California dreaming: The CoinDesk Weekly Review

John Law explores the past week of Bitcoin news, from Rosicrucians and credit unions to overheated hardware and the new generation of swashbucklers.

AccessTimeIconMay 24, 2013 at 4:00 p.m. UTC
Updated Sep 10, 2021 at 10:47 a.m. UTC

Do you know the way to San Jose? John Law does, having spent some time there in the '90s, and can report that -- apart from the song and the deeply strange Rosicrucians -- there’s little to recommend the place. Milton Keynes with palm trees.

Yet it’s that strange mixture of the tediously prosaic and unnervingly weird that makes it the ideal place for a Bitcoin conference. And last weekend’s Bitcoin 2013 did not disappoint, combining earnest discussions about taxation and regulation with vodka brand launches, rap singers and revolutionaries. And as San Jose is also the heart of Silicon Valley, it’s fitting that veterans of the last revolution, when the internet grew from technical oddity to global machine, were there with some solid ideas to guide cryptocurrency on the same path.

Which is why the odd couple of ex-banker Jordan Modell and Internet Archive founder Brewster Kabel fitted right in. The pair have form, having started up the Internet Archive Federal Credit Union last year to support low-income families in New Brunswick, New Jersey -- which, despite its name and provenance, is a pretty normal affair -- and, crucially, is regulator-approved and complaint.

As IEEE Spectrum reports, this is where Modell and Kabel think Bitcoin and its ilk needs most help -- a perception that looks pretty spot-on to most. Credit unions have to be squeaky clean, filing regular reports to the authorities, maintaining a close relationship with their customers, and noting any suspicious activities that could indicate criminal involvement. Which is exactly the sort of thing that regulators are most concerned about in the rather ad hoc and murky world of online exchanges and other interfaces between cryptocurrencies and the old-fashioned world of hard cash.

Modell and Kabel can help with the paperwork, as well as providing finance and a reassuring track record of existing relationships with the law. What’s more, they want to... seeing Bitcoin as a useful social instrument and one that will over time become part of the financial landscape. From that vantage point, it makes sense to get in early and become some of the founding fathers. From the point of view of Bitcoin fans, this is precisely the sort of move -- and the sort of movers -- that are absolutely necessary to get past the birth pains and into what will doubtless be a gawky but promising adolescence. Even if it does mean less vodka.

Not mining, but melting

John Law has been vastly entertained by Butterfly Labs’ saga in the world of hardware. The idea is simple: build custom hardware that’s devoted to doing the maths behind Bitcoin mining. The ASIC -- application-specific integrated circuit -- at the heart of the design can in theory be far more efficient (read, faster) than the general-purpose processors and graphic processors that make PCs so flexible. Result: riches.

Or so goes the theory. Anyone who’s actually been involved in custom hardware design, especially involving ASICs, will know that practice can be very different. For while it is possible, indeed compulsory, to run extensive simulations of your circuit before committing to build it, there’s more to making it work than knowing the design can add up the numbers properly.

Butterfly Labs has found this out, as it finally starts to ship its products to punters who’ve been waiting over a year for their silicon cashpoints. As Coindesk’s own Danny Bradbury reports, this is almost certainly due to over-optimistic expectations of how much power they’ll use: the mathematics of how many watts it takes to crunch a lot of numbers are unforgiving and have sunk many a project -- just ask Microsoft -- as all that heat will cook your chips.

Being, like Danny, a veteran of the old days of computing, John Law recalls wistfully the epic delays enjoyed in the 1980s by would-be customers of Sinclair Research and Acorn Computers, some of which were also caused by overheating ASICs. The experience of that sunk Sinclair, but provoked Acorn to design an ultra-low-power processor called ARM that has long outlived its parent company and now powers just about every tablet and smartphone on the planet.

Butterfly should take heart, roll up their sleeves and get creative. And if they can’t cut down the heat, then they should take a leaf from another successful playbook, that of the custom PC makers and supercomputer manufacturers. Arming your device with a cooling system that looks like a mutant V8 engine powered by exotic fluids not only solves your problem but lets you push performance and get a particularly dedicated band of followers. Bonus points for using liquid nitrogen ... and if you use one of these, you win the internet.

All at sea

One of the more intriguing aspects of cryptocurrencies is that they exist independently of a sovereign state -- a status also enjoyed by gold, especially since the major currencies came off the gold standard. But what if one was adopted as a state currency? It’s an interesting idea, and one that fits into the current, slightly schizophrenic attitude the West has toward making currencies independent of government control.

Enter Sealand, an "independent" but unrecognized microstate run by one bloke on an abandoned military fort in the North Sea. It’s a splendid mixture of eccentricity, loopholes in international law and a gift shop ... and harks back, in the words of one judge who had to decide whether it was part of the UK, to the swashbuckling days of Francis Drake.

Drake, of course, was no stranger to unconventional currency transactions, helping himself liberally to Spanish silver on his way back from the Americas ... being careful, of course, to do it in the name of Good Queen Bess. She was more than happy to accept her cut -- a sovereign lesson to Bitcoin proponents that, technically, you can do what you like but practically it helps to grease the palm of the people with actual armies.

Such considerations don’t much matter to Sealand, which has already faced down the Royal Navy and won -- that judge decided it was properly offshore and thus couldn’t be blown up at whim. Bitcoin seems a natural fit -- or potentially so, once it stops being more volatile than the North Sea’s other notable export. It’s also attracting the attention of another maritime project, the Seasteaders, who propose to build independent floating communities. Such grand ideas make more and more sense -- or at least, seem less and less implausible -- now so much economic activity is digital and can be conducted from anywhere you can get a satellite signal.

Bitcoin and its ilk fit so well into these ideas that they almost seem custom-designed for the job. Unlike the almighty dollar, once established and accepted they don’t need the compliance of state-regulated banks and, as they have an entirely digital existence, you don’t need to take on the risks of ferrying physical lumps of stuff through potentially hostile environments filled with lots of aggressive people with big floaty gunships.

Not much good for Drake, but expect more action from the other salty dogs.

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.


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