There is a lot of talk about about the cryptocurrency future of Bitcoin, or this altcoin or that one – fact is, nobody knows what the future holds for the crypto-space. But there are some who seem to have a better idea of what the future could hold than others. It has been a personal quest of mine to find those individuals. While I have found several good possibilities, at one time or another, each have fallen from grace in my eyes for one reason or another – either a purely personal reason, or by completely missing the mark once too often. Whatever. There are two that I follow religiously.
One of those is Andreas Antonopoulos. You might say I am addicted to Andreas, or at least to his easy, knowledgeable manner and firm grasp of the crypto space. What I like most about him is that he listens to people listening to him, and gives a concise, direct answers in terms anyone can understand when asked a question. While he does not profess to have all the answers, he certainly has more answers than I have – thus, his opinion and insights are of extreme value to me. I often research things he says, and have yet to find any discrepancies. The other thing I like is that he doesn’t try to “sell” me anything. All he does is educate on the subject of Bitcoin.
Okay, so all that said – the purpose of this post is to share a three-year old video I found this week. I should say that it is so pertinent to what is happening now, that I had no idea it was 3 years old! He talks about the “future of cryptocurrency” and I think those who haven’t quite come to a full understanding of Bitcoin and altcoins might find this enlightening.
To highlight some of Andreas’ insights shared three years ago, I’ve researched what he believed would occur to compare it with what has actually occurred. I’ve transcribed the video for the purpose of sharing some of those findings. The video quality isn’t the greatest, but this isn’t a visual as much as an audio experience, so the video producer in me has looked the other way on quality, and hopefully you will too. I hope you find his insights to be as fascinating as I did…enjoy 🙂
The Future of Cryptocurrencies
I am a bitcoin developer, commentator, and I guess an evangelist – and I just love Bitcoin. I’m just really enjoying being in this space. I feel like I’m doing some of the most important work in my life right now and it’s great to be among this community.
So the topic I wanted to talk about today is the future of crypto currencies, and we’re at the moment at the birth time of this incredible phenomenon that affects so many things of the world around us and we don’t really know where this is going.
None of us knows where this is going. in fact it’s rather amusing to be having discussions with economists who claim to know exactly where this is going – even though they’ve never seen a cryptocurrency before – because we’ve never had a cryptocurrency before. They say things with absolute certainty, like bitcoin is going to zero, even though no currency in the history of mankind has ever gone to zero.
You can still buy Romans Sesterce and it has tourist value, which brings up an interesting concept: what is value and how does value change in an environment where currency is abundant?
So that’s what I want to talk about today. I want to talk about scarcity, abundance, and the source of value. I used to think that alt currencies were going to happen in their dozens, and then they started happening in their hundreds. And I used to think that alt currencies somehow threatened Bitcoin a bit because part of bitcoin’s magic is the ability to create digital scarcity – to create something digital that is rare, and how can it be rare if you can have lots of them? And that kind of confused me, and I wanted to think about that a bit. I gradually realized that scarcity is what gives the individual currency rarity but it doesn’t have to apply across the entire field of currencies.
So then I started thinking about what is monetary value and how it’s derived? Because at some point I realized we’re not going to have hundreds of altcoins – we’re not going to have thousands of altcoins – we’re going to have tens of thousands of altcoins, and then hundreds of thousands of altcoins, and eventually millions of altcoins.
There were ~500 altcoins in 2014. There are 1,221 listed on coinmarketcap.com today.
Bitcoin market cap is $95,245,882,749 at this time, price is $5,700. It was $4,315,401,882 at the end of 2014 and the price was $316.
At some point, I came across a website where you can choose a name for a new currency using a drop-down. You can select the proof-of-work algorithm you want. You can set monetary policy and be Ben Bernanke for a day. And then you can press submit and launch a new cryptocurrency. And it costs 1/10 of a Bitcoin to do that – but if it costs 1/10 of a Bitcoin today, there’s going to be a site that does this for free by the end of the year. And then suddenly I realized that what this means is that, before the end of 2014, a five year old in a primary school will launch Joey-coin to compete against Maria-coin launched by his friend – frenemy friend, things change very fast in private school.
But here’s the thing – if you put young hominids together in a social environment they invent currencies. They do this all the time even before cryptocurrencies. If you see a primary school, they trade rubber bands, they trade lollipops, they create currencies of value within this small isolated society. When the life-strong rubber bands came out, and people started promoting various charities with these rubber bands, they became tradable commodities in primary schools and primary schools have been doing this for years. Tamagotchi, pokemon cards, baseball cards – even before that, marbles and, in my father’s time, chestnuts – so they could play knockers, which is a weird game that involves banging chestnuts against each other.
But here’s the point – currencies emerge when you have the social structure for currencies to emerge. And the reason the currencies emerge in that manner is because currencies are form of communication. Currency is a language. It is a language that allows people to exchange information about value, not always monetary value. It’s about value of friendship, it’s about value of popularity, it’s about value of celebrity, it’s about value of brand – and all of these things have value. Not necessarily monetary value, and currencies are the language by which this value is expressed. So within the primary school environment currencies emerge even when they didn’t have the ability to create currencies.
