The exciting thing is what's underneath it: a giant spreadsheet.
In technology years, Bitcoin is starting to gray.
The criminal zeal of the Silk Road and online casinos, or the fervor of the cryptoanarchist eager to disrupt the global financial system once and for all, or even the bright eyes of a consumer-friendly exchange has given way to two now somewhat familiar images: 1) gloomy, aging young faces puzzling over a rising pile of calamities and legal troubles—perhaps they're holding signs outside the offices of Mt.Gox or sitting up front in a courtroom. Or 2) signs of the rich getting richer, like the boisterous announcements of new Bitcoin hedge funds that promise to, for instance, send the Winklevoss twins to space, where they might ride around on a dogecoin moon rover (all real things, apparently).
The astronomical heights of last year—the currency's 52-week high was roughly $1,132, depending on where you bought it—are over. The price of Bitcoin shot up again yesterday, poking its head over $500, a reminder that this is less a currency than an investment asset, subject to big speculators, arbitrage and a growing derivatives market (which is probably worth a separate conversation about the fun and risks about newfangled financial instruments that no one really understands).
Some attributed the boost to the debut of Circle, a Bitcoin financial services company with $26 million in funding, or to new investment in money processor BitPay, or because someone in Kansas sold their house in Bitcoin.
But since the highs of last year, the actual use of Bitcoin appears to be slowing. Transaction volume is down to its lowest levels since 2011. That seems somewhat expected, given that its price has been hovering in the $400s. It's possible that many are simply holding onto their Bitcoin in the hopes of a turnaround. No one wants to sell a thing—or use a coin—at the bottom. But on the long term, if people stop using Bitcoin, the market will likely suffer from further depressions.
Transaction volume in BTC, June 2012-May 2014. Image: Blockchain.info
Also, we aren't searching for it as much as we used to. Look at the Google Trend for "Bitcoin" over the past year:
It's a metric that closely follows the price.
The business of literally making bitcoins certainly isn't what it used to be either. Gone are the days when high school IT administrators could make a mint by leaving the computer lab running all night. I walked through a giant data center recently where it was hard to hear my guide over the din of the loudest machines in the room: a hundred server racks dedicated solely to mining BTC.
The exact cost of all this wasn't clear to me, but you can do the math: the rig, an administrator boasted, was using about as much electricity as a Manhattan high rise apartment building. For small mining operations, the game is over.
Yifu Guo, the founder of Avalon, the Bitcoin miner company, is still making his mining machines, but is increasingly interested now in bigger-sounding things, like distributed supercomputing and satellite internet and a startup that seeks to help Bitcoin companies establish "regulatory compliance within the United States." This has led to claims from the mob that the company was trying to police a system designed to thwart top-down power structures.
To Alex Waters, who co-founded the startup, the controversy was a learning experience, both for the company and for the wider Bitcoin ecosystem.
"You have the regulators, the banking industry, the Bitcoin community, the libertarian community—everyone has their own interests," he said, at a panel I hosted about cryptocurrency at Internet Week on Tuesday. "So trying to come up with products, come up with ideas that speak to everybody and messages them correctly, that's really a challenge."
"Just add -coin," from Internet Week 2014 on Tuesday, May 20.
Another lesson emerged too: Bitcoin's not anonymous, and the authorities are watching. The regulators are hot on Bitcoin's tail, they say. China, paranoid about currency controls, is cracking down. Shady marketplaces have faded into the background.
All the regulations mean that launching a Bitcoin startup isn't as easy as it once seemed.
"It's really, really expensive to get a money transmitter license in each state," said Margaux Avedesian, who helped bring the first Bitcoin exchange to the US. "It's a lot of lawyer bills, a whole process, you have to have a lot of money in the bank. And it's really hard for cryptocurrency companies to get a bank account to hold fiat currency. Globally it's a little easier, but in the US it's very hard to start a Bitcoin company."
Waters, who is part of the original Bitcoin development team and CEO of New York Bitcoin incubator CoinApex, thinks the Bitcoin community is too disparate, in need of more cooperation.
"Companies in this ecosystem need to collaborate more," he said. "Too many companies are feature building instead of partnering, and that's dangerous. Situations like Mt. Gox could have been prevented if there were more modularization. The lack in focus of scope is going to continue to create issues for the space."
Still, nothing that has happened over the past year has minimized Bitcoin's broader value—as a proof of concept and a provocation, if not a threat, to the existing banking industry.
Screenshot from the report by the Federal Advisory Council.
Quoth that industry in a report issued last week by the Federal Advisory Council, a committee of bankers that regularly advises the Fed. Bitcoin’s “global transmissibility," it wrote, "opens new markets to merchants and service providers,” and over the longer term, its impact “could be more pronounced and require adaptation by payment processors,” in the form of lower transaction fees and improved global remittances, two popular targets of Bitcoin.
The report said that illicit uses for Bitcoin remain “rampant,” but, noted the Wall Street Journal, it "suggested they are no greater for the digital currency than for sovereign-issued currencies," and said that "problems associated with Bitcoin’s anonymity are overstated." (The Council may have missed Cody Wilson's anonymous Dark Wallet project.) It's high praise, and a sign that Bitcoin is creeping further into the mainstream. The boring mainstream.
If you want Bitcoin to succeed, you could see this all as positive: The currency is slowly but surely finding its place in the world, and perhaps finding out that it's not much good as a standalone currency, but rather more of a complement to existing fiat money, and a novel payments system. Of course, being relegated to the inside pages of business sections isn't a bad thing. A more boring Bitcoin, with less speculation and more actual mainstream use, could mean a more stable, dependable Bitcoin.
