Bitcoin: The Future of Money? - Dominic Frisby - Oxford Martin School. Tue 24 March
Remember those oft-quoted figures of how much you could have made if you'd bought Apple stock instead of an iPod Original? Your $399 2001 investment would now be worth about $40,000. Not bad. Now imagine that you'd put just $1 into bitcoin in 2009. In four years you could have made $2m, and many made much more.
These are the kinds of stories that first brought bitcoin to the headlines in 2013, introduced us to new vocabulary like cryptocurrency and fresh applications of older terms, like mining. There were strange tales of hyperinflation of a digital peer-to-peer currency, the protocol for which was created by an unidentified enigma known only as Satoshi Nakamoto, with the currency trading for tens of millions of dollars every day on an exchange first set up to swap Magic the Gathering fantasy game cards. This was the column inch-worthy breakout of a then four year old financial protocol that was taking the online Wild West by storm. But this is not what Dominic Frisby is interested in as he gives his talk at the Oxford Martin School. Certainly Bitcoin has a weird and interesting short history and genesis - technically, politically and socially - but what's really exciting are the every-day applications of a technologically intricate but essentially simple system of digital cash, and the potentially middle man-free financial future to which we can all look forward.
Frisby offers in his new book and his talk at the Martin School, an accessible Bitcoin 101 and an intriguing whodunit in his search for the fabled Bitcoin founder. He starts by reassuring us that you don't need to understand something in order to be able to use it; much like cars, the internet, and the banking system, you don't need to be a Bitcoin expert to trade in digital currency. Terms like blockchain and online wallets are as baffling to most of us now as www. or @ were in the early 90s, but will be similarly familiar in years to come.
Frisby clarifies the important differences between Bitcoin with a capital B - a protocol or means of transfer, in this case of pieces of now-valuable digital code - and bitcoin with a little b - the name of the unit of the digital currency. He explains how the invention of Bitcoin has solved the problem of double spending without the requirement of a middle man. It means that we can make digital payments to anywhere in the world with total control of privacy of the transaction, with no fee. It's like being able to hand someone 10,000 miles away a tenner. It has been estimated that if bitcoin had been used in place of traditional currencies for means of international sales and transfers in 2013, users would have saved $200bn in fees.
All bitcoin transactions are secured on the blockchain, a permanent public ledger showing which bitcoins go where, and when. The rules for the creation of new currency are written into the open source code of the protocol, so that no individual or central body can ever choose to 'print' more money and devalue the currency. In an age of widespread quantitative easing policy, this kind of trust is a powerful asset of the young currency. There will (almost certainly) never be more than 21 million bitcoins in existence. This disintermediation of governments and banks from the process of creating money is the reason why the idea of bitcoin and other alt-coins has so many fans, from Marxists to Libertarians.
Frisby goes on to suggest some of the potential areas of valuable exploitation of the Bitcoin protocol. With a permanent and open record of every transaction recorded on the public ledger of the blockchain, areas of auditing, accounting and insurance will become dramatically easier and more transparent. The basis of the Bitcoin protocol is also now being developed to be used as a platform for private and un-tappable communication and messaging. In the same way that bitcoin gives you the freedom and privacy of cash in your transactions, communications could once again become as secure as pen and paper. Digital currency could have a fiercely catalytic effect on the economies of developing nations. 50% of the world's population currently have no access to financial services, creating a barrier to progress. But with digital currency, the world's 6.3bn mobile users need only an internet connection in order to spend, lend, borrow and grow.
The fun bit of the Bitcoin saga that Frisby focuses on towards the end of his talk, is the story of his claimed unveiling of Satoshi Nakamoto's true identity. He explains one of the first clues that he followed on Satoshi's trail, a supposed Easter egg relating to a date of birth on website user account. On the P2P foundation website sign up, Satoshi gave 'his' birth date as 5th April 1975. This, Frisby claims, is not an insignificant date. 5th April 1933 was the date on which President Franklin D. Roosevelt signed Executive Order 6102. This was a presidential order banning the hoarding of gold as currency by American citizens and required the trade of gold back to the government for which dollars would be received in return. With the Gold Reserve Act of 1934 the US Treasury then changed the value of gold from $20.67 per ounce to $35 per ounce, in so doing devaluing the population's cash dollars by 40%, and reducing the Depression-plundered national debt by 40% as well. This was seen by some as a colossal unconstitutional theft from the workers' pocket of hundreds of billions of dollars. A few years after Nixon abandoned the gold standard in the US, Americans were once again finally allowed to legally own and trade gold, from 1975. Dominic Frisby says that the significance of choosing to associate with this date was key in his eventual tracking down of Nakamoto, and this story sets up what promises to be a thrilling man hunt in Bitcoin: The Future of Money?
It might be a few years yet until we're all using cryptocurrencies to buy our groceries, and it may not be Bitcoin that ultimately dominates, but with over 100,000 retailers now accepting digital currencies, including multi-billion dollar internationals like Dell, Expedia and Microsoft, things are moving too far and too fast to be ignored. Now that Virgin Galactic are accepting bookings in bitcoin, the sky's not even the limit anymore. As Dominic Frisby puts it, "the revolution will not be televised, it will be cryptographically secured on the blockchain".