My friend Avi Barker and I were discussing this topic yesterday and he told me a bit about Emperor Norton – who is this man in California who made a fortune selling pickaxes to the gold miners and mining equipment. Because that’s how you make the most money – not by mining, but by selling the mining equipment. And then he did a bad deal which involved buying rice, and he lost all his money. He had a dream where he was visited by his mother and told that he had royal blood and he was in fact an emperor and should become the Emperor of the Americas because America needed an emperor. So he used this last dollar to buy a Civil War uniform and a big hat, and a big ribbon, and went out in San Francisco and proclaimed himself to be the Emperor – and he proclaimed the end of the Civil War, fired Lincoln, and fired Congress, and he kept proclaiming things. And people started paying attention. And they thought he was ridiculous. And he created his own currency, and people thought he was ridiculous. And then one of the big San Francisco newspapers published his things to see and to tell everyone how ridiculous they were. And because the newspaper published it, suddenly it wasn’t so ridiculous anymore. And this currency started being accepted in stores in San Francisco, and people were able to trade the coins of Emperor Norton. And a currency emerged – spontaneously, as it does. Because currency is a cultural artifact. It’s a system of language. And the best affirmation of that currency was that people started counterfeiting Emperior Norton money. You know something has value when people start copying it.
So, what did Emperor Norton lack? He had the meme, he had the popularity, he had the idea, he had the pizzazz, he had the fame. He lacked the protection against counterfeiting. He lacked the portability. He lacked the transport ability, and he lacked the global reach. The next Emperor Norton, who might be five years old, will have all of those things because now – combined with a cultural artifact of money, we have the mechanics. The technology of unforgeable, instant, secure, cheap, fast, asset transfer over an information network.
And so, if you combine these thoughts together, what we realize is the money happens when people have a need to express value. And that means money will happen at an accelerated pace. So that’s why I say we will have millions of altcoins. We will have Kanye West – and this time Kanye will do it. We will have Bill O’Reilly coin for ditto-heads. We will have fame coins and TV show coins, and primary school coins. We’ll also have coins made by governments, and coins made by banks, and coins made to solve specific problems, and coins that are memory hard, and coins that have different script functions. We’re going to have coins across the entire spectrum. And at that point, we will have to start making some very difficult decisions. Because at that point we’ve lost any way of knowing what has value.
All of those coins will have value to their creators. The question is: how many of those coins will have monetary value for the rest of us?
And when I thought about that I realized that we’ve already done this once. You see, before the growth of the internet, opinion and the authority of opinion, depended entirely on the authority of the issuer of opinion – the gatekeepers of information. If you are the New York Times, you own a printing press that is four football fields long and three stories high, and you buy ink by the barrel. The ownership of that printing press becomes a proxy for authority of opinion, because not many people can do that. That’s scarcity.
Scarcity becomes a metric by which we apply authority of opinion. So, the New York Times, by sheer ownership of that printing press, had authority of opinion. And then, suddenly, anyone could have a printing press. Anyone could have a desktop-based printing press. And just at the same time, an Egyptian blogger on the front lines of the Egyptian revolution suddenly had an opinion that was relevant. It was timely and it was authoritative, at the very same time the New York Times was publishing bullshit by Judith Miller to drive us into a war. And so our world was flipped upside down because the sources of authority were crumbling before our eyes – and at the same time, millions of other opinions were coming out which had no apparent, no intrinsic source of authority, and we had to recalibrate our world to understand authority of opinion as a matter of contents – not source.
Opinion was now not about who issued it, not about who distributed, and not about how big their printing press was – but about how close to the information they were. How relevant that information was. And how many people were able to use that information to gain knowledge.
In the new world of cryptocurrencies, governments and sovereigns no longer have authority that is created by the ownership of the printing press of the fed. Authority now is derived by the use of the currency. Us using Bitcoin is what gives its intrinsic value. If you want to use that old term. Of course, nothing has intrinsic value. Certainly no money has intrinsic value. But if there is monetary value in a currency, it is derived from the use of that currency as a means of exchange, as a store value by the users – not by the sovereignty of the printing press that created it.
So we now live in a new world – where we will have millions of coins. And some of them will be Joey coin, and Maria coin, and Kanye West coin. And some of them will be really important coins in the world financial environment. And here’s the funny thing – we’ll have no idea when one turns into the other. Because the line between a coin that’s a fad, and a coin that has monetary value, is simply an adoption threshold. It’s an issue of critical mass. At some point, the network effect, the viral adoption patterns of a currency, become big enough within a locality that that currency acquires monetary value. And it acquires monetary value because increasingly the majority of the people you interact with speak the language of that currency by exchanging it for other things of value. And we will have no idea how to distinguish between the two.