And yet, as the steamy Bitcoin honeymoon winds down, its underlying technology is getting promiscuous, hitching up to all kinds of newfangled ideas.
With "colored coins," for instance, Bitcoin's scripting language is used to add layers of instructions to a transaction on the blockchain.
If Bitcoin can establish decentralized trust in a currency, the thinking goes, it might do that for all sorts of other everyday agreements, things like smart contracts, smart property, autonomous corporations and other things that sound like the stuff of science fiction.
As the steamy Bitcoin honeymoon winds down, its underlying technology is getting promiscuous, hitching up to all kinds of newfangled ideas.
In essence, though, they're all based on the stuff of something a little more mundane than that: the blockchain, which amounts to what's called a distributed public ledger.
Which is to say, a giant global open-source spreadsheet.
Consider Ripple, a company that's using its own version of the blockchain and a purpose-built currency to transfer money quickly and cheaply. The currency here is mostly invisible—it's the process of sending money that the company hopes will revolutionize payments. The company has already partnered with a bank in Germany to provide its technology for wire transfers and remittances; plans with other banks are in the works.
"It's really something I think could help the remittance market," says Avedisian. She says she's grown tired of Bitcoin, and has turned her attention to Ripple. Now she's the interim CEO of the International Ripple Business Association, whose job, she says, is "to make it easier for businesses and individuals to build on top of Ripple and other Ripple focused businesses."
We know that bitcoins can be used to buy and sell an increasing number of things (PayPal is now talking about accepting bitcoins!), but other kinds of coins could be used to buy and sell other sorts of things altogether.
Ben Doernberg talking Dogecoin on Fox News.
"I'm interested in the way digital assets and tokens allow for more nuanced forms of value than straight-up money," said Ben Doernberg, a former board member of the Dogecoin Foundation. "One example might be decision-making tokens allocated to members of a political movement based on the length and intensity of their involvement, or proximity to a geographic location (e.g. Maidan or Tahrir Square)."
The futurists conjure up a fully shared world, where, for instance, your car could be controlled by a Bitcoin-like rental system, permitting a system where it can be rented instantly, and without the need for a middleman or insurance company to oversee the transaction.
One of the leading contenders to be the standard of choice for these autonomous transactions in the year 2019 is a new protocol and an eponymous company called Ethereum. Like its mysterious competitor, MasterCoin, Ethereum set off a firestorm of interest online when it launched earlier this year; now, it's about to open an office in Times Square.
But what, exactly, is it?
"What Ethereum effectively does," said COO Joseph Lubin, "it marries a virtual machine onto a blockchain. In the same way that everybody knows what happened when with a transaction in Bitcoin, everybody will know what happened and when with the change of state in programs. So it's a program for distributed, consensus based applications."
What kind of applications?
"We're building a system that's effectively featureless. It's like we're building the internet, and inviting everybody to come and build the business model they want to build," he said. "So a lot of people are coming at us."
Forget cryptocurrency. Think the crypto-monetization of everything.
"They're thinking about finance, micro-finance, self-insurance, trade finance, capacity exchange, voting systems, publishing systems, content acquisition systems," he continued. "It's not even in alpha yet and there are a fairly decent number of people around the world who are starting to build little toys on the system and flesh out their understanding of what can be done and how to do things."
To put it another way:
"Ethereum is a platform for universal disintermediation," he added. "Any sort of centralized service that you can imagine can possibly be re-envisioned as a distributed offering."
Ethereum founder Vitalik Buterin at Bitcoin Miami 2014
"So if you take your traditional insurance company, you've got a pool of capital distributed by one entity, and if we get rid of that centralized entity, which makes significant profits on taking risk, and you share that risk amongst everybody in a pool, so everybody in the pool both contributes to the pool and possibly benefits if some sort of condition enables them to receive a payout," he said. "But you'll probably need some human component to assess whether a claim is valid."
That is to say, forget cryptocurrency. Think the crypto-monetization of everything.
In this kind of a system, Doernberg warns, dystopian dangers loom. Imagine "an oil company issuing a token that pays out a dividend if a specific climate bill fails or mysterious figures issuing a token that pays out if a specific senate candidate wins."
A world run by smart contracts—or by autonomous corporations that broker exchanges between individuals—could be "a world where everyone is operating to maximize unseen financial incentives and nobody can be trusted to participate honestly in civic life."
"I think what that's gonna do is force us to address what that means to be human," he said.
Imagine "an oil company issuing a token that pays out a dividend if a specific climate bill fails or mysterious figures issuing a token that pays out if a specific senate candidate wins."
First though, technologies like Ripple and Ethereum will need to become user friendly. "There needs to be very easy ways for people to use this technology without knowing the technology behind it," said Avedisian.
Doernberg, who has watched Bitcoin grow from a fringe interest in the crypto community to, quite literally, a meme, is looking forward to the next step, when "average people have a compelling use case for it." That could take awhile still.
"I think the technology just isn't there yet, you have to know too much, and the use cases aren't compelling enough. That's a question of a year, eighteen months," he said.
Or, of course, it could all be a fad. At a Bitcoin summit last week in Amsterdam, Gavin Andresen, the former lead developer of Bitcoin, cast some doubt on these new movements, comparing projects like Ethereum and MasterCoin to the Segway. “Segways are really cool, but they’re not mainstream. A lot of Bitcoin 2.0 projects might find the same thing.”
Nowadays, Bitcoin is and isn't as boring as it sounds. Like Bitcoin the currency, Bitcoin the protocol can be maddeningly mysterious. But it has also raised some interesting possibilities that extend well beyond money.
In the process, we've gone from puzzling over this bizarre cyberpunk, dark-web vaguely illicit currency to thinking about what amounts to a giant ledger book. And that's probably good for everyone.