Bitcoin's dark side.

Photographer: Spencer Platt

Welcome to Bitcoin's Boring Era

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Here is a characteristic sentence from Nathaniel Popper’s new bitcoin book, “Digital Gold.” It’s about Mark Karpeles, head of the Tokyo-based and now-defunct Mt. Gox:

He was two years into running the world’s largest Bitcoin exchange, but he still had not attended a single Bitcoin event abroad -- a fact that he blamed on the sickness of his cat, Tibanne, who needed daily shots that Mark believed only he could administer.

So, yes, it’s a totally awesome book. It isn't just the anecdotes like this, which keep coming page after page after page. It’s that they all fit together in a way that kinda, sorta makes sense of the whole bitcoin ecosystem -- at least more sense than it’s ever made to me before.

QuickTake The Rise of Bitcoin

I still don’t really know what a bitcoin is, of course. But that’s because the inhabitants of bitcoinworld haven’t entirely decided yet either. Popper, speaking on a panel a couple weeks ago at the New York Public Library, offered three metaphors for the “different things going on in bitcoin”:

  1. Digital gold: “It’s a scarce commodity like gold, but instead of a physical substance it’s a digital substance.”
  2. E-mail for money: “It is a way that you can send money just as you can send information with e-mail to someone anywhere in the world as long as you have their address.”
  3. A big spreadsheet in the sky, “in which all of these little digital tokens are recorded. It’s that spreadsheet that allows for some of the more complicated uses of bitcoin, and that gets people thinking in really futuristic terms.”

I thought that was pretty good, but venture capitalist Fred Wilson, who was also on the panel, wasn’t satisfied with the spreadsheet bit.

I like to think of the blockchain as a peer-to-peer database. Almost every system in the world has a database underneath it, and the problem [is] those databases are fragile, because if they crash you could lose information. The thing that’s really cool about the blockchain is that it is a database that is peer to peer and massively replicated and massively distributed, so if one node goes down nothing is lost.

Bitcoin is a spreadsheet! No, it’s a database! Spreadsheet! Database!

By this point you may be scratching your head and thinking, “I thought bitcoin was a get-rich-quick scheme for twentysomethings with extreme libertarian leanings.” Well, yeah, it’s that, too. Or at least was in 2013, when the dollar price of a bitcoin rose from about $13 to more than $1,100 (it’s now $225).

Popper tells the story of the unsavory and semi-savory characters who dominated that particular bitcoin era. There’s Ross Ulbricht, sentenced last week to life in prison for creating and running the bitcoin-only online black market Silk Road. There’s Charlie Shrem, who co-founded and ran the BitInstant exchange and recently started a two-year prison term for doing business with a Silk Road bitcoin exchange and not reporting the transactions to the feds. Ulbricht doesn’t come off too well; Shrem sounds like a nice kid who got in way over his head. Karpeles, the guy with the chronically ill cat whose Mt. Gox exchange collapsed in early 2014, also seems to fall in the over-his-head category. Ulbricht’s lawyers claimed during his trial that Karpeles and not Ulbricht ran Silk Road, but the judge didn’t buy it. And of course there are the Winkelvii, the legendary Mark-Zuckerberg-suers who were the lead investors in Shrem’s company. They don’t appear to have done anything bad, but are less-than-inspirational figures.

Popper also introduces us, though, to the founding fathers of bitcoin, the people who got involved back in 2009 and 2010. Some of them actually are inspirational. There’s Hal Finney, the Southern California family man and cryptography expert who was the first person after bitcoin’s creator to grasp its potential -- and kept cheering on its development even as he wasted away from Lou Gehrig’s disease (he died last August). There’s Martti Malmi, the enthusiastic Finnish college student who acted as bitcoin’s first publicist. There’s Laszlo Hanecz, the Florida software architect who was the first to crack the code for large-scale bitcoin mining, but instead of trying to corner the market offered 15 percent of his bitcoin stash for a pizza -- which was delivered from a local Papa John’s on May 22, 2010, now celebrated as Bitcoin Pizza Day. And there’s Gavin Andresen, the genial Massachusetts programmer and member of the Amherst Town Meeting -- and another grown-up with a wife and kids -- who has done more than any other individual to keep the bitcoin ecosystem functioning from its early days to today (he’s now chief scientist of the Bitcoin Foundation). One of my favorite Andresen stories from Popper's book:

When he had been asked to attend the prestigious Aspen Institute, a friend urged him to go.

“It will change your life,” the friend told him.

“I don’t want my life to change,” he responded. “I like my life.”

As for Satoshi Nakamato, the mysterious and presumably pseudonymous creator of bitcoin, Popper doesn’t know who he is either. He’s almost certainly not Dorian Satoshi Nakamoto, the retired Southern California engineer fingered by Newsweek last year. He might be Nick Szabo, the inventor of a bitcoin precursor he called “bit gold,” although Szabo has denied that he is Nakamato.  He of course might be a she, too, although the world of bitcoin enthusiasts is so overwhelmingly male that it seems fair to assign a low probability to this.

While many of these early bitcoin figures are still involved in some way or another, Silicon Valley entrepreneurs and venture capitalists are increasingly playing a leading role. The main protagonist in the last part of Popper’s book is Wences Casares, a serial technology entrepreneur who proselytized the cryptocurrency in tech and financial circles for years and is now head of Xapo, which bills itself as “the world’s secure bitcoin wallet.” Casares is originally from Argentina, and that country’s chronic monetary mismanagement helped inspire his enthusiasm for an alternative currency that wouldn’t lose all its value and could be used around the world.

Casares is an appealing figure, but in general the defining characteristic of the latest generation of bitcoin backers is that they’re already rich and kind of boring. These are people who hire other people to give shots to their cats. This is probably a healthy development for bitcoin. It’s going to make the bitcoin books of the future a lot less interesting, though.

  1. The public ledger of all bitcoin transactions.

  2. I edited this a bit for readability and did not use ellipses where I cut stuff out -- because I figured they would impede readability.

  3. For those not familiar with New England governance, this is a town legislature that meets for several days each year.

  4. And is in the news this week because of a lawsuit too complicated to get into here. Just read Dan Primack’s Fortune story if you’re interested.

  5. See my Bloomberg View colleague Katie Benner’s column from earlier this week for evidence of this.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net