The internet currency is more than just a risky investment. It’s a revolution. STORY AND PHOTOS BY D. BRIAN BURGHART
The origin of the internet-based currency Bitcoin is mysterious. It seems most revolutions begin in secrecy. Leaders of political revolutions keep their identities hidden because those who wield power often kill to preserve the ability to wield it. Technological revolutions begin in secret because invention is a clandestine activity, and again, people in charge of the status quo may murder to defend it. Social revolutions often begin in secrecy because they start with an underclass that is forced into hiding by society’s prejudice. All this secrecy is simply self-preservation on the part of the inventor—undermine the powerful opposition, and the opposition is very likely to kill or arrest someone. But what if the revolutionary gives over his or her revolution to the people without attempting to gain financial or political power from the revolution? You can’t decapitate something that has no head. A few examples of humanitarian revolutionaries come to mind: Jonas Salk didn’t patent his polio vaccine. Linus Torvalds developed the kernel to the open-source operating system Linux and gave it to the world. Martin Luther King, Jr. certainly didn’t profit from his efforts on humanity’s behalf. Bitcoin is a disruption to our current financial system, and it has the potential to devastate entire sectors of society. But its birth is also similar to humanitarian revolutions. Part of its launch was very public. In October 2008, someone—maybe an individual, maybe a group—published a paper under the name “Satoshi Nakamoto.” It was titled Bitcoin: A Peer-to-Peer Electronic Cash System. Check out the paper that launched a thousand chits here: http:// bitcoin.org/bitcoin.pdf. Since Bitcoin is open-source, its code is available to and transparent to anyone who wants to examine or improve it—or who wants to seek vulnerabilities. But only Satoshi Nakamoto knows Satoshi Nakamoto’s identity. There is, of course, speculation: governments, cryptographers, bankers, mathematicians, hackers—all manner of good and bad actors. “Speculation” is in Bitcoin’s DNA. But speculation has another meaning: investment with the hope of gain but the risk of loss. And the second definition fueled a kind of digital gold rush to Bitcoin that had the word on the lips of some of the world’s largest financiers in 2013. And it was that speculation that took Bitcoin on one index from a value of $13.40 on Jan. 1, 2013, to $1,242 on Nov. 29, and back down to $757 on Dec. 31, 2013. At this moment, it sits at $856.34. While words like “revolution,” disruption,” and “speculation” may make the timid dismiss Bitcoin as a flash-in-the-pan internet phenom akin to a dancing baby OPINION
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meme, this revolution is being televised. Another thing about revolutions is they often begin in bars. And in Reno, the Red Rock Cell is ground zero for Bitcoin.
You say you want a revolution? Aside from the obvious—an internet-based currency— in a word, Bitcoin is a dream. It’s established upon nothing but people’s willingness to assign and to agree to its value. But this is true for all money. Without everyone’s tacit faith, that paper dollar in your pocket is just paper and ink, with traces of bodily fluids and cocaine. It has no intrinsic value. Even if it still had the backing of gold, and you could take that piece of paper to Fort Knox and get a dollar’s worth of gold, the gold that would hypothetically back it probably has no intrinsic value to you. What are you going to do with it? Make a crown for your tooth? Make a computer chip that won’t corrode? Make one ring to rule them all? You? Chances are, you personally couldn’t even buy a loaf of bread at the correct weight. It’s our social agreement that gold has value that makes it worth something. Those mutually agreed upon rules of money are society’s very glue. You’ve got to trust somebody. Bitcoin simply asks the question, Are you going to trust a government or are you going to trust a worldwide system monitored and maintained by the individuals most concerned with keeping it stable and valuable? Jay Yerxa, an IT analyst at Patagonia, has an easy answer to that question. He’s not going to trust government or bankers, both of which favor decisions made by individuals based on opinions, theories or corrupt interests. He’s going with the algorithm. “We have to trust a third party right now, whether it be a government or the Fed (Are they going to raise interest rates?) or a bank (Is my credit card safe, am I going to get fraud or something?), we have to trust in these third parties. With Bitcoin, it’s a math-based algorithm based on, one, how many are created, and two, how these units are transferred from Point A to Point B.” Think of Bitcoin as a distributed system of trust that grew out of decades of talk about a worldwide currency independent of government. It’s built upon the ideas of early crypto- and digital currencies. Geekier readers will recognize the underpinning concepts of BitTorrent, another peer-to-peer protocol used to exchange large files like movies or music.
“ BITCOIN: IN MATH WE TRUST” continued on page 14
THIS WEEK
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MISCELLANY
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JANUARY 30, 2014
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