Of all things believe in Bitcoin
Investing in Bitcoin is not for the faint of heart but the blockchain will prevail
So it now appears that Mt. Gox the largest trading site for Magic the Gathering cards, or some would say more importantly the once-largest bitcoin exchange site is now closed.
My friend Gabe at Techmeme had the best quote of the night..
To many reporters, bitcoin haters, and bitcoin enthusiasts who love their commentary soapboxes this is a chance to say “I told you so”, “it was a ponzi scheme”, “I was right all along”.
To a few of us who actually understand where Bitcoin and blockchain technology is in its maturity cycle, we shrug and move on.
So we need to put what is happening in context.
Mt. Gox
Apparently Mt. Gox is now insolvent.
This should not be a surprise to anyone. Last week in a great article on CoinDesk Ezra Galston from Chicago Ventures drew comparisons to the impending collapse of Mt. Gox and the collapse of FullTilt Poker.
Having been a professional poker player during the time he writes about, I remember the outrage and frustration that players had upon learning that FullTilt Poker had mixed client funds with operating funds and was insolvent.
This is similar to the outrage we now see from bitcoin and Mt Gox customers who are asking where the money went.
Mt. Gox has attempted to blame the ‘transaction malleability error” for their own failings. This isn’t true.
I spent some part of last night talking with the #bitcoin-wizards who I trust in these things. There has been some initial data analysis on the blockchain that shows repeated transactions related to Mt. Gox that may relate to transaction malleability. But this is still early data and in no way relates to the security of bitcoin. Some transactions that appear to be Mt. Gox transactions appear to duplicate with the same amounts being repeated in the blockchain.
This was entirely their own fault. As one bitcoin core developer commented to me,
“failing to understand the protocol while holding billions, bad bitcoind api, going out of your way to hack up a really old version of bitcoind to use as your bitcoin manager, going out of your way to break bitcoind so that its easier for people to steal from you, broadcasting to the world that you have a terrible system……….?”
This particular failure of Mt. Gox is frustrating for cryptographers and bitcoin developers because they have the technology to avoid these problems.
A proposal by gmaxwell and other #bitcoin-wizards to cryptographically prove your reserve balance as an exchange to prove to the world that you are solvent has been in the community for awhile and is only now generating interest.
One of the Bitcoin core developers I respect asked me last night,
“Why aren’t bitcoin exchanges shamed into proving their reserves on a regular basis?”
So while the full investigation of the theft and mismanagement of client funds at Mt. Gox will take months to occur — the underlying issue and question is TRUST.
Trust = Scarcity = blockchain
The incredible innovation of Bitcoin is not bitcoin as an asset or currency.
It is the innovation of blockchain systems thinking for distributed peer to peer trustless infrastructures for transaction processing. In time this will seen for the incredible invention that it is.
Having invested millions of dollars in eCash technologies, zero-knowledge systems, crypto & cypherpunk dreams — I will admit — I completely missed this realization when I first looked at bitcoin.
It’s easy to miss the real gem of an idea when the hoopla of Bitcoin as an asset or currency occupies all the mindspace. But the innovation of a blockchain is the true genius behind bitcoin.
This blockchain has self-funded advances in ASIC processing, new cloud hashing architectures and new models for collaborative crowdsourced innovation. More then $300million in new capital investments have gone into blockchain SHA256 based architectures in the last year. Think about that.
But we are still at the beginning.
So before you go and attempt to master the coin, or start huffing ether take a breath and study the history of this ecosystem.
Satoshi built on 30+yrs of science and innovation when launching the blockchain.
It didn’t come from nothing. He build on my partner Adam Back’s invention of hashcash. He built on the thinking of Wei Dai, Ian Grigg, Nick Szabo, Ian Goldberg, David Chaum, Stefan Brands, Steve Schear, John Gilmore, Ryan Lackey, Ben Laurie, Jim McCoy, Bram Cohen, Paul Kocher, Zooko, Adam Shostack, Len Sassaman and many more including Ulf Moeller (who we sadly lost to a sensless murder). There is a community of cryptographers who put in the time and thinking that helped Satoshi build bitcoin.
Now there is a new community of developers and thinkers working on improving the blockchain. These people deserve your respect. They aren’t building get rich quick alt-coins, they are working on hard problems. Mike Hearn talks about supporting them here.
Before you alter a few settings and launch your alt-coin or claim that bitcoin is dead and that now is the time for Kayne-Coins please take care.
We are at a fragile time in the evolution of trust and digital bearer certificates as a new mode of computing and systems design. Let’s not be heavy handed or ignorant in the quest to earn a few page clicks.
But of all things believe in Bitcoin — because companies will fall and mistakes will be made, but the blockchain will endure.
