If you asked most people through history their biggest complaint about money, most would say they just don’t have enough of it.
But there have long been small factions dissatisfied with the dominant forms of money, which sought a more secure, private, efficient means of storing wealth and paying for things.
The digital currency Bitcoin emerged from these desires, enabled by pervasive access to the Internet and alarm over the failures of central banks and private financial institutions in the credit bust of the late 2000s.
Nathaniel Popper, a New York Times reporter who covers the interplay of finance and technology, has now detailed Bitcoin’s rise through the story of the quixotic utopians and mercenary opportunists who helped develop it in his new book, “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money.”
As Popper notes in the attached video, privacy advocates had led the quest for “a new money for the Internet Age” since the 1990s, uneasy with the permanent traces left by electronic transactions and suspicious of the banks and governments that controlled the creation and flow of money.
Yet not much took hold until late 2008, when a still-unidentified figure who called himself Satoshi Nakamoto circulated a manifesto and software code for an ingenious system for “mining” Bitcoin using an open network of computers and securely but anonymously verifying the ownership and transfer of this currency.
This effort caught on with a broader assortment of libertarian coders, techno-utopians and outlaw profiteers.
The financial crisis as catalyst
“What was in the air when Bitcoin was launched,” says Popper, “was the financial crisis.” The crisis inflamed anger and fear over the misbehavior of banks, the aggressive money printing of the Federal Reserve and the evident systemic vulnerability of nation-based “fiat currencies.”
Popper’s title likens Bitcoin to gold because it shares much of what people have valued in gold over the centuries: It is indestructible, globally accepted, finite in supply, portable, infinitely divisible, difficult to mine and unconnected to any government or institution.
The Bitcoin regime encourages individuals to dedicate computing power to creating new Bitcoin and supporting the platform for their ownership and transfer. Computers “mine” Bitcoin by competing to solve complex mathematical problems. New Bitcoin are “released” in predetermined increments, and the supply will be capped at 21 million Bitcoin around the year 2040.
Waves of excitement and adversity have washed over Bitcoin since it launched. The black-market ecommerce site Silk Road, which sold drugs and other illegal goods, was a huge drive of its early growth, before law enforcement authorities shut it down. The biggest Bitcoin exchange, Mt. Gox, collapsed after a series of theft attacks and technology failures.
And when Chinese ecommerce giant Baidu began accepting Bitcoin payment it helped set off a speculative surge in the price of Bitcoin, from a few dollars to above $1,200 in 2013. The price has since settled back into the $200s per Bitcoin.
Even after the Fed-hating rhetoric cooled and Bitcoin’s price surge reversed, big-money entrepreneurs and institutions have invested in the Bitcoin ecosystem.
The New York Stock Exchange this week began quoting a benchmark Bitcoin price index. Former Treasury Secretary Lawrence Summers is involved in a Bitcoin startup called 21 Inc. Goldman Sachs Group Inc. (GS) has invested in a Bitcoin-related business, as has heavyweight venture capital firm Andreessen Horowitz.
“The fascinating thing about Bitcoin is that it has sort of managed to adapt to the times,” says Popper. “It is sort of a blank slate on which people can write their own interests.”
A 'tech utopia'
Some see its main value as serving as a low-cost version of PayPal, enabling efficient global online payments, or a more seamless way for banks to move enormous sums among themselves.
Others believe it is the supreme store of wealth, sure to appreciate given limited supply and growing adoption. Others see the main value residing in the clever open-source computing platform, which some believe can be put to widespread use for other purposes.
Some of the fiercest advocates for Bitcoin embody the present rise of “tech utopianism” in Silicon Valley, where high-riding entrepreneurs and programmers believe they are remaking massive parts of society through smarter software.
Remaking the storage and transfer of money “takes out a lot of middlemen,” Popper points out. “A lot of the excitement in Silicon Valley is, maybe this is Silicon Valley’s chance to take some of the fundamental business lines of Wall Street.”
Of course, the vast majority of people seem rather content with the existing dollar-based system and the payments infrastructure that works rather well for most purposes. Much of the innovation in financial technology – such as Apple Pay and Google Wallet – are built atop the banking and card processing networks, in fact.
This could make Bitcoin-centered systems seem like a solution in search of a problem. But that won’t stop the true believers and opportunists from trying to persuade the world that there is a more perfect form of money, invented seven years ago by someone who’s never been identified.