Digital Gold by Nathaniel Popper
My palms are all sweaty and my heart beats fast. Why? I have just read Nathaniel Popper’s Digital Gold. It is a well-researched, fun, exciting and to the point history of Bitcoin. Yes, a factoid with a lot of panache. This book reads like a Ken Follett novel. (Why Follett? Well, he actually wrote a thriller novel on cryptography: The Key to Rebecca.) We are talking about money, what money is and what it should be.
First, let me give you a brief recap of Bitcoin. We are talking about a digital currency, created free from central authority and governments. A new kind of universal money that could be spent and used almost anonymously (this is questionable, but now we’re into the fine print). The bitcoins (I am using capital B when talking about the technology and lower-case when talking about the units) would be scarce in the system — no more than 21 million will ever be created — so no government printing new money to rescue the school budget. Bitcoins are not physically stored anywhere, unless you count a hardware or USB or similar. They are 100% digital. A distributed mathematical formula keeps track of all the bitcoins and any and all transactions in the system. New bitcoins are generated by mining, which anyone can do by downloading the Bitcoin software, even if you need quite some computer power today to actually win the bitcoins. The creator of Bitcoin, the elusive Satoshi Nakamoto (a pseudonym), has yet to be identified.
Money is what money is, you might think. But is it really? Money used to be regarded as an easier way to handle transactions than barter. Later research by David Graeber in his Debt: the first 5000 years, tells a story of debt being the oldest base for trade later to be replaced by barter and money. Gold as a metaphor or even base for money has since long lost its meaning. The Nixon Shock, where Richard Nixon abolished the direct convertibility of U.S. dollars to gold (and killing the Bretton Woods system as collateral damage) made us count on the U.S. dollar for trade for one reason alone: someone is willing to put up goods or other currencies to pay for them. The same goes for Bitcoin — if the community trusts it — it will work. If not, it will not work. Here you might take a moment and think about the crisis in Greece and why Germany keeps rescuing the Euro and Greece against all common sense.
Why should you be attracted to Bitcoin? Well, the technology has many uses and most of them legitimate, but there is one episode in the book that I will copy verbatim that will show you one use that I found very powerful:
“In 1984, during the first major episode of hyperinflation after the Argentinian military junta lost power, Wences’s mother came to get him and his two sisters from school. His mom was carrying two grocery bags filled with money — the salary she had just been given in cash. She rushed with Wences and his sisters to the grocery store and had them run through the aisles, grabbing as much as food as possible before the hyperinflation caused the goods to be repriced. A man walked through the aisles all day doing nothing but repricing the items on the shelves to keep up with the rapidly changing value of the peso. When Wences and his mother got to the register, he and his sisters would run back and grab more food if they still had any money left.”
Sure sounds like a bad science fiction movie, right? But this was the reality in Argentina in 1984 and if you talk to people in Cyprus or Greece today they wouldn’t consider this an are-you-out-of-your-mind scenario. With Bitcoin the government can’t just print new money. The number of bitcoins are what they are. They will still — which is vastly explored in the book — be subject to other types of speculation, but this in itself seems like a low risk. Even today, living in Argentina, Bitcoin is a valid choice of weapon.
Popper has managed to write an account of the birth of a new technology that is very intense, even though it is obvious that the technology did not break through overnight. Bitcoin’s success is the result of painstakingly hard work and perseverance. The interesting thing is that the book at the same time gives the detailed background of all the digital cowboys setting up this new landmark technology as well it describes Bitcoin as such. In this part it reads a lot like Rebel Code by Glyn Moody (on the open source revolution). Few books I have read has given such a precise history of what it takes to break through with a new technology.
We are guided through the source code development of Bitcoin but also a lot of entertaining and not so entertaining stories around the early Bitcoin entrepreneurs. A lot of people got hurt, not least around the Bitcoin contraband marketplace Silk Road and its entrepreneur Ross Ulbricht.
What is the next step for Bitcoin? Is there a reason to care? In my humble opinion, Bitcoin is here to stay. It might not altogether be used as a crypto-currency replacing the U.S. dollar, but the blockchain concept will prevail, undoubtedly, and quite possibly will the eventually mined 21 million bitcoins be rather valuable going forward. At least for cross-border transactions and micro-payments I have a hard time thinking of a better system than cryptocurrencies. Bitcoin has had its ups and downs, but there are many signs showing a positive future. Having said that, Bitcoin is now turning more into a technology than a movement. It clearly started out as a movement and as Erik Vorheers is quoted in the book (p 214): “Bitcoin is a movement, and those trying to distill it into nothing more than a cute new technology are kidding themselves and doing a terrible disservice to this community.”
I agree with Vorheers that Bitcoin *was* a movement. However, as we move forward, it is no longer waving the libertarian free from the State flag, but rather turning out to be a very promising technology and set of concepts that may prove as ground-shattering as once the Internet. Speaking of the Internet, remember John Perry Barlow’s speech about selling wine without bottles? Barlow ended his article: “in the years to come, most human exchange will be virtual rather than physical, consisting not of stuff but the stuff of which dreams are made. Our future business will be conducted in a world made more of verbs than nouns.” Barlow went on to found the Electronic Frontier Foundation and wrote the declaration of independence for cyperspace. However, the Internet did not turn out to reinvent intellectual property the way Barlow saw it. It did not become cyberspace with its own set of laws and rules. It became regulated. By national governments. Similar trends may already be observed when it comes to Bitcoin. It is a movement, but then it also isn’t.
The price of bitcoins has slumped the last year. Is this just another Dutch tulip market? Startups in the Bitcoin community are failing. I think we are in the valley of death now, when it comes to Bitcoin. We saw the same thing for the Internet in Scandinavia in 1998 when a lot of major companies pulled out, leaving many, many websites dead and defunct. Remember Scandinavia Online and Bonnier Online? That is where we are in my opinion. But Internet prevailed and I think there are many signs that Bitcoin will too, even though the movement part — fight authority — may be levelled out.
Personally, I dismissed Bitcoin as a fluke at first. I was wrong and you could well consider me an evangelist today (I even have a small investment in one of the Bitcoin startups: GoCoin). The book ends with one of the major Bitcoin evangelists, Wences Casares talking Bitcoin with Bill Gates. Gates had the same approach as myself: skeptical. Following his conversation with Casares, Gates concludes:
“You know what? I told the foundation not to touch Bitcoin and that may have been a mistake. We are going to call you.”
Mikael Pawlo