Imagine a world, where a decade from now, a Central African Republic has de facto adopted – through use of more than 50% of its GDP, as its national currency Dogecoin. And not a single person in that country has any idea what that silly dog is doing on their coin! But guess what? Most of those African countries had no idea what that silly white old lady was doing on their money – Queen Elizabeth. And there’s absolutely no difference between the two.
In terms of monetary value, the important thing for the user of that currency is “can I take this token of abstract value and get a dozen eggs with it?” We’ve seen this happen before and M-Pesa started as a means for families to exchange cellphone minutes. And one day, someone went to a store and said, “I don’t have any money but I have two minutes left on my cellphone. If I give you a minute, can you give me three eggs?”
And a currency was born, and 11 years later M-Pesa represents 40% of the GDP of Kenya. And it was never designed to be a currency. Currencies are not created from sovereignty. Currencies emerge as a cultural artifact. As a means of conversation. As a language with which we express value to each other.
M-Pesa now has 18M active users in Kenya, and 2% of Kenyan households have been lifted out of extreme poverty through access to mobile money services.
And, I’ll take it one step further… now that we have cryptocurrencies – it’s not sovereignty that creates currency – it is currency that will create sovereignty. By adopting Bitcoin on the internet we are, for the first time, creating the internet sovereign currency. The purchasing power of Bitcoin at internet scale creates sovereignty for the internet. It creates an international, transnational, financial mega power and we’re building that right now. And we don’t know if it’s going to be Bitcoin, or Dogecoin, or any of the other coins – but it doesn’t really matter. Because monetary value is not created at issuance anymore. It’s created over time, through adoption.
So that’s the story I wanted to tell you today about how value – it derives coin, which derives sovereignty. And that’s all I had to say on the topic. I’d love to take some questions. Thank you.
Adam: You mentioned once that bitcoin has the potential to have M1, 2, 3, and 4 potential. How is that possible?
Andreas: M0 is the narrow money supply measure. So, the narrowest supply of money measure is the actual physical coins in circulation. That’s how we measure, say for example, the US Dollar’s M0 is the the stuff that’s written on actual pieces of paper floating around the economy. That’s the narrowest measure of money. And for Bitcoin, at the moment, 11, 12 million bitcoins currently issued – times their exchange rate or purchasing power – that’s the M0 measure of Bitcoin.
There are 16,650,413 bitcoins issued as of 10/26/17. The exchange rate is $5,700 (at time of this writing).
But exchanges can operate as a fractional reserve system, as can Bitcoin banks, and perhaps some of them already are. Bitcoin was implemented on Mount Gox as a zero percent fractional reserve system. And so we will see this happen again, but it may happen deliberately. I mean, people may actually give out loans with Bitcoin, and create fractional reserve Bitcoin where the original holders do not have immediately liquid Bitcoin to redeem against. That immediately creates M1 and broader monetary supplies on top of that. Instruments, futures, derivatives, bonds, debt obligations – can be built on top of that to create a higher supply of money – are out there. Essentially, the broader the monetary supply you’re looking, at the lower the liquidity of that monetary supply.
Christophe: The question that i have is about bitcoin derivatives. So, coming out of the legacy banking system, it seems like a lot of the hijinks and the nasty stuff that we have in the financial sector comes from these highly derivative assets. And something on the horizon for Bitcoin is, a lot of people looking to create Bitcoin based derivatives. And I know that a number of people have fears about this – that somehow the stuff that goes wrong with US dollar and other fiat currency based derivatives are going to come to haunt Bitcoin. Or that somehow these derivatives will allow governments to manipulate the price and meddle in it. Do you have any thoughts on that topic?
Andreas: Yeah – I’m not worried about derivatives because, you know, there are derivatives and there are derivatives. A lot of what we see seems to be the result of out of control derivatives. But it isn’t. It’s a combination of the result of out-of-control derivatives built on unsound money that has infinite inflation potentials through a central bank that can do whatever the hell they want, whenever the hell they want, without seeking the consent of the governed. Keep in mind that derivatives are actually thousands of years old. The first derivatives were created in Venice, in the fifteenth and sixteenth century, in order to sell essentially futures on tax receipts by Venetian families. And in order to fund, well, war. As always.
And so, derivatives themselves are not bad. In fact, some sorts of derivatives can provide very beneficial results for the economy. For example, at the moment there’s no ability to short Bitcoin. You cannot take a position against Bitcoin and benefit from it by borrowing Bitcoin, selling it, and then buying it back at a later date, at the lower price. The problem with that is, that when you have a currency that essentially has no ceiling, when good news happens – it creates a really strong effect. A spike essentially, of price, that goes way above the sustainable price. So, it over-corrects up, and then it bursts. The confidence is somewhat shaken, and then you over-correct down – and you get into this oscillating pattern with very wide swings. A lot of that is because you don’t have counter pressure.
