Welcome to the CoinDesk Weekly Review 1st November 2013 – 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.
Circling in for the win
For bitcoin to fly, it needs to be easy to use, feel legitimate and be spendable all over the shop. If you look at the early marketing of credit cards, they went through the same process: card providers hammered home security, simplicity and widespread retail acceptance.
The news that copper-bottomed venture capitalists have raised nine million dollars to set up Circle, a very shiny, very now outfit dedicated to making bitcoin simple for users and companies alike, ticks all those boxes.
With track records in Facebook investment, an industry-standard video distribution company, WalMart board membership and many other VC CV desirables, the team’s about as good as it gets.
Their mission looks spot-on too: creating the tools and the brand to make bitcoin safe and simple.
That’s not too different to what most of the team did at Brightcove, the Internet video creation and distribution company where most of them hail from.
They created tools and a brand that existing media companies felt was a safe and effective way to get their video content online and in the faces of Internet users.
Also, they clearly know how they’ll make money out of the enterprise, which is by no means a given for Internet startups. So, they know what they’re doing.
All this has made Circle instantly legitimate in the eyes of the mainstream media, with the New York Times penning a respectful piece on what they’re up to - and, of course, including a canned round-up of what bitcoin is, how it works and some of its recent history.
Savvy watchers will know that the next step in bitcoin’s acceptance will be when major news stories about the currency come without these educational capsules.
That won’t be long in coming. John Law notes with some satisfaction that BBC radio news ran two bitcoin stories on successive days, albeit with their own little capsules, and that cabbies have started to ask informed questions when they discover their fare writes about the stuff.
The whole momentum is eerily reminiscent of the early days of the Internet: the difference is that, back then, people really didn’t get the idea of public computer networking. Now they do - and they get bitcoin with commendable despatch.
Of course, there’s no substitute for deliverables, and Circle is still in stealth mode over exactly what it’ll be delivering and when it’ll be delivered.
The good thing about bitcoin is that the hard work’s been done - a monkey with a Raspberry Pi can build a bitcoin gizmo between bananas - so the real sweat will have to be poured into top-notch user interfaces, solid infrastructure, marketing and confidence building.
The Circle guys have considerable form in all these areas.
The only potential downside that John Law can foresee is the name. While the name Circle has all the elements of simplicity, wholeness and completion that the brand requires, there is an unfortunate and rather sordid phrase created when you add on the old insult ‘jerk’.
If the boffo brains behind the company do run into any sort of technical or regulatory trouble, that phrase has the potential to stick.
It’s not likely this is keeping them up at night. Developments of a more wholesome nature are eagerly awaited.
What’s in a namecoin?
Unwelcome developments have hit namecoin, one of the various altcoin alternatives to grandaddy bitcoin.
Namecoin’s shtick is that it runs its own domain, .bit, which is entirely independent of the Internet’s own DNS, the Domain Name Service that translates all the human-readable addresses, like coindesk.com, into the numbers the machines use.
Running your own domain service has some great advantages - you get complete control over who gets addresses, and you’re not beholden to any of entities who charge for registration and decide what the rules are.
The major downside, of course, is that if anyone types a .bit address into their browser, it won’t know what to do with it and you won’t connect.
Namecoin fixed that by making some little browser extensions that you can plug into your Firefox or whatever, and voila - full interoperability with total independence.
It’s a great idea. Unfortunately, as the main DNS system knows only too well, it’s not just a matter of setting up a directory system: such things are at the heart of how the Internet works and if they’re attacked, enormous amounts of mischief can take place.
You might think you’re connecting to Mybank.com, but if that’s been hijacked the people taking your credentials may be a bunch of criminals bent on ripping you off instead of a respectable member of the international finance system bent on ripping you off.
The main DNS has seen a lot of attacks and has had to evolve some serious security smarts to defend itself.
Alas, Namecoin has learned this the hard way, with major flaws being discovered by an independent developer who was investigating whether it was safe to start to trade there.
In effect, anyone can hijack any .bit domain. And while the flaw can be fixed, it means that the block chain behind Namecoin’s coin system is no longer trustable - and you can’t just wave a magic binary wand over that.
It’s a salutary lesson in making a system secure, and one that security experts constantly warn about. You’re only as safe as the weakest link in the chain.
While the basic blocks of cryptocoin technology are considered suitably solid, when you come to glue them together you have to make sure that the glue itself is sound. There’s no point in plugging in deity-grade encryption if you let the keys leak out.
Indeed, that’s how the NSA gets to snoop on so much encrypted network traffic: it can’t break the encryption, but it can and has spotted the points where encrypted traffic is decrypted before being used. Tap those, and you get the lot without having to reinvent fundamental mathematics.
Namecoin may well overcome this hurdle: the idea of running an independent domain name service is intriguing, worthwhile and not fundamentally flawed.
If it doesn’t, it’ll be in the same company as the old UK aircraft manufacturer, De Havilland, which built the world’s first jet aircraft, the Comet. Put the UK years ahead of the world. Unfortunately, nobody really understood metal fatigue until after a few Comets had self-destructed in mid-flight.
After that, everyone got the hint - especially Boeing, who got the 707 out while De Havilland was still redesigning their aircraft to not do the falling-out-of-the-sky thing.
Them’s the breaks.
How to make a million by forgetting
Both are real ‘Hey, Maude!’ stories, so-called in the newspaper business because they’re the sort of thing that Harold brings to his missus’ attention over breakfast while she’s buttering the toast and he’s reading the paper.
The ATM story is cool because - look - you can stuff banknotes into a box and get bitcoin out. None of that messing about with online transactions and worrying whether your bank will spot what you’re doing or whether evil hackers will take your dosh.
This is particularly good because while you have to have all sorts of licences and regulatory insight if you want to take one sort of money and give the punters another sort of money, you don’t if you want to operate a vending machine that takes the dosh and hands out things.
As bitcoin isn’t legally money, you can - in Canada at least - pretend your bitcoin ATM is a vending machine and just stuff it in a coffee shop.
OK, so it’s got a palm-scanner to make sure you’re not trading more than $3,000 a day - triggering money laundering rules - or, at least if you are, you have to get a friend or two to stick their hands on the screen as well.
If one of those was in the corner of some bar, you’d stick twenty quid in to start playing, wouldn’t you? Course you would.
Of course, if you were really sensible, you’d have already bought your bitcoin back in 2009, when you could get around three to a penny - or 5,000 for $27.
Then you’d have looked at them in your wallet for a bit, and, seeing they weren’t doing very much, forgotten all about them. Until 2013, when you’d see a news story that a single bitcoin was worth around $200, which might trigger some sort of memory that, hey, didn’t you have a few lying about.
You might have had a few anxious hours while you tried to remember a password from four years ago but - hey - motivation, right?
And then you’d remember, and then you’d be practically a millionaire, and the BBC would be running a story about you. But you’d be a Norwegian called Kristoffer Koch, and you are not that man.
Neither is John Law, although he so easily could have been. He’s not bitter. But if he meets Mr Koch - Kris, dear friend - in a bar, he’ll be prepared to let him pretend to be a bitcoin ATM and buy him a pint of bitter.
$27. Try not to think about it.
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 an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.