The BL Interview. ‘A new way to think about money’

Bitcoin is still a bit of a mystery in India, although in some pockets of the world it has become a movement of sorts, representing individuals opposed to having their monetary transactions constantly scrutinised by government. In Digital Gold: Bitcoin and the inside story of the misfits and millionaires trying to reinvent money , Nathaniel Popper, a New York Times reporter, provides some lively insights into the creators of this unique virtual currency. Here, he answers some questions from BusinessLine

I don’t think the world needs to welcome bitcoin. It’s a fascinating technology that provides a new way to think about money, but it should only be used if it provides some real benefit over the existing ways of doing digital transactions.

In large parts of the world, traditional money works quite well. There are, though, places where the banks that serve as middlemen in the system slow things down and impose unnecessary costs.

Bitcoin is potentially valuable because it allows people to make digital transactions without going through a bank or credit card company, similar to the way that email allowed messages to be exchanged without going through the postal service.

It did, though, take over a decade for people to figure out how email could be useful to a broad number of people. The same is likely to be true for bitcoin.

People in various parts of the world are finding ways that bitcoin is useful to them. In Argentina, bitcoin is allowing people to move money in and out of the country, getting around the government regulations that impose big fees on these sorts of money movement. In China, bitcoin has become a new venue for online speculation — like an internet lottery.

A lot of the work, though, is being done by sophisticated programmers and banks who are savvy enough to deal with the complicated software that makes bitcoin run, and they are trying to find easier ways to make use of bitcoin’s unique capabilities — the possibility for direct and immediate online transactions.

It is undoubtedly true. Bitcoin is elegant from a computer science perspective, but it is not elegant for an ordinary person. This is similar to the software that brought the internet into existence. The software only became useful to ordinary people once the web browser was built on top of it to make it user-friendly. Bitcoin is still waiting for that layer of software that makes it more approachable and less scary.

More people today have access to the web — through mobile phones — than have bank accounts. Given that the web is more accessible than the financial system, I don’t see that as a hindrance to bitcoin’s growth. If anything, it is one of the main things bitcoin has going for it.

Banks have actually been quietly doing some of the most interesting work on bitcoin in the last year, trying to find a way to use it for their own purposes. They too want to find ways to move money more cheaply, using fewer middlemen. Their efforts won’t necessarily involve bitcoin the virtual currency — but it will involve the ideas and software that make bitcoin work.

The bitcoin network is operated by the computers of all of its users. Those users keep the records of every bitcoin user and every transaction that has happened since bitcoin got going in 2009. Because everyone is keeping the records, there is no need for a central authority who might alter the records or have a power outage at a key moment.

Despite all this, over time, many bitcoin users have opted not to join this network directly. Instead, many users have relied on some third party, essentially a bitcoin bank, to hold their bitcoins and deal with the bitcoin network for them. This is similar to the way that most people use Google or Yahoo! to keep and transmit their email, rather than tapping into the internet themselves.

The bitcoin banks that people use are the types of central authorities, whereas bitcoin was invented to get away from these. And those bitcoin banks have showed the dangers of such central authorities. This is a real risk for bitcoin users — and in some sense it defeats bitcoin’s original aims. But at the same time, bitcoin still does allow people to tap right into the network, even if people don’t take advantage of that capability.

My book is about the dynamic people who made bitcoin happen and there are so many fascinating characters that it is hard to pick from them. Among the early users, I was particularly taken by the story of Hal Finney. This guy worked on some of the precursors to bitcoin and was a real technological purist and futurist. He was always imagining how the future would be different and better than the present and he wanted to play a role himself. As part of that, he signed up to have his body cryogenically frozen when he died so that he could later be unfrozen and brought back to life. Bitcoin couldn’t have gotten going without Hal, and the technology became a central part of the future Hal imagined.

Once the technology began to take off, the politically motivated characters became much more important in selling it and finding ways to use it. Among these people, there is no one more interesting than Ross Ulbricht, the young graduate school dropout from Texas who started the Silk Road, the online drug bazaar where heroin could be bought for bitcoin. Ross was motivated not by money but instead by the belief that people should be able to enter into transactions freely, even if the transactions involved substances like heroin. He was on the fringes of libertarian philosophy, but he really believed. More recently, one of the most important figures has been an Argentinian entrepreneur named Wences Casares.

This is a guy who grew up in poverty on a ranch in Argentina and who has since become a millionaire many times over thanks to his startups. When he found bitcoin he became convinced that it would become an answer to all the financial problems that have plagued Argentina over the last 40 years, including hyper-inflation and a broken financial system. Wences used his own experiences in Argentina to sell bitcoin to some of the most powerful people in the world — people like Bill Gates and Jeff Bezos — and in many cases he has succeeded in winning them over.

For people in India who don’t have bank accounts, bitcoin can provide a more accessible way to do transactions online. Attaining bitcoin is, in many cases, easier than opening a bank account. Bitcoin also provides a cheaper and faster way to move money internationally than most remittance providers like Western Union. That could be very useful for all the Indians living abroad looking to get money home. It’s not always easy to use, but when it is used properly it is cheap and fast.