Investor Fred Wilson, co-founder of Union Square Ventures, thinks banks are missing the most important opportunity bitcoin offers by building private blockchains.

Speaking on a panel with Nathaniel Popper of The New York Times at the CB Insight “Future of Fintech,” he said the transformative value of virtual currency will be on a public blockchain, as reported by the Observer.

Private blockchains copy the distributed approach of public blockchains but hide it inside the servers that their creators have given permission to maintain a copy.

Private Blockchains? Think Compuserve

Wilson, a successful investor who has invested in Coinbase, Twitter and other technology companies, compared private blockchains to those who choose Compuserve over the Internet. “The transformative value of virtual currency will come from “a globally distributed, public blockchain,” he said.

Wilson is not impressed by financial companies’ interest in novel blockchain uses. He sees these companies jumping on a bandwagon and referred to the trend as “dumb money” showing up.

He acknowledged he is not a moderate, but someone who likes speculative, ambitious ideas. Wilson has invested in Twitter, Etsy, Tumblr and Zynga. He described three moments in his career “when God came down and handed me the tablet”: Mosaic browser, bitcoin and social media.

Wilson does not pin all of his hopes on bitcoin, but said the way virtual currencies put value online is what makes the technology so vital. He cited Ethereum as bitcoin’s nearest rival.

Virtual Currency Brought Change

Virtual currency is what overcame the cumbersome nature of money on the Internet, he said. He had not made an investment for 18 months until he learned about bitcoin. It was not until investing in Coinbase that he felt “the next thing had arrived.”

Wilson and Popper noted banks are investing in blockchains to conduct interbank settlements more efficiently in making sure a day’s payments equal out. Banks are also using blockchain technology to control global remittances.

More interesting than these areas, Wilson said, are apps like Venmo that put money on people’s phones, as bitcoin does. “That’s where the revolution is happening. It’s out there on the edge of the network,” he said.

While attention has moved to non-financial uses of the blockchain, Wilson said it is wrong to misjudge the public blockchain’s ability to track money.

Also read: Coinbase co-founder Ehrsam: BTC’s open network beats private blockchains

Bitcoin Continues To Expand

Wilson noted scandals have damaged bitcoin’s reputation. Despite this, the world has not moved away from bitcoin. Bitcoin presently has the highest exchange rate to the dollar for more than a year.

Popper said many commentators believe bitcoin’s success as a currency is driven by China, which controls about half of the bitcoin network’s voting power.

Wilson responded that bitcoin will naturally prove more useful in countries that are less democratic and have weaker currencies. He said the fact that bitcoin’s demand is so much stronger in China should push the global financial system to act.

What Big Banks Should Do

If the 50 biggest banks pooled their computer resources, they could control 30 or 40 percent of bitcoin’s market share, Wilson said. Hence, the global financial would have control of the network as opposed to leaving it locked behind the “Great Firewall of China.”

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