So, for example, if I stick a needle in my tricep and anesthetize it – and then I tried to pick up a glass of water, I’m gonna knock myself out. Because my bicep isn’t designed to work without the counter muscle holding it back on the other side. Right? The same thing in financial markets… if you only have up pressure, and there’s nothing constraining with down pressure, it creates very wild swings. So shorts would be very beneficial.
The point is, that if you build derivatives on a sound currency, that cannot be inflated, the derivatives themselves are derived from soundness. And, of course, if you take it too far – you can get further and further and further away from the fundamental store of value. But what’s happened in our economy is that, we’ve not only got further and further away from the fundamental store of value, but then we hollowed out the fundamental store of value. So there’s actually nothing below it, so you build a pyramid of huge derivatives and then you take out the base – and the whole thing collapses. Well actually no, you just feed a trillion dollars of quantitative easing at the bottom, and then pray for five years. And then the whole thing collapses, but that hasn’t happened yet.
So yeah, I’m not worried about derivatives. I think under certain circumstances derivatives can be very healthy mechanisms to create more predictable market behavior by allowing people to express many different risk scenarios in their purchasing patterns.
Next questioner: Andres, thank you very much. You are clearly one of the biggest voices in the Bitcoin community. From a technical perspective and from an advocacy perspective. At the risk of disagreeing with you in some respect about the alt currencies – I agree that there’s a space for alt currencies and, while two, three or five or ten were okay, the fact that we are going towards (…) thousands of alt currencies, what is that doing to Bitcoin itself?
Andreas: I think I understand where you’re going with this, so let’s talk about the distribution of these currencies. I think it’s important to understand how these currencies get distributed. What we see in environments that exhibit network effect – and they exhibit open networks where you can have inclusion and expression at very high rates – is, instead of seeing a normal distribution, which is a typical bell curve, what you end up with is what’s called a power law distribution. And a power law distribution is the same thing you see in terms of artists and their sales on iTunes, or products and sales on amazon.com. A power law looks like a very big peak at the top, and then it drops down dramatically, and then you have a long tail.
If you haven’t read the book “The Long Tail”, I think it was by Chris Anderson, definitely worth reading because he talks about power laws and network effects. And it applies to currencies, even though this was before cryptocurrencies. What I expect to see is that gradually Bitcoin will end up with 50-60 percent of the market share. I’m just guessing numbers here, just to illustrate the purpose. 50 or 60 percent of the market share dominating the top of the power law, and then maybe three, four, five useful alt coins that have niche applications – primarily with features that Bitcoin cannot co-opt, cherry-pick, or include in its roadmap. Perhaps because they’re completely antithetical, like inflationary instead of deflationary. Because they’re fundamentally discordant like a different proof-of-work algorithm, or proof of stake algorithm, etc.
As of Oct 28, bitcoin Total Market Cap is 56.58%. Ethereum is closest at 16.88%. Bitcoin was at 77.64% at the end of 2014.
The exact date of this video recording is unknown, so end of 2014 figures are being used for all comparisons.
Those will come to fill in the environmental niche below [Bitcoin] with five or six coins and then you have this very, very long tail that keeps getting longer and longer and longer with tinier and tinier and tinier market uses, until you have coins that are used by twenty people in a club in order to play their weekly poker game – because it’s an easier way to manage the accounting. Why not? And most of these will be irrelevant to the people at large.
So here’s what this does to Bitcoin. Every new currency that comes out competes for attention with Bitcoin. But it also validates the primary idea of cryptocurrencies, and thus it feeds directly into Bitcoin. Bitcoin is the oldest. Bitcoin is the most stable. Bitcoin is the most used. Bitcoin is the most trusted. Bitcoin is the most distributed currency, and it is achieving a network effect unlike we have ever seen before. You have the network effect of a hundred thousand nodes. You have the network effect of millions of dollars of ASICs (application specified integrated circuit) that have been embedded into this ecosystem. You have the network effect of 50,000 merchants and growing. You have the network effect of two and a half million users. All of these things feeding into each other, and based on money. Real economic investments, and now startups, and jobs, and employees in these startups. And developers who are learning the skills. And increasingly Bitcoin protocol being embedded in chips. Chips that can’t be modified very easily.
Bitcoin’s network effect is absolutely incredible. In fact, the real issue is not whether an alt currency will displace Bitcoin. I don’t think that’s going to happen. In fact, I think the bigger problem we’re going to have is that we’re going to find it harder and harder to upgrade Bitcoin. Just like IPv4 (Internet Protocol version 4) became so dominant, we spent 16 years trying to upgrade it to IPv6 and, so far, with not much success. And that’s just replacing it with its upgrade, right! and we may see the same thing with Bitcoin. It will become increasingly difficult to achieve consensus for hard fork upgrades.
Bitcoin “splits” into Bitcoin (BTC) and Bitcoin Cash (BCH) – August 1, 2017Bitcoin value date of split: $2787.85 Bitcoin value 10 days later: $3383.79 Bitcoin value now: $5,720.10
Bitcoin Cash value now: $381.25
After years of debating about how Bitcoin should scale the controversy turned into action. The Bitcoin code split in two different directions. One direction supporting the optimization of Bitcoin blocks through Segwit, while the other direction supported bigger blocks of up to 8mb. Easy to see which prevailed.
