TECHNOLOGY REVIEW ARTICLE ON THE EVOLUTION OF BITCOINS

This past Sunday, Doug Scribner took out five $100 bills and began feeding them into what looked like a small, white ATM in San Jose Conference Center in California. The machine swallowed the bills smartly and credited him with an equivalent value in bitcoins, an intangible, digital currency that is backed by not gold or any government, but by math.

Scribner was one of an estimated 1,100 people who attended Bitcoin 2013, a weekend-long event in the heart of Silicon Valley and the first large conference dedicated to Bitcoin. Unsurprisingly, all those present seemed certain that the cryptocurrency was set to upend the world of finance, perhaps more. But the event also offered something new: evidence that Bitcoin is gaining traction outside its existing community of enthusiastic early adopters.

Bitcoin’s origins are mysterious. It was created by an unknown individual or individuals who used the pseudonym Satoshi Nakamoto. Cryptographic operations and oversight from a peer-to-peer network of people running Bitcoin software process transactions and protect against counterfeiting without the need for a central authority.

One reason Bitcoin is interesting, says Jeremy Liew, a partner with Lightspeed Venture Partners, is that it could displace the practice of wiring money across borders, which underpins much international trade today and can be onerous. “If I’m trying to wire a supplier in China it’s a three- or four-day process with heavy fees,” he says. “Bitcoin transactions can be instant and free.”

Liew and others shrug off the currency’s wild swings in value over the past few years, saying that the general trend is upward and that volatility will decrease as more people use it. BitPay, OpenCoin, and others also offer services that make it possible for a business to make sure incoming bitcoins keep their value by having them instantly converted to dollars. “Bitcoin can be used as just a transport network,” says Liew.

Several people from Silicon Valley involved in Bitcoin liken its potential to that of the Internet, saying it will enable money to flow as easily across the world, and between people, as e-mails and video do today. Yet mingling with the crowd in San Jose also made it clear that some of those who have supported Bitcoin for the longest don’t like the approach of these startups and their investors.

Bitcoin’s earliest adopters were libertarians, cryptographers, and coders attracted by the idea of money that could operate without government oversight. They liked the idea that people could exchange bitcoins without knowing or trusting one another. Large exchanges and payments companies that operate much like existing financial institutions and follow the same regulations compromise both of those features, some argue.

“When those people talk about revolution, it’s ‘I put out a disruptive app.’ That’s not a revolution to me,” said one attendee, who told me that his online handle is Alexmat and that he quit a job with Goldman Sachs’s commodity desk in Tokyo to operate a private, one-man Bitcoin exchange business in Seattle. “These companies would be happy for it to just function like Mastercard. That is not what Bitcoin is about.”

I met Alexmat within the large crowd assembled for one of the best-attended talks of Sunday. Ian Miers, a PhD student at Johns Hopkins University, took the stage to explain that Bitcoin’s design doesn’t provide the “anonymity” many assume, and offered a possible solution: an extension to Bitcoin called Zerocoin. Bitcoin’s design relies on a public log of all transactions; that log doesn’t include names, but researchers have found that it can be used to deanonymize transactions, says Miers, something he believes will soon be attractive to marketing and financial companies, as well as law enforcement. “The reality of the matter is that Bitcoin is not that private,” said Miers. “It’s actually worse than cash.”

To read the complete article, see: Bitcoin Hits the Big Time, to the Regret of Some Early Boosters (www.technologyreview.com/news/515061/bitcoin-hits-the-big-time-to-the-regret-of-some-early-boosters/)

Wayne Homren, Editor

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