Welcome to the CoinDesk Weekly Review — a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law.
The week kicked off with the news that bitcoin fever had created the world's most powerful computer. The rate at which the world's miners were converting computer cycles to coinage was some four to eight times faster than the finest supercomputers money can buy.
And the rate is going up, with the massed ranks of laptops and servers being joined by an ever-increasing (when actually delivered) cadre of dedicated hardware on offer for the truly dedicated.
You’d think that such feats of digital prowess would be cause for celebration. But no; the tinkle of newly minted bitcoins was drowned out by the hand-wringing of the commentariat.
O tempora! O mores! they cried. If only such ingenuity could be put to good use curing cancer or global warming or working out where all the real money's gone, cried the press, which, John Law thinks, is missing the point.
Mining - the old fashioned sort of muscle, muck and mass mortality - has a long history of catalysing change far beyond the business of pulling out rocks. Bronze age tin mines created the first long-distance trade routes across Europe. In the Industrial Revolution, the problem of pumping out water from deep shafts provoked the invention of the first steam engines. And the next stage of space exploration is expected to involve mining asteroids. It’s all very well to boldly go, but it’s more sustainable to boldly come back again clutching booty.
As it is with digital coinage. The exciting part isn’t that you may become rich - although it’s not to be sniffed at. It’s that as so many people try, the spin-offs will change the world, like it or not.
So don't weep for the lost exaflops. Wait for them to turn into railways.
A dwolla short
To read some commentators you'd think the Fed's clamp-down on the Mt Gox-Dwolla fund transfer system was a direct assault on Bitcoin, and the muscular assertion of the regulator's fiat upon all crytocurrencies.
Which it wasn't. John Law would like to think it was more an entirely justified, if rather butch, official critique on the silly names that seem to attach themselves to any new technology. Mt. Gox, after all, stands for Magic The Gathering Online eXchange (it was a fantasy card collecting game, m'lud), and Dwolla sounds like a name a three-year-old would give to a favourite Barbie.
The real reason, much more prosaically, is that Mt. Gox and Dwolla lacked the requisite paperwork for offering money transfer services across borders. You can see such licenses as essential regulatory measures to protect individuals and companies from crime, or as a gangster racket aimed at preserving the state monopoly on taxation, according to preference: like a quantum particle, what it looks like depends on how you look at it.
But it is necessary. Much as the libertarian side of bitcoin philosophy casts the state as an evil, controlling force that grinds down any threat, most of the rest of us are rather happy that if we want to move money around there’s someone with more heft than us is prepared to step in if things go wrong. The balance of power and responsibility can go wrong, of course, and it’s at times like this that it’s entirely proper to question and test the limits of the system. But the system itself, while it might be as annoying as a traffic cop that gives us a ticket for doing 45 in a 40 zone, also means there are roads there in the first place and, should you get rear-ended by a joyrider, you’ll get your car fixed and the miscreant persuaded of the error of their ways.
And besides, the digital currency movement needs to learn about operating in the regulatory environment if it’s to have a serious chance of kicking off a revolution that works. Engineering the lawmakers is going to be just as important - and tricky - as getting the hash sums right.
Real value can be more dull than shiny
Spring in the United Kingdom has been what meteorologists officially describe as ‘rubbish’, with wind, rain and misery pushing the end of winter nearly three weeks past its defrost-by date. Now that a bit of sunny warmth is finally -- if fitfully -- caressing the land, every green plant in the place seems determined to pack in a month’s worth of growth and flowering over a weekend. The horse chestnut outside John Law’s secret HQ has gone from chilly skeleton to flowery full dress uniform overnight.
And so it is with the cryptocurrency community, where the realisation that there may finally be money in them thair bits has provoked a digital spring rush of product and promises not seen since the first Windows web browsers simple enough to be operated by bankers sparked the original Internet madness. Only time will filter out the successful inventors from the fanciful chancers, but some definitely indicate healthy growth.
One such is Bits Of Proof, announced on Friday. It’s not flashy or fancy, and makes no claims to create Scrooge McDuck bathfuls of glittering wealth, so is all the more interesting. An open-source reimplementation of the basic bitcoin protocols, it purports to be an enterprise-class, flexible, checkable version that is suitable for companies to employ with the same expectations as they have of an email server, a security system or a database. The company behind it expects to make its money through support and providing guaranteed services based on the software, but you or your company are free to take on all that yourself if you want.
It’s a classic open-source business play, a model that’s proven itself over the past twenty years. And like all such offerings, it’ll take a while for people to convince themselves that it works, is reliable and is useful. If it is, it’ll become part of the scenery.
But its importance right now is as a demonstrator of one of the primary attributes of the Internet - that once an idea is open and available to all, it cannot be un-invented. Even if everyone involved with Bits Of Proof vanished off the planet tomorrow and its website converted to kittens, the code is out there and living on uncountable computers. Any copy can be taken, modified, redistributed and run in the time it takes to type the commands.
This is a resilience that cannot be matched any other way. If Microsoft decided to shut up shop tomorrow, nuke its own servers and go to the beach forever, there’s no way Windows could continue as a going concern. Your iPhone without Apple would quickly become a pretty paperweight. But Bitcoin - or any other cryptocurrency based on open source and standards - cannot be killed like that, and every example of basic infrastructure like Bits Of Proof underlines that.
Nobody can predict tomorrow’s harvest, especially during the first, heady rush of a long-delayed season. But you can look at the basics behind the digital biology; concentrating on the fundamental drivers that make everything possible. Remember that as the waves of hype crash against the sea-cliffs of reality, and you won’t go far wrong.
John Law is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.
Stay tuned to CoinDesk this weekend because we'll have full coverage of the first big US Bitcoin conference in San Jose - Bitcoin 2013.
is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.