So I don’t see any of this affecting Bitcoin other than increasing its power, increasing the dominance of cryptocurrencies. Keep in mind that any cryptocurrency that comes along has to prove stability. And has to show that stability over a period of time – and in the meantime, Bitcoin has built a five-year honey badger track record.
The honey badger became the Internet’s ultimate snake-eating, beehive busting bad ass after a January 2011 video on the animal went viral. “Honey badger don’t care” is the family-friendly version of the video’s catch phrase. Honey badger has become a beacon for those who believe digital currency is destined to take over the financial world. The meme’s message is especially resonant today, as China took steps recently to clamp down on Bitcoin trading, a move that sent the value of a bitcoin plummeting only temporarily. The believers don’t care what governments do, and their numbers continue growing.
Same questioner: I don’t want to argue the point, but I’ll make a couple of rebuttals on this. The only thing is, you’ve recently read the mail from Gavin Andresen, as well as Mike Hearn. Both of them asking one very specific thing: Bitcoin doesn’t need much developers. They need much testing. Every single developer today who’s spending time developing an altcoin because 5 people around him, business-related mostly, saying “hey, you know what? There’s a pump and dump opportunity”, or whatever the case might be. Whatever the incentives might be. Sometimes are genuine as well, and it just leads that developer to not devoting the time towards Bitcoin development or testing…
Andreas: Yeah, I’m not worried about that because there are hundreds of startups in the Bitcoin space, hiring thousands of people. Many of whom are developers. Many of whom when building their applications are testing Bitcoin in new environments, and new scenarios. And we’re going to see maybe a hundred thousand new developers join Bitcoin in 2014.
AngelList, the job board specializing in startup jobs, reports cryptocurrency job postings have nearly doubled in the past six months and are soon to triple from 2016. Companies in the crypto space have experienced “unparalleled investment and growth” in recent months. Cryptocurrency startups collected more investments in the first two quarters of 2017 ($467 million) than they did in all of 2016 ($325 million). [Stats as of Sep 28, 2017]
This is a brand new space, and we have something that other spaces don’t have – jobs. Paying jobs. I have one of those jobs, so I’m not worried in the slightest. We’re on an exponential growth path. We’re going to have an abundance of developers. We haven’t even seen the real emergence of India, China, Russia, Brazil, etc. in terms of them adding to the developers pool.
So let’s let someone else take the next question, thank you.
New questioner: I have a question about jobs. Actually, given that we’re going to be able, with Bitcoin able to automate entire industries in a world population that continues to grow a shrinking need for labour – what are we going to do about the job situation?
Andreas: Well, I I think we’re actually going to be able to bring a lot more productive capacity online from all around the world. But you know, it’s not about replacing jobs. It’s about creating new ways of interacting in new types of economies. And quite honestly, the big problem we have right now is not that the jobs don’t exist, or opportunities don’t exist. It’s that we have this giant black hole of war and derivatives and financialization that is sucking the productive wealth of this country and putting it into an environment where nothing is more profitable than war. Nothing is more profitable than zero percent fed loans. Nothing is more profitable than algorithmic trading, and making suckers of everybody’s retirement. As long as that is the case, the entire economy will be stagnant. And Bitcoin gives us a new way of doing things.
Raro: I have a question for you. As a person who really wants to have his children and grandchildren living in a world that’s entirely voluntary I would very much like to see Bitcoin play a major role in ending coercive relationships. I want to know what your opinion is about the endgame. What will be the end game after Bitcoin has completely disseminated itself throughout the world and people have an alternative that’s fully voluntary to exchange value and to be able to transact without any third parties? I want to know what you think.
Andreas: I really have no idea. I think one of the most important things you can do as someone who tries to predict the future – is to be humble in your predictions and try to aim for two years out at most. That reduces the possibility of being wrong to only about 75 to 80 percent. So, you know, I see that Bitcoin is going to disrupt many different industries. Many different ways of doing business is going to change. The financial environment irrevocably forever. And in very dramatic and drastic ways empowering individuals. You know, I see all of these things happening, but I don’t know how they’re going to unfold any more than I know where the internet is going to be in two years, or that I could predict any of it three years ago.
This is writing one of the most wild rides in the world. It’s the exponential dragon, and we’re on its back. And so I don’t know. And that’s great, because neither do the people who are trying to stop this. What I do know is that, regardless of where Bitcoin goes, the Bitcoin network can survive the Bitcoin currency, and the Bitcoin invention – the blockchain – can survive both. Cryptocurrencies are going to be part of our financial future for the next hundred years. That I can say with almost absolute certainty. It might not be Bitcoin, but cryptographic currencies will be part of our financial future. And once you realize that, you know as I like to say, the bandwagon has to rolling – and there are two positions you can take towards the bandwagon. You can jump on board, or you can get run over.
