Two economists and an entrepreneur weighed in on the troubles facing bitcoin and how to address them in a CoinSummit San Francisco. Panelists included Susan Athey, senior fellow at the Stanford Institute for Economics Policy Research; Jonathan Levin, co-founder of Coinometrics; and Andreas Antonopoulos, the Chief Security Officer of Blockchain.
The session was moderated by Nathaniel Popper of The New York Times.
The session was titled, “Is Bitcoin a Flash in the Pan?” but right off the bat, the panelists agreed that the digital currency – or at least the block chain concept upon which it is built – is here to stay.
Challenges facing bitcoin today include the high energy demands of mining, the way bitcoins are distributed, security concerns, the difficulties presented by bitcoin’s anonymity yet lack of privacy and expected challenges from regulators. Some of these things could be fixed by innovations yet to come, either in the form of changes to the protocol or in the form of a new alternative currency that could supplant bitcoin, they said.
But, this does not mean that Satoshi Nakamoto – whoever he, she or they are – should have done things differently from the get-go, Athey said.
Mining, for instance, might need to be tweaked in the future, but it was the perfect way to get bitcoin off the ground, she said:
“When you think about what it takes to develop interest and trust in something new like this, the fact that the way the design managed to accomplish that is kind of amazing. Not only was this group brilliant at security, but they also thought through the incentives, and the thing they created captured the imagination as well as the investment of a large group of people. Mining provided a financial reason to be involved, which then helped grow the whole system.
That said, I wish it didn’t take so much electricity,”
Levin, however, objected to the way that bitcoins have been distributed.
“The distribution of coins came out far too quickly for something that should scale over a very long period of time, and disproportionately rewarded early adopters.”
Another problem Levin cited was that as much as 10% of all bitcoins are reportedly in the hands of criminals who have stolen them through hacking or other misbehavior.
“We have the bitcoin price going through the roof, giving material value to those people,” he said.
But Antonopoulos called the 10% statistic “a vast improvement over the rest of our economy, where 80% is in the hands of criminals – and that’s the banks.” His comment was met with applause.
The very nature of the block chain, which makes all transactions public but records only addresses, no real names, provides both too much and too little anonymity to users, depending on the point of view, the panelists said.
“For fitting into a regulatory framework, it can be very important that if you trade a dollar for a bitcoin, that you know where your bitcoin is landing, that you know the identity of that wallet is not, say, in North Korea, that it’s not subject to sanctions.
On the other hand, if you thought about a company doing a lot of its internal business over the block chain, then they would have to take a lot of effort to make sure they aren’t revealing company secrets that way. The current system is the worst of both worlds in some ways.”
There are technological ways to fix this, but until regulators say what kind of information they’re going to want, it’s difficult to know what approach to take, Athey said.
Antonopoulos disputed whether regulators will have the ability to dictate changes in how bitcoin works: “We don’t know what regulators are going to ask for, but I think I know what my answer will be: no.”
Governments must beware of being too heavy-handed with bitcoin, he said. If not, they run the risk not only of pushing bitcoin activity into other countries, but also giving rise to more secretive technologies.
“If they try to stomp on bitcoin, they will discover that bitcoin was a little gecko technology, like Napster was the benign file sharing technology. When you stomp on the gecko, it becomes a Komodo dragon and then bites off your foot next time you try to stomp it,” Antonopoulos said.
CoinSummit image by CoinDesk