Even if you develop hives at the sight of the words “bitcoin” and “blockchain”, you probably couldn’t help noticing the shouty news the past week. Bitcoin is down! Bitcoin is slightly up! Way down! Little bit up again. As LWON went to press, Bitcoin was either on the verge of another runaway valuation that would climb to $50,000, or it was a “failed experiment” and cryptocurrency is dead.
So which is it? And more importantly, how is the average person expected to make sense of any of this? Not many articles about Bitcoin make me feel like I understand what is going on, and I’m a technology journalist, so this fills me with unimaginable shame.
But I’ll tell you what – it’s not easy to find sources with a well-rounded perspective. Computer scientists can tell you how the underlying technology works; economists can tell you how monetary theory works; anthropologists can give you the long view of how people have stored value going back to the Babylonians. None of that tells you whether Bitcoin – or Litecoin, or Dogecoin, or any of the other 1564 cryptocurrencies of which half are now swirling the drain – is the future of money, or just the 21st century’s answer to St. Vitus’ dancing mania.
Maybe I could ask one of the 1564 cryptocurrency experts who have emerged over the past few years? Maybe not. Either they’ve invested in Bitcoin or other cryptocurrencies, and their judgment is potentially clouded by Ponzi-coloured glasses. Or they haven’t, which could similarly bias their perspective to favour cryptocurrencies being a passing fad.
I’ll tell you something else that regularly fails to clarify the issue: articles about Bitcoin. Yes, yes, we’re all well-versed in the “crypto” dogma that populates every article about Bitcoin. It’s money, but not the kind issued by the government. It was invented after the crash of 2008 to provide a non-fiat option to people who were tired of footing the bill for bank bailouts and bonuses with their retirement savings. “More shops are accepting bitcoin” is another frequent flier phrase in tech journalism, but somehow those shops are never the ones I frequent.
And don’t get me started on the blockchain. Every tech journalist will now please bow their heads and chant the mantra: “the blockchain is a decentralised, unfalsifiable ledger of all transactions that relies on a computer network rather than a central authority like a bank or government.”
And also with you.
Anyway, in keeping with the best practices in modern journalism, instead of poring through more dense crypto articles I can never hope to understand, I found some guy on the internet to explain it to me.
His name is Chris DeRose. Like everyone with the faintest proximity to Bitcoin, one subsection of the internet finds him infuriating and beneath contempt while another praises him as “a true Bitcoin OG“. On Twitter he seems to engage in a kind of “Bitcoin Andy Kaufman” schtick, provoking his critics into paroxysms of crypto-rage. The reason I wanted to get his thoughts is that he seems to understand not just the technical details but the anthropological landscape and history around cryptocurrency. Not least, he’s the rare Bitcoin-adjacent individual who doesn’t need you to buy some to validate his life choices. So here’s our interview.
Sally: Who are you and why am I asking you about Bitcoin.
Chris: My credentials are pretty simple: I’m an old Bitcoiner. I’ve been doing journalism in the space for quite some time now, based on the experiences I’ve had since I discovered Bitcoin in 2011. I know most of the instrumental people that make the news happen. I’ve written for many of the major industry websites, host a long running podcast (Bitcoin Uncensored), and have covered the endless comedy, tragedy, and capers that have defined this space.
Sally: Okay so let’s start with the basics: how does a person get a bitcoin? As far as I know, there are only two options. 1) Buy it on an exchange, and thereby risk your life savings on the fluctuations in the conversion from “real money”; 2) Make it yourself (“mine it”) by making your computer use a shitload of energy to solve difficult equations. Yes?
Chris: Though absolutely true, this is a common misconception.
Sally: This interview is already off the rails.
Chris: Perhaps the easiest way to understand mining is this: If you have $100 USD in a bank account, and want to convert that to Bitcoin (and you don’t have access to an exchange), then the best way to convert that $100 is to incinerate it. Yep, set it on fire. That’s what mining is. It’s an algorithm on your computer that converts your dollars into bitcoin, by way of your energy bill. So, you take that $100, and you send it over to the power company, and then, thanks to this strange trifecta of “burn energy, receive bitcoin, pay utility bill”, ‘using a shitload of energy’ gets you Bitcoin. It’s not a wasteful process. It’s an efficient way to prove that you’ve burned your money, so that you can receive your bitcoin in exchange. It only gets weirder from there.
Sally: Oh I think I understand. So what you’re saying is, you either pay someone else the going rate to convert your money to Bitcoin; or you spend the equivalent in energy bills to mine your own Bitcoin, only you’ll get there much more slowly.
Chris: That’s pretty much it. The “going rate” on the Bitcoin exchanges roughly reflects the cost of burning Bitcoin on specialised hardware at geographical locations where the energy price is cheapest. This is why mining it yourself is rarely a good idea. That’s often the first lesson learned by the people who show up thinking they’ve found the secret to free money.
Sally: Is this why people are always saying Bitcoin is a currency but not a store of value?
Chris: No, it’s definitely a store of value. Is it a good ones? Time will tell. But achieving the status of “store of value” is a fairly low bar. In some nations, where inflation runs high, people buy cars as a store of value. Or even rocks (gold!). So you can call Bitcoin a store of value. It might even be a good one, compared to its price as measured in cars, over the years. Whether that will still be true five years from now – that’s anyone’s guess. The market still has no idea what the hell this stuff should be ‘rationally’ worth.
Sally: People talk about how bitcoin is decentralised and no one is in charge. But that can’t really be true: at some point, some basics have to be decided. So who’s in charge of making critical decisions about Bitcoin’s future?