New questioner: I’m from West Texas and I work in the oil and gas industry. One of the things that I’ve read recently is that 80% in the world’s mineral rights are owned by governments. And that’s one of the reasons why Texas has had such a good economy. It’s because the decentralization of the ownership of the minerals – and I’m not a very techy person – but I know that they say that Bitcoin has a lot of uses outside of currency. In your mind, do you see a use where property or a title could be tied to a Bitcoin so you don’t need a government? Like in third-world countries where they’re saying all that dead capital right now…
Andreas: Title and deed registry is probably one of the most exciting, and one of the most immediate applications you can do with blockchain type technology. One of my business partners, who is an attorney, is currently writing a number of papers on how you can use a combination of proof of existence, notarization, and attestation technologies together with proof of chain ownership through the blockchain in order to transfer not just the deeds, but also easements and other aspects of property as they attach to deeds. Not only is it a matter of being a thousand times more efficient than trying to trawl through dusty books, it cuts down the risks of property transfer which makes it unnecessary to have massive amounts of title insurance and escrow fees that cut into every property transaction, and over generations can erode the value of your property to zero.
So, yes, this provides transparency, accountability, ease of use, and cryptographic certainty. The blockchain is is going to be used for land registries, for sure. It’s a great application.
In April 2016, the government and bitcoin hardware and software firm Bitfury Group launched a project to register land titles via a private blockchain, which is a tamper-proof ledger, and then to make those transactions verifiable using bitcoin’s blockchain, which is public. The Republic of Georgia committed in Tbilisi Feb 2017 to use the bitcoin network to validate property-related government transactions. It was the first time a national government has used the bitcoin blockchain to secure and validate official actions. The blockchain will not ‘replace government’ concerning how land is registered and monitored. It will make governance of land registration the simplest and most corruption-resistant possible.
Michael: First of all, just wanted to thank you on behalf of the entire community for fighting the good fight intelligently and in a rational manner. While the other side throws lawsuits and bombs…
Andreas: Well you know, we’ve got to have a Marc Williams in every conversation.
Michael: And to that effect, I wrote a piece this week that was picked up on the CNN money calling for a state to sort of take the lead _ either Nevada or maybe Texas _ to basically say instead of making new regulations, let’s go and make a bitcoin and crypto coin sort of SEC. Like a special economic zone. It was enheartening to see that Robocoin now has four devices that are opening up this week, and i guess we’ll see if everybody gets arrested next week. So what are your thoughts in terms of: can the States be as much of a force to be able to get that first little wedge, just like they’ve done for gay marriage and marijuana?
Andreas: I think so, but it won’t necessarily be the United States. Keep in mind, bitcoin is a transnational currency and a lot of the innovation we’re going to see is in the parts of the world where the need is greatest. And you’re going to see not just a move from States, but also a move from citizens of these States.
So there’s two distinctions I want to make. The first one is what do state regulators and national regulators do? There are plenty of countries in the world that have been doing arbitrage on tax law, and investment law, and free trade zones, and things like that, for decades or centuries. And a lot of these very small, very nimble nations, where they can get laws passed quickly – are moving quickly. Guernsey, Malta, Cyprus, Singapore, Switzerland, Liechtenstein, Barbados, Bermuda – a lot of those places are now moving very rapidly to look at what positioning they can take vis-à-vis cryptocurrency, to make them themselves crypto currency ready.
In April 2017, a Telegraph article quoted Dr Cathy Mulligan, co-director of Imperial College London’s Centre for Cryptocurrency Research and Engineering, (who believes that insufficient regulation could be holding back startups and the growth of financial technology, rather than creating opportunities through lack of regulatory constraints) saying: “We have the situation in the UK where many startups are chasing the regulator to say, ‘How are we going to be regulated?’ rather than the other way round.
Japan was one of the first countries to regulate and tax virtual currency transactions. On July 1st 2017, the Japanese Government passed a new ruling abolishing the tax applied on cryptocurrencies.
Michael: After they all, every single one of them under pressure, signed FATCA to report to the US…
Andreas: Yes, all the banks have to report all of the Fiat accounts, which will be less and less relevant over time. So we will see also innovation within the States and I think we’re going to see some of the States peel away and try to be more friendly to cryptocurrencies. Keep in mind – no one is fighting Bitcoin. There’s this, I think, slight dose of paranoia – but for the most part most – the moneyed interests really don’t understand this. They view us a bit like a lemonade stand trying to take on Wal-Mart. Whatever – and I’m very happy with that. I hope they spend another three years thinking of us that way. And you know, at the moment, I picture the regulators and state regulators and the big bankers sitting on a beach drinking their mai tais – wondering why the surf is receding. And we know why the surf is receding. It’s tsunami coming their way and they have no idea. They’re going to go out and gather pebbles from the beach.
So I’m happy to continue having this conversation, but at the end of the day – the the real question that is going to face regulators, is going to face States, is going to face nation states, is going to face every single Bank and Exchange, is this:
- do we fight this and get disrupted in ten years? or;
- do we join this and get disrupted in five, but get a piece of that pie?
