In Defense of Bitcoin
Not all currencies are created equal.
It may be fashionable to call Bitcoin a bubble, and perhaps a burst one. But what sets Bitcoin apart has virtually nothing to do with financial markets. What sets Bitcoin apart is also what makes the currency uniquely resilient.
Bitcoin has no master. Bitcoin is a global, decentralized currency.
The strategic value of Bitcoin should not be underestimated. Thanks to its decentralized structure, the network supporting the currency is able to survive extreme stress and disruption. Where infrastructure is damaged by war, climate change, or terrorism, the Internet’s oldest and best-known cryptocurrency may well become the de facto standard. This future is not one we wish to embrace, but it’s worth summoning the time and mental courage to examine it.
Who holds Bitcoin? Strippers, hackers, and Wall Street brokers. A homeless woman I met in Los Angeles, with a laptop under her arm. My Lyft driver, last time I rode to the airport. Rural villagers in Kenya, who use it to bank by mobile phone. The world’s best-known cryptocurrency circulates in ways that could fill the pages of a noir science fiction novel.
Bitcoin is the only major world currency not under the control of a single governing entity or foundation. Unlike Ethereum’s Vitalik Buterin or Ripple’s CEO Chris Larsen, the visionary known as Satoshi Nakamoto has long since fled the scene. While groups (“pools”) of Bitcoin miners control vast amounts of coin, no single pool owns a majority of Bitcoins. This means they cannot make unilateral changes to the Bitcoin protocol, or codebase. The power behind Bitcoin is the protocol itself.
It is worth looking at what the Bitcoin ecosystem does well:
- Stay online
- Stay secure
Just as the Internet was designed as an intentionally decentralized network to make it more resistant to attack, Bitcoin’s distributed, peer-to-peer (P2P) architecture makes it extremely difficult to disable. The goal in distributed systems is to avoid a “single point of failure;” hierarchical, command-and-control systems are seen as more vulnerable. In a centralized system, if HQ is compromised or cut off from the network, then the system is paralyzed. In a decentralized or distributed system, losing any single node does not jeopardize the integrity of the whole.
Talk to anyone in IT security and it becomes apparent that to most people in this industry, distributed, non-hierarchical networks are not a blueprint but the blueprint for building a secure system. Bitcoin’s blockchain is an exemplary model. The blockchain works a bit like a chain letter; a distributed public ledger ensures the integrity of transactions by copying information from one network node to the next. It does not matter where in the network a transaction originates; only that its record is copied and recopied. Should Bitcoin be banned in some countries, the network would absorb the damage and carry on.
Major banks have already announced plans to adopt their own versions of the blockchain. Private blockchains will surely result in safer, more reliable financial networks. But Bitcoin is likely to remain distinct in one important aspect.
Bitcoin has powerful actors invested its success, but no single dominant party that can enforce a “hard fork” or reverse transactions on the blockchain. This state of affairs may change if one Bitcoin mining pool gains more than a 51% share of the currency, or if multiple Bitcoin miners join together in an oligopoly. For now, a balance of interests has worked to maintain the strength of the currency — with market capitalization of more than $248 billion as of December 31, 2017.
Compare to the governing structure of Ethereum, often ranked as the #2 cryptocurrency behind Bitcoin. Through a series of incidents beginning with the hack of a venture capital funding vehicle known as the Distributed Autonomous Organization (DAO) in 2016, and culminating with a botched security fix last November to the open source Parity Ethereum wallet, Ethereum and its associated wallet platforms have to date managed to lose or freeze an estimated $230 million in currency. The Ethereum core team chose to actively intervene and roll back records for the original DAO hack. To many, this looked like a bailout.
With Bitcoin, no single party could intervene in this way, even if they wanted to. Transactions stay final. Bitcoin has seen many “forks”: spinoff currencies such as Bitcoin Cash, Bitcoin Gold, and Bitcoin Classic. Improvements such the Lightning Network, designed to improve the speed of transactions and reduce fees, are under development. But consensus among stakeholders, while possible, is daunting to achieve; Bitcoin behaves more like a force of nature than a dignified reserve bank.
To paraphrase William Gibson, money and the Internet are both consensual hallucinations. Bitcoin is the form of currency whose structure, if not purpose, most closely reflects that of the original Internet. Bitcoin is networked money.
We as a species are facing a future in which traditional nation states may find themselves overextended, unwilling, or unable to intervene in crises beyond their boundaries. We should anticipate a world where neither the dollar, the Euro, or the ruble are invincible. For shifting populations around the globe, Bitcoin is likely to fill a niche as currency of last resort. We should remember that when trying to restore order and help displaced persons, it is vitally important that money works.
Bitcoin works. For criminals and speculators, yes, but also for ordinary people. The blockchain is an almost perfect technology for distributing information while preventing unauthorized changes. Whether you see Bitcoin as a store of value or a medium of exchange, the utility of a global decentralized cryptocurrency is clear.
We in America and in the world are in for a stormy, chaotic century. Satoshi’s invention is not the cause of this disruption, but it may help mediate the effects.
Elizabeth Gadwa is founder of Beerious.us, a beer and cryptocurrency startup.