Unless you’ve been living under a rock for the past few weeks, the word “bitcoin” has probably shown up on your radar.
With bitcoin, the Internet is now attempting to redefine the very concept of money. And why not? The Internet has redefined just about everything else in the past 15+ years. Why shouldn’t the greatest technological innovation of the past millennium aim its Howitzers of disruption at one of the fundamental pillars of the human experience?
What exactly is “bitcoin?” Well, it’s really several things. Its advocates like to call bitcoin a “crypto-currency” – which is to say, it’s a medium of exchange based on a highly sophisticated block of computer code that can be used to buy and sell things over the Internet. At last measure, just getting set-up to acquire or hold bitcoins starts with downloading a block of code in excess of six gigabytes. That’s a lotta code. It’s like an operating system for the future of Internet commerce.
Much of the appeal of bitcoin stems from its inherent nature as an open-source ‘currency without a country.’ Unlike dollars or yen or pounds or marks or francs (or whatever the Chinese call their currency), bitcoin lives outside of the authority of national governments and central banks. It is the ultimate form of ‘crowd funding’ – the collective creation of the funds themselves. This stateless existence makes bitcoin a high ideal among the digital libertarian and anarchists in our midst.
It also makes bitcoin the currency of choice among liars and thieves, but that’s a different story altogether.
Bitcoin has been flipping on and off my own radar for well over a year now, though I hadn’t really paid it much heed until earlier this fall when I caught the tail end of Luke Stokes’ presentation at Barcamp, “Could Bitcoin Be More Disruptive than the Internet?’ That’s the sort of title that gets my attention. After his presentation, talking to people in the hallway, I heard Luke use a phrase that in nearly 20 years I have never heard uttered by a single soul in this city: “Fiat money.”
Finally, somebody in this town is thinking about the underpinnings. At that point my radar became more fully engaged.
Bitcoin gets a fair amount of attention in the mainstream media when its price as measured against conventional dollars goes through one of its periodic, parabolic run-ups to stratospheric new all-time highs. It got some attention last spring when the price ran up to about $500. More recently it has been in the news as the price has exceeded $1,000, and several of the earliest adopters who acquired their stash of bitcoins for single digits have cashed out to become millionaires – in good, old-fashioned, red-blooded American greenbacks.
Unfortunately, this speculative fervor for bitcoins is probably its least savory feature.
I have seen a couple of instances this week where those earliest adopters are now telling the next round of adopters that they, too, can be “early adopters.” After, there’s still like 7-billion people on the planet, and most of them are not even on the Internet yet, right?
In conventional investing circles, this is sometimes known as the “greater fool” theory – in which any price paid for an investment is rationalized with the expectation that there will always be another buyer at a still higher price. Hallelujah, it’s not too late to “get in at the bottom!”
Unfortunately, the final destination of the “greater fool” theory is usually the “bag holder” theory – in which some poor shlub finally pays the highest-ever price for the investment, and is thus left “holding the bag” once the price has peaked and regresses to the mean.
The likelihood of future fools and bag holders aside, these recent, spectacular fluctuations in the market value of bitcoin illustrate the challenge in understanding its potential. Is it a digital currency, a virtual commodity (oxymoron alert), or a security? Is it a medium of exchange — or an outright speculation? It is all of these things. And, I suspect… none of them.
Here I must confess that I have no personal experience with bitcoin (yet?). I’m not in any particular hurry, either. I may not be Warren Buffett, but one thing I’ve learned over the years is that you do not “chase” a rising price. Besides, I don’t really need a new “virtual currency” it at this point. I can still buy all the crap I need/want from Amazon and B&H with the conventional virtual currency – aka “dollars” – currently at my disposal.
What interests me about bitcoin is what might be lurking within the actual technology. I suspect that there is really much more to bitcoin than meets the virtual eye, and that our preoccupation with its surface utility – and its speculative windfalls – is concealing much more disruptive possibilities.
Here is where we have to put on our ‘Marshall’s X-Ray Specs’ – the goggles that let you see through the windshield instead of the rear-view mirror – and try to see: what’s really going on here?
Amid all the reading I’ve done on the keyword ‘bitcoin’ in the past couple of months, I think the first clue showed up in this blog post by Naval Ravikant, who writes under the nom-de-plume of “Startupboy:
Most people are only familiar with (b)itcoin the electronic currency, but more important is (B)itcoin, with a capital B, the underlying protocol, which encapsulates and distributes the functions of contract law.
“…distributes the functions of contract law??” Whoa, Nelly. Forget about central banks and sovereign governments… have the lawyers heard about this yet??
If you, too, are intrigued by the prospect of an “open source currency,” there are several ways to get on the bitcoin bandwagon. The simplest is to set up an account (better start downloading that 6GB now…) and just buy the ‘things’ at whatever price they’re going for today.
But what really intrigues me is this notion that you can get a dedicated (and expensive) computer that can crunch the code in order to “mine” for bitcoins. WTF?
What is most curious to me though is not the technology, but the vocabulary that is being used to describe it. With this notion of “mining” – which invokes visions of picks and shovels and holes in the ground – we see old terminology being used to grasp an understanding of new technology. And that’s while the new technology itself (digital ‘currency’) is being used to do the work of the old (facilitate commerce). A classic McLuhan moebius.
For the past 15+ years, the Internet has proven massively disruptive to the world of commerce. Now the beast has turned its attention to money itself. The ultimate disruption is at hand. And yet, here we are, putting this powerful new tool to use to do the same old things.
Is there any truly trans-formative, cultural potential for a ‘crypto currency’? Or is just another way to buy more stuff?
As mentioned at the outset, part of the appeal of bitcoin lies in its potential to circumvent the power and authority of central banks and the governments that sponsor them.
What central banking has given us over the past century amounts to a new Gilded Age, with most of the wealth of the world concentrated in a tiny sliver of its population.
What I want to know is: By virtue of its decentralized, stateless foundations, is bitcoin – or any virtual, open-source ‘currency’ – sufficiently disruptive to equalize the distortions in the global economy? Can it alter the 99% -v- 1% equation that has become the world’s dominant economic/cultural reality over the past 40 years?
My hunch is that this bitcoin revolution is real, but it is not what we presently think it is. And there will be a lot of wreckage strewn along its path as we stumble into the realization of its real potential.
As with the Internet itself after the crash of 2000, I suspect that it will not be until after the initial bubble of speculation has burst that we will begin to see the true potential of bitcoin.