It isn’t that I’ve just discovered Bitcoin and the world of crypto-currencies. It is more that I’ve chosen to ignore it. As an active technologist, long-time tech investor and supporter of tech start-ups I’ve learned to contain my excitement about new technology. Over the years I think I’ve become better at drawing a distinction between things that are technically interesting vs things that are commercially relevant.
I had sniffed around the crypto-currency piece in the past, initially back in the 1990’s while doing a deep dive into electronic payments generally and micro payments specifically. For those who think that the digital currency idea appeared fully formed out of nowhere in 2008, look up David Chaum, DigiCash and the many other initiatives that have previously pushed the boundaries in this space.
A few years ago I started getting approaches from entrepreneurs raising money for things like crypto-currency exchanges and for the development of specialist hardware to run bitcoin mining algorithms. All interesting, but non-sensical in the context of real-world needs. How on earth does it make sense to spend a ton of money building and running hardware to perform calculations that might somehow result in the production of a crypto-currency unit in accordance with some fixed, quasi-monetary policy defined algorithmically by some pseudonymous individual?
On top of that, a quick check at the time showed me that there was nothing I could do with the currency except to arrange a meet-up with a stranger to exchange “real” money for crypto-currency tokens on the basis that, wow, it is a non-fiat, decentralised store of value and at some point I could maybe arrange to meet someone else in an alley and give them my tokens for “real” money at a better exchange rate because there are more people getting into this scene and there is a limited supply because of that quasi-monetary policy – ain’t no quantitative easing for bitcoin!
Things have changed of course: one can now buy a coffee in select coffee shops using bitcoin, although this too is non-sensical when you consider the mechanics of bitcoin and the potential impracticality of using it for millions and millions of small payments.
Now, if one investment pitfall is getting too excited about tech and investing ahead of real-world relevance, the other end of the spectrum is being too wise, staying out of the fray and discovering that despite the thing being nonsensical, enough people are excited about it to drive the value up. If I’d bought $100 of bitcoin experimentally in 2010, it would be worth ~$100m today (actually, $100m yesterday… less today because the market just “corrected”). Price was $0.003 in May 2010 and has been near $3000 in May 2017.
I’m consoled by the fact that had I made such an investment, I would almost certainly have lost whatever device I’d stored the crpytographic tokens on before realising that they could make me richer than I’d get from doing something that is actually useful.
Bitcoin is a game of speculation on the balance of supply and demand. That’s fine. It is just a variant of the game that a huge proportion of serious finance professionals play on the stock market every day, which partly explains why the big banks have taken to covering the ups and downs of Bitcoin like they cover the often inexplicable ups and downs of stocks.
There is a sensible position between those two points. Avoiding the “wow, let’s invest in cool tech” and the “makes no sense, but it is going up” ends of the spectrum, I’ve been interested in the middle ground which is to take the view that the underlying technical foundations are very interesting. The early noise around Bitcoin, the active speculation, the usage of the crypto-currency by people who misguidedly think it is and will remain anonymous and untraceable, and the economic incentive that Bitcoin presents to criminals who work tirelessly to crack the system all aid in the advancement of a very interesting set of technologies that can be used in a number of ways and will impact real life.
For example: BLOCK CHAIN! Buzz word, and almost abused as much as the“Artificial Intelligence” label. There is something very useful there in the form of a distributed ledger capability and an obviating of trusted third party facilitators.
Near-term, the ability to implement and apply distributed ledger capabilities opens up opportunities across a variety of sectors. There are numerous scenarios where the ability for two parties in a trade to have a shared, auditable record of a transaction is a major step forward from the scenario where each party has its own record and needs to at some point ensure that both views can be reconciled. This ability is likewise revolutionary when it comes to cases that require tracking the movement of a specific asset from entity to entity. I’ll stick to this abstract view here with the intention of writing about specific cases in the future.
Related to the distributed ledger capability, but potentially more broad conceptually, the notion that Trusted Third Parties are effectively a security hole in the design of a system is interesting. It makes me feel old to say that in the early days of this digital age, I contributed to a book on this subject – Trust and Deception in Virtual Societies, Edited by Cristiano Castlefranchi and Yao-Hua Tan. In that book I explored the conceptual underpinning of a Trusted Third Party in the specific context of a certification authority within public key infrastructures. Replacing a Trusted Third Party with inviolable algorithms/protocols where the rules can be broadly examined, tested and accepted to a point that engenders a level of trust exceeding the trust that an individual might place in a corporate entity or government opens up many possibilities. Of course, we could argue that the level of trust that an individual might place in a corporate entity or government is a dwindling target and so it shouldn’t really take much to beat it.
So what’s the point of Bitcoin? Games, porn and the space programme are, to varying degrees, useful in their secondary effects. If it weren’t for the space programme, we might not have Velcro or Tang. If it weren’t for porn, we probably wouldn’t have broadband. If it weren’t for games like Bitcoin, we wouldn’t be advancing our understanding of, and confidence in, the underpinning technology. Speculate or spectate. Play the game if you want, or pull up a seat and enjoy the show.