s smartphones“.

Values, Tokens, Accounts

I agree, but in a slightly different way. I see Bitcoin and its cousins not as prototypes but as a base layer — as shown in this “thinking out loud” picture that I’ve been using to explore these ideas — that will be used by some, but not by most, people to make real transactions in the future. I think most transactions will take place at the token layer, exchanging bearer assets over an efficient (no clearing or settlement) transaction layer. And most of those transactions will be pseudonymous, but some will be linked through accounts to people and organisations. 

Seamless Sydney

So what can we guess about the future of money, given what we have learned so far? Well, as I said in my Seamless Payments presentation what we may have learned is that the token economy is a more accurate pointer toward the future of money than the underlying cryptocurrencies are, because the tokens link the values managed on shared ledgers to the “real world”. There’s a logic to this model of “the blockchain” as the security infrastructure for a token economy and I really enjoyed engaging with the good people of Sydney on this view of the emerging cryptoeconomy.

Back to the future of Bitcoin

I was very excited to discover via the interweb tubes that Bitcoin is now going into geostationary orbit. In the near future, Bitcoins will be dropping as a gentle rain from heaven. Well, sort of.

Blockstream Satellite is the world’s first service that broadcasts real-time Bitcoin transactions and blocks from a group of satellites in space.

From Blockstream – Announcing Blockstream Satellite

You cannot imagine the nostalgia this story generated for me because, astonishing as it may now seem, the first ‘fintech’ project that I ever worked on involved using satellites to transit financial data and the first book chapter that I ever wrote was about the use of satellite data for business.

Settle down youngsters, and I’ll tell you the tale…

Cast your mind back to 1982. Those interweb tubes are a distant dream. Getting data from place to place is a major effort. In a far away place (Indonesia) a group of talented 10x prima donna programmers are writing software to run on the world’s first regional satellite data system, the Palapa-B1 service (a Hughes HS376, for the technical, with 24 C-band transponders). In the great city of Bandung, one of these dashing young software engineers — me — was initially tasked with writing the (and here’s one for the teenagers) X.28 code and then the X.25 code to allow (amongst other things) bank terminals and other devices to connect via this new satellite network to allow communications between bank branches on far flung islands throughout the Indonesian archipelago and bank offices in Jakarta and elsewhere. You couldn’t buy communications software for the processors we were using. You had to write it from scratch. If you tell the young people of today that, they won’t believe you.

Indo83 3

We were working at a telecoms supplier’s site in Bandung. I know it doesn’t look much from the outside.

A Japanese team were building the baseband modems and implementing the Aloha link protocol that had originally been invented for Alohanet. This gave me the assembly language primitives to work with to implement the CCITT protocols on top. X.28, as if you need any reminding, was the protocol for character input/output (used to connect terminals across a network to mainframes) and X.25 was the packet-switching protocol for interconnecting computers. I still think of terminals at DTEs (Data Terminating Equipment) and I still think of network connections as DCEs (Data Circuit Terminating Equipment). All of these quaint terms vanished from the pages of history about a week after TCP/IP was invented.


As you can see, inside we had access to many modern facilities.

Implementing X.28 meant that staff could log on to bank mainframes using terminals in the branches. Implementing X.25 meant that remote minicomputers could interconnect. Getting the code to work, and getting it to work quickly enough, and getting it to work in the limited memory available was a fantastic education. I loved my time as C ninja, interfacing with what was then leading-edge communications hardware to deliver data services to real users.

Indo83 2

Here I am making a few small adjustments to the communications processors boards.

It was here I learned all my UNIX tricks and C programming stunts. Those were the days when if you didn’t like the way that the team wrote code you could quickly knock up a parser to force them into line (which one of my colleagues did, using YACC), when you had to pretend to the system administrator that you didn’t have root access (which we all did) and when the disk packs held 5Mb so you had to be very careful with the space available *wipes away a tear*.

Indo83 1

As you can see, the team really appreciated my mad programming skills and their contribution to the great success of the project.

In the later 1980s and very early 1990s, I enjoyed working on a wide variety of projects around satellite data communications. I worked on technical architectures, system designs and even on regulation in a team with the now-infamous Vicky Pryce (who was then chief economist at KPMG, and who I remember as a very impressive and really clever, but also really nice person). The very first conference paper that I ever wrote was on the use of satellite data broadcasting to deliver stock exchange data to market participants and I spent happy days at Telekurs, Dow Jones Telerate, the London Stock Exchange and other places working on link budgets, low-noise blocks and forward error correcting codes (this is where I learned about convolutional coding and Viterbi decoders. One of the most interesting areas I worked in was the use of Vertical Blanking Interval (VBI) data services embedded in analogue television transmissions and the potential (abandoned) use of data space in digital television transmissions for value-added (largely financial) services.

Books about satellite communications

A few years later, I worked on a similar system using Very Small Aperture (VSAT) terminals in K-band (too much information, ed.) for a US telecommunications provider, on one of Consult Hyperion’s first US projects. In those still pre-internet days, if you wanted to get data from a branch office back to HQ reasonably quickly you had to pay for a leased data line from the phone company, which was very expensive. Putting a satellite terminal on your roof was a cheaper alternative and as the frequencies went up from C- to Ku-based, so the dish sizes and costs came down. The cost of installing and maintaining a six foot dish compared very favourably with the costs of alternatives, until the internet and mobile phones came along and spoiled all the fun.

Ah, the good old days.

The official blockchain quatrain

The moving finger writes; and having writ

Moves on; nor all your piety nor wit

shall lure it back to cancel half a line,

Nor all your tears wash out a word of it.




OK, I added the hashtag, but the rest is from Edward Marlborough’s 1859 translation of the Rubáiyát of mathematician, astronomer, philosopher and poet Omar Ahayyám (1048-1131).