Chris: Bitcoin Core. They hold the whole thing together. It’s a decentralized group of engineers who are some of the world’s most talented and specialized computer scientists. They study this thing everyday, and have kept the wheels from falling off during the harshest conditions. They currently make decisions about the future, and will continue doing so for the foreseeable future. Their craft and competence is as good as it gets.
Sally: So they’re like, the Bitcoin government?
Chris: They would not be happy to be described as the Bitcoin government. But let me back up.
When Bitcoin started, it was an entrenched group of highly literate computer science enthusiasts, fringe libertarians, and social misfits. The group was small, but cohesive. Its values were principally conservative, and residual apprehensions from Occupy Wall Street and the Tea Party movement defined ‘the evil banks’ as oppressors.
These people that showed up to bitcoin first, they came here for anarchy. Which makes any discussion of governance verboten. Nonetheless, governance has appeared, as it does. And for all intents and purposes, “Bitcoin Core” is the governing body of the Bitcoin blockchain.
Sally: So if they’re anarchists, how do they govern?
Chris: It’s an informal aristocracy. There is a codification of process known as the “Bitcoin Improvement Proposal (System)“. And that’s the majority of the communication to the general public. From there, there’s a largely transparent dialogue happening on github and irc. And from there, there is opaque dialogue happening at conferences and closed meetings.
Sally: Do they get paid for, as you said, “holding the whole thing together?”
Chris: Yes, mostly by blockstream and MIT at the moment. Which is a bit controversial. I don’t have a problem with that, but there are no shortage of conspiracy theories and allegations of plutocratic cronyism.
Sally: I hadn’t heard accusations of plutocracy, but I do often hear Bitcoin called a Ponzi scheme. Is it?
Chris: I think it is. Early investors are paid out by later investors. But what stock isn’t some kind of ponzi? How is gold not a ponzi? Probably all forms of investment have a ponzi quality, and maybe that’s good? No one knows.
Sally: But all these new cryptocurrencies are collapsing and taking people’s money.
Chris: You have to separate cryptocurrency from the culture war that’s happening in Bitcoin.
The original Bitcoiners were a conservative bunch. You know, free speech, pride in individual liberties, sympathies for small – or no – government, and financial responsibility. They weren’t interested in perspectives outside their own. These old timers believed that once the wider world discovered this technology, everyone would adopt their values. But that’s not what happened.
Instead, when the price of Bitcoin first started to go up, an enormous herd of outsiders charged in who did not share the core group’s values. At all. That caught the old timers off guard.
In their view, the newcomers had no respect for specialisation, engineering, or experience – they couldn’t tell a marketing idea (solar power credits, electric vehicle charging schemes) from its actual feasibility. This peaked with the arrival of another wave of outsiders, who demanded things like more woman-friendly, diverse products.
From here, the community has divided into two political camps. The “Bitcoin Cash” group is effectively the liberal party, which sees the Core’s founding ideals as detrimental to attracting newcomers (it is). And the Bitcoin Core, which sees the newcomers as detrimental to engineering values (they are).
Lately, when newcomers arrive, and find this combative atmosphere, they’ve been taking their business elsewhere. Straight to an ICO. Without any appreciation for the specialization or experience of the Bitcoin Core, new users are often attracted to confidence men.
Sally: So that’s why there are 1564 cryptocurrencies?
Chris: The truth is probably that most of the confidence men who arrived here in 2017 knew they wouldn’t stay long. They whipped up a frenzy against the Core’s conservative principles, and used the backlash to cash in on claims that they knew didn’t stand up. They did things like issue coins targeting the virtues of diversity and feminism. Unfortunately, these fraudulent securities and dubious ‘promotional opportunities’ reeled in disenfranchised group members.
You can start to see why there are so many cryptocurrencies out there. It’s the wild west. And the new frontier is where all the crazies, prospectors, and explorers go.
Sally: And the cults. That’s the other word people often use to describe Bitcoin.
Chris: Money is about faith, no matter how you slice it. That’s true of American money. That’s true of gold. And that’s true of Bitcoin.
Money isn’t precisely ‘real’. It’s not a fact. It’s a belief. The only reason we believe in things like ‘The Dollar’ is because we think everyone else believes in it. And most of the world chugs along on this assumption that money is a universal constant of some kind. But it’s not. If aliens landed today they might find it very amusing that some of our pieces of cotton have a ‘holiness’ to them, that other pieces of cotton do not. The same is now true with some ‘bits’ on the Internet.
Whether it is a cult is different from the question of why people call it a cult. I think it comes down to resentment. Money is sacred. Asking questions about it is blasphemous.
Sally: People get really mad at you on the internet. You were accused of being a CIA shill.
Chris: When people don’t reason their way to their beliefs, they can’t reason past them. So when you show up, and have reasoned your way to a belief, and worse still, have reasoned your way past another person’s belief, then the simple conclusion is that you’re an evil spirit. This is primitive behavior, but it’s what we see here. I get that. Also, what else would I tell you, if I were a CIA shill?
“It was invented after the crash of 2008 to provide a non-fiat option to people who were tired of footing the bill for bank bailouts and bonuses with their retirement savings.”
Worth remembering that never happened: despite some hard-money types claiming imminent hyperinflation, we came closer to deflation in the immediate aftermath, and have kept it around 2% since.
(They may argue we paid in *other* ways, but we didn’t pay through loss of value in dollar-denominated savings due to inflation, which I think is the implied claim here?)