Friends with Benefits

The rapid and exponential growth of cryptocurrencies has inevitably led to more questions than answers: their future, their role in society, and the way in which trading occurs. Bringing another major digital force in the past few years — social media — to Bitcoin trading is London-based product development shop Pixie Labs. We chatted with founder Peter MacRobert about BitFriends, connecting Bitcoin trading with users’ personal Facebook networks.

How did BitFriends come about?

PM: The idea for BitFriends came out of our personal experiences with trading Bitcoin and some of the frustrations therein.

David Somers, the technical lead at Pixie Labs, is a big fan of the cryptocurrency and has been interested in the Bitcoin since its inception. When David tried to sell some of his BTC in March last year, he was stung by one of the well-known exchanges closing down mid-transaction, and he lost his money.

We keep a list of all the software ideas that we’d like to build at Pixie Labs. One day we discussed the notion of trading BTC within a trusted friend network, and we decided to back the idea by doing it ourselves.

BitFriends has two aims. It helps existing Bitcoin owners to trade safely and reliably with people they know, and it educates and enables new users to buy BTC for the first time.

Do you consider the “open network” of the blockchain as an inherent weakness of Bitcoin? Where are the “pinch points” in terms of Bitcoin security? Do newer cryptocurrencies solve any of these problems?

PM: The openness of the blockchain is primarily a strength of the protocol, but it also introduces some weaknesses.

The transparency makes the protocol incredibly robust against technical failure and malicious intent. But, when it comes to privacy, the openness is paradoxical. Bitcoin is both anonymous and public at the same time.

Bitcoin wallets are completely anonymous, which is good for user privacy, but every detail of every transaction is completely public — requiring some nifty tricks on behalf of users in order to keep usage of the currency hidden.

The obvious flaw in Bitcoin is the human one — for example, a user unwittingly throwing away a hard drive that contains hundreds of BTC, or using an insecure wallet. Like many emerging anonymity tools, Bitcoin is not exempt from good security practices.

Given the age and maturity of cryptocurrencies and especially Bitcoin, why do you think that a social network-related service such as BitFriends has been launched now and not previously? Is there still a “gold rush” element to cryptocurrencies, where people are trading and hoping that it all works out?

PM: You only have to look at Mt. Gox to know there’s still a gold rush. Prices are still climbing, even though it’s notoriously difficult to cash out. I suspect that much of the current trading is speculative, and not for actual usage, though usage is also climbing month-on-month.

Bitcoin is dependent on its ecosystem to survive, and that ecosystem needs to grow beyond exchanges, gambling and illicit substances. A wider adoption of Bitcoin is good for the currency, both in terms of its perception in the media as well as its stability. That means getting more regular users to adopt it in the way that Paypal was widely adopted in the early 2000s.

It’s already quite trendy for coffee shops and smaller vendors in tech-heavy areas of Shoreditch and Silicon Valley to accept Bitcoin, but this needs to become more mainstream. Last year’s move by Overstock to accept Bitcoin was massively successful for them, and I expect more retailers to pick up on this trend. However, the process of buying and selling Bitcoin is currently quite complicated — mostly because of the exchanges and the unfriendly processes which they make people go through — and I think it could be massively simplified. I think that the combination of social media and BitFriends has the ability to help catapult the currency from geek-culture into mainstream usage, and I see BitFriends as being one of the early enablers.

The fact that Facebook has mainstream adoption is one of the key drivers: the message is that anyone with a Facebook account can use Bitcoin. I think that the simple formula “Bitcoin + Facebook = BitFriends” will help regular users to understand that this is something that they can use too, rather than a weird crypto-cyber-currency from a scary, geeky corner of the internet.

As Bitcoin becomes more “physical” in terms of exchanging BTC in real life (for example, LocalBitcoins), do you think that bringing cryptocurrency trading into “the real world” will also help with both trust and understanding?

PM: Yes, definitely. Bringing the currency into the physical world is certainly one way to help. As more people see the “Accepts Bitcoin” logo on websites and in stores, the currency will grow in acceptability. But, this also has some inherent security challenges. Right now, a “paper wallet” comprised of a physical, printed key is a powerful way to keep your Bitcoin safe, but if you lose it, you lose your money forever. The fact that the currency can be used completely anonymously online is one of its greatest strengths, but this puts it at odds with the more mainstream uses such as paying for a meal in a restaurant.

What other issues in terms of cryptocurrency trading do you think need addressing?

PM: BitFriends addresses the problem of trusting an exchange, but it’s still a challenge to actually transfer the currency securely. Of course, this is an inherent issue with any currency trading, but it is made worse with Bitcoin because the escrow-style services are still in their infancy, which adds to the trust issues. Verification and trust are the two biggest challenges to widespread BTC adoption, so this is going to be an interesting space to watch.

How do you see BitFriends progressing and growing?

PM: We’d like BitFriends to become the de-facto place to buy or sell Bitcoin. We’re planning several new features which will help people to use the site more easily; for example, a stock ticker to show the current price of BTC, and the ability to find users who are in your local geographical area. We also have some improvements to the way that transactions are initiated by letting users (privately) specify how much they want to buy and/or sell, and letting the system match them automatically to relevant vendors.

The big kicker will be the trust and verification processes mentioned earlier. Addressing these problems is very interesting and we have some thoughts around identity management that we’re sketching out. But most of all, we’d really like to see the widespread adoption of Bitcoin itself. The currency, although nascent, has an important future role to play in personal security, privacy and liberty. For that reason alone, we want to see it thrive.

Peter MacRobert is founder of Pixie Labs. The BitFriends website has further information on how it works and how to sign up.
If you’re looking for somewhere to spend your Bitcoins, then they’re gladly accepted at the Imperica shop.