We want to believe today that technology will set us free. Having experienced the immense changes of the technological and internet revolutions, we find the world a freer place today than it has ever been, a world of unparalleled freedom of information. We wonder where the next force of revolutionary emancipation will emerge. Many think it will come from the strange, mathematically complex phenomenon of ‘Bitcoin’, the world’s first successful ‘cryptocurrency’, invented by an anonymous genius known only as ‘Satoshi Nakamoto’ in 2009. Bitcoin, as a recent TED talk memorably described, holds out for the possibility of ‘an internet of value’. That is to say, if Bitcoin becomes universal, value will be just as freely, instantaneously, and transparently transferable as information is now. It’s an intoxicating picture—and Bitcoin, plus the ‘blockchain’ technology associated with it, is now (as of 2014-15) being seriously considered by major banks and businesses. I spoke to two major Bitcoin investors to explore its potential.
Timothy Draper, a Harvard-educated venture capitalist, was first introduced to the idea by his son, Adam. As soon as he heard about the technology, he “predicted that it would have a profound effect.” He thinks Bitcoin will have an impact comparable to that of the internet, that it will “transform industries”. First and foremost, it could change banking. At present, when we make transactions through banks, we rely on various Trusted Third Parties (TTPs), such as banks and payment providers—these third parties make sure we can make the transaction we wish to make, to prevent us making the same transaction more than once, and to keep a ledger of the transactions we make, letting us refer back to it when necessary. The crucial principle of Bitcoin is that it creates such a ledger of transactions without requiring the authority of a TTP, by a mechanism known as ‘the blockchain’. The code is very complex and difficult to explain, but it undeniably works—it involves computers creating a record of transactions by competing to solve very complex mathematical problems, known as ‘mining’. The ‘blockchain’ thus has the potential fundamentally to change banking, and to excise large chunks of the industry.
Draper also thinks Bitcoin will change contracts, making them “more permanent and less waffly”, as well as government and tax, on the basis that “it can eliminate the need for fallible people who are currently government officials”. In Draper’s vision, Bitcoin will sharpen and clarify the global financial system, cutting away masses of institutional dead weight, and building a fairer world. That being said, Draper doesn’t see Bitcoin as opening wide the political floodgates—”Bitcoin will become omnipresent, [but it] will be governed much like all money is governed, though probably more efficiently.” He makes cryptocurrency sound like something practical to the global ‘establishment’. With all the attention it is receiving from major banks and businesses, it seems more likely than ever that he is right.
But there’s another side of the Bitcoin community. If Draper represents the ‘establishment’ side, then the ‘wackjobs’, anarchists, and libertarians who see bitcoin as the emancipatory and iconoclastic force to undermine government power and authority are his antithesis.
Roger Ver is an angel investor, known by the sobriquet ‘Bitcoin Jesus’, who has been fanatically devoted to Bitcoin since 2011. When he first heard of the technology on a talk radio show, the concept lit a fire in his mind. He started devouring everything he could find about it, sleeping one hour a night. He started working as a ‘Bitcoin evangelist’, making small Bitcoin donations to encourage private individuals to start storing money and transacting in Bitcoin, and he started investing his large personal fortune in a wide range of Bitcoin enterprises.
For Ver, Bitcoin is “the most important invention since the internet”, the best currency yet devised. Because of how it works, there is no way for a government to control it—”the only way to stop Bitcoin would be to turn off the internet!” For this reason, he sees Bitcoin as an important stepping-stone toward his “voluntaryist” ideal of society, where “all interaction should be consensual or not at all”, totally free from the arbitrary and coercive authority of government. Such a utopian vision, of fully free association and movement of people, can be unlocked, he thinks, by the economic liberation Bitcoin offers. He envisions a “separation of money and state”, where the influence of central banks will become like that of churches in a secular society. The technology, for Ver, holds out the possibility of a truly drastic transformation.
