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Transparency, Trust, and Bitcoin

2015-06-16 06:03:21

Tim Sullivan

From the June 2015 Issue

In the 1973 sci-fi movie Soylent Green, set in the year 2022, Charlton Heston plays Frank Thorn, a New York City police detective working in a dystopia marked by overpopulation, depleted resources, grime, and inequality, all set against a backdrop of perpetual, humid, and polluted summer. Real food is no longer available, so everyone subsists on processed synthetic food.

I will tell you up front spoiler alert! that the titular food, soylent green, is, in fact, as Heston famously reveals in the final scene of the movie, made of people.

Digital currency is really just people too. Whatever the concomitant technical details of its cryptography, blockchains, hash algorithms, mining, and virtual central repositories, it is far more embedded in real-world social relations than in technology, even though the tech often gets the most attention.

At the heart of any currency is trust: trust in one another. After all, anything can serve as a medium of exchange, as long as it s scarce gold, counterfeit-proof paper, cigarettes, tins of anchovies, giant stone heads provided that we all agree on it.

Digital currency bitcoin being the leading example is really just another currency, but it gets more attention for three reasons:

1. Unlike modern currency, which is backed by a central authority (the U.S. government for the U.S. dollar, the EU for the euro), bitcoin is backed by a widely distributed network.

2. Other digitized currency transactions (your credit card purchases, for instance) are transparent, whereas bitcoin s can be anonymous.

3. Other digital goods music files, for example can be duplicated and shared. Bitcoins cannot; they are more like regular physical goods.

These properties have evoked interest in a wide range of parties: cypherpunk anarchists seeking to ensure that no one (especially no government) controls our currency; libertarians who decry arbitrary monetary policies arising from the end of the gold standard; central bankers who control the flow of money; those serving the developing world s unbanked, who see a chance to improve their clients financial lives; the IRS, which had to decide how to tax bitcoins; people who wish to buy illegal drugs anonymously online; entrepreneurs seeking to build business on the bitcoin protocol. All these groups see cryptocurrency through the lens of their relationship to the rest of the world.

They ve certainly had time to develop a point of view. After all, bitcoin has been around since 2008, when it was introduced in a white paper by its anonymous creator (or creators), Satoshi Nakamoto. (Uncovering the mysterious Nakamoto, you may recall, was the subject of a disastrous Newsweek cover story in 2014.) Seven years is a lifetime in the tech world.

Enthusiasts predicted that bitcoin would precipitate a revolution. Have we witnessed one or even the foundation for one in the future?

Three new books aim to make that assessment. The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order, from the Wall Street Journal s Paul Vigna and Michael J. Casey, is perhaps the most helpful, moving quickly and succinctly through the ins and outs of this burgeoning industry, handling even arcane technical details with aplomb. Nathaniel Popper s Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money offers a more character-driven, blow-by-blow account of the rise of bitcoin and the personalities behind it. And Kabir Sehgal s Coined: The Rich Life of Money and How Its History Has Shaped Us offers a brief, clear discussion of digital currency in a broader context; Sehgal takes the more philosophically inclined reader from the Gal pagos Islands to the hidden world of numismatists.

My analysis after reading all three? If this is a revolution, it s still very much in progress.

As a late adopter of most technology, I m not yet ready to pay attention to bitcoin as a currency, and I don t see that you need to either. Not until I can seamlessly buy a sandwich with it (or some viable copycat), as I now can with a credit card or a greenback, will I really care. And even then I probably won t want to think about the back-end technology that makes it all possible. I like my currency boring.

Of course, for those who aren t as privileged as I am serviced by a fully functioning government and many private institutions bitcoin and its imitators may hold greater allure. And I don t want to be wholly dismissive, because I m intrigued by the protocol underlying bitcoin (often written with a capital B ), which turns something that was nonrivalrous (bits) into something that s rivalrous (not able to be duplicated). If I send you a digital file today, I can still use it; your use of it is nonexclusionary. But what if, using bitcoin technology, I could make the file act more like a dollar: Once I had transferred it to you, I couldn t use it anymore. It would be yours in the way that we all understand ownership. There may be some revolutionary potential in that idea, especially for businesses that sell digital goods and services.