And when you have that proposition, we saw exactly what happened in the Internet. They fought valiantly for a while, and then one of the herd peels off, and then there’s a stampede to see who’s going to jump on board. And now, every single telecommunications network in the world is running on top of IP instead of trying to ban it. I think very much the same is going to happen with cryptocurrencies.
First, they’ll try to adapt. Then they’ll try to co-opt. Then they’ll adopt. Then they’ll run their entire operations on top of it eventually. And it’s just a matter of who positions themselves to be the next Amazon, the next Google, the next Yahoo, or the next Blockbuster, the next Tower Records and goes down with a ship.
So I’m not too worried. But I think we’re gonna have a lot of variety. No one’s trying to fight us yet, and most bankers and regulators are smart enough to realize the tremendous opportunity for jobs and innovation and growth in this space – and would rather take advantage of that – than try to strangle it. The ones that don’t, we’ll route around.
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New questioner: Do you have any thoughts or predictions on mining centralization in SHA-256 versus cryptocurrencies?
Andreas: Well I think it’s really interesting because mining centralization is seen as this huge problem. But people don’t often talk about the opposite problem. Which is that, if you create a currency that can be mined by small-scale CPUs, then the most efficient way to mine on that currency is to take over all the world’s computers and make a giant botnet. So botnet mining becomes a huge problem when you don’t have dedicated hardware, or where it doesn’t take fairly sophisticated and high-end hardware. So centralization vs. decentralization of mining is a matter of balance. And I think we already see a range of solutions in the market that allow us to test out these scenarios. And quite honestly, the way these coins are fungible, if one of these scenarios starts going bad, then we can switch to other currencies quite easily. Keep in mind also that miners are increasingly not the only mechanism for consensus within Bitcoin.
They used to be the predominant mechanism for consensus. Right now, if the miners decide to fork and go in one direction and blockchain, coinbase, bitstamp, and bitpay stay behind – and every single one of the users say “screw that, we’re not coming with you”, then they’re mining blocks without transactions in them. And which blockchain is the real one then? The one where we’re spending our money is the real one. So there are already five constituencies within the consensus mechanism. There’s miners. There’s merchants. There’s web wallets. There’s exchanges and banks. And finally, there’s the end users and the wallets they choose to use. And consensus now depends on all five parties achieving consensus.
So rather than having consensus hijacked, I think very soon – probably within two years – we’re going to face the exact opposite problem. Which is that, at least in Bitcoin, where this will be very strong and high-level requirement consensus – you know “pata” hashes, “yata” hashes, whatever – and millions, tens of millions, hundreds of millions of users wallets, etc. It will be almost impossible to achieve global consensus for any hard fork, let alone one that that offends the interests of one of those parties.
I’m not worried about centralization. Miners will be able to use centralization to gain the mining reward. They will no longer be able to use it to game the system.
New questioner: Just a quick follow-up on that – do you have any concerns about a large nation state that has interests in just actively destroying Bitcoin. To make their own super rigs and design chips and just throw hundreds of millions or billions of dollars to intentionally disrupt the blockchain?
Andreas: I don’t worry about that at all. This cannot be done with Bitcoin anymore. This is something that can only be done with nation’s altcoins. Bitcoin has achieved a level of computing that no single nation state can overthrow it through computation alone. The effort to do so would require a massive covert operation of chip fabrication. Then the coordinated assault, that would give them dominance over the next block for ten minutes, until we kick those bastards off the network, and rework the protocol around them. They would be revealed. They would have lost a billion dollars doing this. And all they got to do was one double spend.
Now here’s the thing… long before we get to that point, they figure out that if they just let this stuff run, they can actually get some Bitcoin as a reward because the incentive structure actually works. And so I’m not worried about that. This is the kind of heavy-handed action that can drive conspiracy theory, but is really only applicable on a small scale, for a small alt coin. Governments aren’t good at doing massive conspiracies. They’re good at doing small conspiracy, but massive conspiracy like that doesn’t go unnoticed and a lot of people are watching the blockchain. And, as I said before, what are they going to do?
So they take over and they fork the blockchain, and they go – somewhere, right? They’ve created an alternative blockchain. Great. What are we going to do? Who’s going to join the NSA blockchain? Anybody want to jump on Fed coin? So we’re all going to stay on the old fork. Difficulty will go down. It will get more profitable for the miners who stayed behind. And we’ll carry on with our coin and they can go mine whatever the hell they want on their alternative blockchain. They achieve nothing. They can’t make protocol changes because _ as I said, five constituencies and consensus – and it would take a billion dollars to pull the most ridiculous Keystone Cops failure in history. Plus this would actually require government that can do IT. You think they can organize a massive mining rig? Go check out healthcare.gov
New questioner: It would require changes to the protocol, as you mentioned Swift’s changes in the event of a double spend by a nation like that. Are you concerned with the lack of investment in the core dev team right now?