Looking between these two perspectives, we gain some insight into how much of an ideological minefield the Bitcoin ‘community’ really is. And the conflict extends to the developers. Mike Hearn, an ex-Bitcoin core developer, caused a storm in January this year with a blog post proclaiming the ‘failure’ of the Bitcoin project—it paints a picture of chaos and petty conflict within the community of Bitcoin developers. He points out the value of the currency, as traded on the various Bitcoin exchanges, has fluctuated wildly and unpredictably over the past few years, flying between $100 and $1250 per bitcoin. On top of that, mining power, which controls the blockchain, is concentrated in the hands of the few people who have the best mining computers, while transactions have become sluggish and unreliable, because the core developers are refusing to increase the block size in order to account for the increasing user base.
Despite these problems, what the Bitcoin experiment has shown is that peer-to-peer cryptocurrency is possible. In fact, there is now an array of competing cryptocurrencies, mostly based on variations of the blockchain and the ‘proof-of-work’ system developed by Bitcoin. Currencies like Litecoin, Monero, and V-Cash are still small fry—the overwhelming majority of the market is traded in Bitcoin. But they will undoubtedly have an impact. Draper believes Bitcoin will overcome its “speedbumps on the path to liquidity”, while these other protocols will simply inspire enhancements of Bitcoin itself. ‘While I believe that Bitcoin will be the standard (as HTTP is the internet standard), I believe that there will be forks that either are absorbed by Bitcoin or eliminated by Bitcoin’. Ver, in contrast, is deeply frustrated with Bitcoin’s problems: Bitcoin Jesus has lost his faith in Bitcoin. He is now pursuing interests in emerging cryptocurrencies Monero and V-Cash, which are aiming for greater anonymity, privacy, and security than Bitcoin, and have greater potential for scalability, in his view. Ver thinks that free market competition will lead to the best, i.e. the most anonymous, private, and high-performing, cryptocurrencies succeeding. As he tells me with great zeal, there is now a website, ShapeShift, where you can instantly and very cheaply exchange about 30 existing cryptocurrencies.
Bitcoin, it is important to note, is not private. The currency has been stigmatised because, in its early development, it was strongly connected with the growth of Silk Road, Ross Ulbricht’s darknet drug bazaar; a huge proportion of the early trading volume was on that marketplace. As such, the media have conjured a link in the popular imagination between Bitcoin and the world of narco-traffickers and arms dealers, a nefarious means for criminals to elude government intervention. Ver and Draper are both frustrated by this misunderstanding—Ver emphasizes that Bitcoin is highly traceable, and Draper avers, “This is the big fallacy. It turns out that US Marshall’s Office loves Bitcoin. They have been able to apprehend many criminals, [because] Bitcoin creates a perfect trail.” Transactions made in Bitcoin are, after all, posted publicly—that is how the blockchain operates. For Ver, the libertarian who thinks taxation is slavery, and Ross Ulbricht is a hero, this is not how it should be. The ideal cryptocurrency should be perfectly anonymous and private, and opaque—it should be like cash. If more criminals use it, that just means it’s a better currency. We return to that sense of schism at the heart of Bitcoin, and indeed of the cryptocurrency community as a whole.
There have been many previous efforts to create a successful digital currency. The 1980s and 1990s were littered with the failed experiments, like DigiCash and E-Gold. But Bitcoin, and its imitators, have so much money and belief behind them now that failure looks impossible. Cryptocurrency markets are firmly established; entrepreneurs and investors are starting to store some of their assets in Bitcoin (Roger Ver reputedly stores almost all his money in it); and the underlying technology is influencing banks and businesses. Despite serious problems, Bitcoin has acquired a loyal user base worldwide – notably in Argentina, where many have started using it as a storage system more stable than the volatile Peso. In achieving its success, Bitcoin may have become overly centralized and, for some, betrayed its core principles, but it is hard to deny that it has changed, and will continue to change, the world. The question, I think, is not how much further Bitcoin can go, but what direction it will take us.