That which does not kill me...
The law of unintended effects sometimes seems as much a part of the universe as anything Newton or Einstein could cook up. The landing of Apollo 11 on the moon - the triumph of manned space exploration - signalled the start of disillusionment with the whole idea. We haven’t been out of Earth orbit since the programme was shut down early. Victory in World War II was the shove that pushed Britain off global superpower status. And the Silk Road shutdown - here mourned in a rather fine Boyz II Men parody - may be the turning point that sees bitcoin get taken seriously.
One reason is that the bitcoin price bounced back within a few days, after an initial $20 or so wobble, persuading some that it’s not just a black market medium of exchange. Another is that Baidu, the Chinese Google, started to accept the cryptocurrency while everyone was still mulling over Dread Pirate Roberts’ demise. Inspired timing for an announcement replete with implications: if you’re a flagship Chinese company, you’ve got a pretty shrewd idea whether radical moves will be acceptable to the government.
There’s certainly an uptick in positive commentary from general-interest publications such as the New Statesman and National Geographic - establishment-friendly organs with a serious bent. And economists are now predicting bitcoin’s banning not because it’s too shaky but because it works too well to be ignored by governments - although how exactly you shut down a piece of open-source software is never made clear.
What’s actually happening, John Law suspects, is that bitcoin is showing staying power despite everything that’s happened to it. One of the big differences between bitcoin and gold is that gold has been around as a valuable material for at least 7,000 years, while bitcoin is around five years old. Even given those are Internet years - roughly equivalent to dog years, where things go by seven times quicker - that’s a bit of a gap to make up. But each seismic upset that bitcoin survives - and the US government trying to ban it would be a biggie - will make it look more durable, more serious and more like something your granny would use.
But if you still want something to chew on, check out blockchain.info’s graph of the estimated cost of mining. The last break-even point was at the start of July, since when it’s become drastically more expensive to make a bitcoin than it’s worth (at least with GPU mining). GPU mining now costs nearly a thousand dollars in electricity and network outlay to mine just one bitcoin. ASICs perform far better, but will the same thing happen and their makers eventually go bust? Will the price of bitcoin rise as mining stops and scarcity kicks in?
If it wasn’t for the fact it’s been charted, this would be uncharted territory.
Which is peculiarly apt, as the major Chinese bitcoin exchange, BTC China, has just survived one of the most intense DDoS attacks on record. BTC China, the third largest bitcoin exchange in the world, had to soak up 100 gigabits of malevolent traffic a second - which caused, unsurprisingly some delays and failures on the site. The good news is that it didn’t fail, and after a while the attackers gave up and went home.
Two questions: how and why? The how is quite interesting: the attackers infect a number of computers with malware that waits for commands and then sends out packets to the target as fast as possible. Get enough computers on fast enough internet connections, and you can generate more network traffic than Google, all triggered from a laptop in an Internet cafe somewhere.
The why is more interesting: a lot of these attacks are seemingly pointless. John Law has been in the operations room of a large company when a DDoS hit, and nobody had the faintest idea why they’d been targeted. The best anyone could come up with was that as an organisation with a high profile public website, the attackers were testing out their weaponry agtainst a worthy target before deploying it against their real quarry. (They didn't win, by the way; there are lots of anti-DDoS techniques, more than are publically discussed for reasons that should be obvious.)
Sometimes, the reason is blackmail: pay us a ransom, or we’ll take your business down. Sometimes it’s political, especially when a company does something to annoy the radical hacktivists out there. Sometimes it’s just for bragging rights among other hackers: showing off isn’t exactly unknown. But with bitcoin? It could have been an attempt to shake confidence in bitcoin, thus driving the price down: the attackers would then nip in and buy at an advantageous price, offloading their loot when the price recovers.
That doesn’t seem to be the case here: the attack was unsuccessful, and while it did command an impressive amount of bandwidth, it would have been unlikely to last long enough to make a difference even if it had shut down the exchange. But this remains one of the few ways for the unscrupulous to manipulate the bitcoin market, so expect it to happen again.
One final conspiracy-tinged theory is left. There’s been gossip among security types for a while that the Chinese government is having trouble keeping its tame army of cyberwarfare hackers in line and they’re prone to rather too much private venture activity for comfort. With bitcoin getting the Baidu seal of approval, this may have been too much of a temptation to resist. It could even have been a shot across the bows of Baidu itself - acts of vandalism in one of the most intensively monitored Internet infrastructures in the world will not go unnoticed.
This week’s worst idea ever
The idea has the hazy, feel-good techno-boosterism that comes from inhaling Silicon Valley’s rarefied air too deeply. Glance at a tin of peas in a shop and - wham - you’ve bought it. Your Google Glass, armed with the GlassPay app, can scan the barcode, interrogate the shop’s pricing database, add the result to your total, and when you’re done, the magic of bitcoin means you can walk out of the shop without all that tedious money or card nonsense.
Which presupposes a few facts. First, that you’ll be seen dead in public wearing Google Glass. Second, that you see buying peas as a cultural experience. Third, that a shop’s going to be happy having people walk in, pick up goods and walk out again with no other interaction. Fourth, that in the absence of a printed receipt or other proof of purchase, that using an anonymous payment method is going to be a good idea if you need to take your peas back and exchange them for peacock’s tongues in aspic. Which, if you’re the sort of person who thinks wearing Google Glass is socially acceptable, is the sort of thing you’re going to be doing.
There are answers to some of those objections: one is that you don’t actually pick up the goods as you buy them, but just look at pictures of them or examples of them behind glass, picking up your haul after the shop has selected them for you and ascertained you’ve actually paid - much like Argos [Argos is a catalogue-based retailer in the UK - Ed]. Or there are ‘greeters’ (aka store guards) at the door to stop you if you’ve been seen not glancing quite correctly.
None of which seems much of an advance on just taking your stuff to the counter, having the nice man or nice woman put your stuff in a bag for you, and handing over a twenty quid note. You might even have a pleasant chat while you’re at it, crack a joke, maybe even ask them out for a drink. That’s a real cultural experience.
Not everything is cool just because it’s been touched by bitcoin. And absolutely nothing is cool if it involves Google Glass.
However, as a special treat for reading this far, here is something that is entirely cool - a completely incomprehensible Chinese infographic explaining bitcoin with the help of pizza, guns, socks and a goat.
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.
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.