Andreas: No, not at all. Because there is no core dev team. This is a big misunderstanding as people say, “who are the core devs?” – the core devs are the people who are developers and write stuff for core. If you are a developer, and you write stuff that goes into the core Bitcoin D, you are a core dev. There is no ceremony where Gavin Andresen comes out, pulls out his sword, and says “by the power invested in me by Satoshi Nakamoto, I named thee core dev!”
That’s not how it works. This is an open source project. Anyone can contribute code. And if the need arises, and we need a really rapid patch, I’m gonna be writing code! Who else in this room is going to be writing code for Bitcoin D? To save Bitcoin D from the banks? There you go! We’re all core devs. No worries.
Morpheus: With a tinkering with Bitcoin as we go further and further into the future, it’s possible to do things that, like our government – we start off with a pretty good idea, now we’re heading into the police state over the course of time making these little tweaks that create problems. That make it where people do not want to use Bitcoin. How do you see that these tweaks could be used against it, so to speak?
Andreas: I don’t see that as a problem. Really, this is a system that removes the central levers of power. It decentralizes power and diffuses it into the hands of so many people that actually modifying the system to take control becomes increasingly difficult. That’s the magic of the decentralized blockchain – is that the consensus is spread among so many different players. Essentially on the blockchain we have an election every 10 minutes. And if we decide to vote differently, vote with our wallets, vote with our web wallets, vote with our exchanges, and vote with our mining gear, we change the election. And we have that election every 10 minutes. That is a system that is designed to be compromised proof and so it becomes increasingly difficult to violate the integrity of that system. The bigger Bitcoin gets, the more people adopt it, you know – I don’t see adoption slowing down. I see adoption accelerating.
Even in the face of the worst news we’ve had over the last two months, the end result has been that for the last two weeks Bitcoin has been in the headlines of every national newspaper, in every country in the world. And what they’ve been telling everyone is that bitcoin is dead. And all of those people will hear about Bitcoin three or four times in the last two months, and then a month from now they’re going to check – perhaps they’re going to check the website is bitcoindead.com – it’s a real website. It’s a static HTML page that says “no”.
They’re going to check that site and they’re going to say, “hey, this thing must have been a hell of a lot more resilient than we thought. I guess the media was lying to us again. Maybe I should buy some Bitcoin.” We’re now getting the mainstream marketing because people are talking about Bitcoin. And why are they talking about Bitcoin? Because Bitcoin is now important enough for the national media in every single country to cover. And it doesn’t matter if it’s bad news. It’s news. As they say, “I don’t care what the hell you print about me, just spell my name right – B-I-T-C-O-I-N. Thank you!”
Questioner: great questions asking “is this a problem? is this a problem? is this a problem?” What do you think the biggest threat to the blockchain ecosystem is?
Andreas: I don’t think there are any external threats to Bitcoin. I think most of the threats are internal. The things that can happen from the outside can only slow us down temporarily and then cause a bounce back of the price. In fact, what they do, is they train the network. Bitcoin exhibits anti-fragile characteristics. Which means that it operates as a giant, distributed immune system. Every time you expose it to a new type of attack, it learns, it adapts, it becomes robust, and it repels that attack. And next time that attack is ineffective.
Four or five weeks ago, we had the first distributed denial of service using transaction malleability, right? And exchanges had to temporarily suspend withdrawals. Guess what? That distributed denial of service attack continues today. No one is affected anymore. Because the network is now immune to that type of attack, because it became more robust. Over time, as Bitcoin gets attacked, it becomes more and more robust. I think the only thing you can do is delay Bitcoin. And we can have fundamental problems within bitcoin, within the code base. I think these are extremely unlikely. If they do happen, we can fix them. If we can’t fix them, that’s even more unlikely, then we’re going to have a problem with the currency and then we’re going to have to pick another alt currency. But the cryptocurrency concept itself cannot be stopped because right now, as I mentioned earlier, any five-year-old can create a new one. And that means that developers are going to create interesting, new ones.
I actually think bitcoin is not going anywhere. I think it just keeps getting stronger and stronger over time, and then becomes the reserve currency for all of the other altcoins. And eventually provides reserve status by feeding value into other currencies.
So you know, I cannot see a scenario under which it goes down. And I’ll give you a similar example… tell me how someone can take down the internet? I cannot see a scenario by which you can end the internet. And so, since I cannot see a scenario – and I’m not talking about a global EMP because at that point, we’re all growing parsnips. But that doesn’t take down the internet, that takes down human civilization. Two different things. We have bigger problems then.
But you cannot take down the internet now. Not anymore. It’s simply not possible. You cannot take it down. You can take parts of it down. You can stop it for a while and then you’d have to reboot it. But you cannot end the internet forever. That cannot happen. I feel exactly the same way about Bitcoin. And if you understand why you can’t take down the internet, that’s why you can’t take down Bitcoin, because bitcoin is the Internet. It’s the Internet of money.