L019: Bitcoin P2P Currency: The Most Dangerous Project We've Ever Seen

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LAUNCH Press

02.25.11

launch2011 News | VentureBeat

L019: Bitcoin P2P Currency: The Most Dangerous Project We've Ever Seen

by Jason Calacanis and the LAUNCH team

A month ago I heard folks talking online about a virtual currency called
bitcoin that is untraceable and un-hackable. Folks were using it to buy and
sell drugs online, support content they liked and worst of all -- gasp! --
play poker.

Bitcoin is a P2P currency that could topple governments, destabilize
economies and create uncontrollable global bazaars for contraband.

I sent the 30 or so producers of my show This Week in Startups out to
research the top players, and we did a show on Bitcoin on May 10. Since that
time the number of bitcoin stories has surged.



After month of research and discovery, webve learned the following:

1. Bitcoin is a technologically sound project.

2. Bitcoin is unstoppable without end-user prosecution.

3. Bitcoin is the most dangerous open-source project ever created.

4. Bitcoin may be the most dangerous technological project since the internet
itself.

5. Bitcoin is a political statement by technotarians (technological
libertarians).*

6. Bitcoins will change the world unless governments ban them with harsh
penalties.


What Are Bitcoins?

=========

Bitcoins are virtual coins in the form of a file that is stored on your
device. These coins can be sent to and from users three ways:

1. Direct with peer-to-peer software downloaded at bitcoin.org

2. Via an escrow service like ClearCoin

3. Via a bitcoin currency exchange

Each owner transfers the coin to the next by digitally signing a hash of the
previous transaction and the public key of the next owner and adding these to
the end of the coin. A payee can verify the signatures to verify the chain of
ownership.

The benefits of a currency like this:

a) Your coins canbt be frozen (like a Paypal account can be)

b) Your coins canbt be tracked

c) Your coins canbt be taxed

d) Transaction costs are extremely low (sorry credit card companies)

You can watch a simple video here: http://jc.is/jlcte0


Where Do Bitcoins Come from?

=========

Bitcoins are created by a complex algorithm. Only 21M can be made by the year
2140. Your desktop bitcoin software can make bitcoins, but at this point the
electricity and time it would take to produce a bitcoin is larger than the
actual value of a bitcoin (your laptop might take five years to make one, and
they currently trade at $6.70 per bitcoin [ see https://mtgox.com/trade/buy
for the latest exchange rate ].

Bitcoin miners use super cheap GPUs (not CPUs) to create the coins, but as
more people come online to make them, the algorithm adjusts so that one block
can only be made every 10 minutes.


Who Invented Bitcoins?

=========

An individual with the name -- or perhaps handle -- of Satoshi Nakamoto first
wrote about bitcoins in a paper called Bitcoin: A Peer-to-Peer Electronic
Cash System. This person has stepped back from the project and trusted Gavin
Andresen to take charge as the projectbs technical lead.


How Does One Buy and Sell Bitcoin?

=========

Currently Paypal and credit card companies are making it illegal to sell
bitcoins. Why? Simple: PayPalbs terms of service prohibit "currency
exchange."

CoinPal had its account frozen, details here.

Given that you canbt whip out your Paypal account and buy them, and that it
will become harder and harder to get them, bitcoins will be bartered for
services in the real world.

For example, a Hacker News community member named Nicholas Carlson just
boasted that he is being paid for a programming project in bitcoins.


Bitcoins in Real Life

============

In the next year youbll hear about people in casinos in Vegas buying and sell
bitcoins for cash and casino chips.

Imagine a bachelor party comes to Vegas and STNY (someone thatbs not you)
gives $550 to a guy at a bar and he takes out his laptop or tablet and ships
100 bitcoins to STNYbs phone. STNY then goes to Craigslist and ships some
bitcoins to an escort and a drug dealer, who then show up in person to
provide goods and services.


The Drug Underground and Bitcoin

============

Last month folks were buzzing about an online drug marketplace called
SilkRoadMarket, which was reportedly trading in, well, all kinds of drugs:
marijuana, mushrooms, LSD, ecstasy and DMT.

Of course, since bitcoin transactions are untraceable, you would have zero
recourse if you sent a dozen bitcoins to someone for a couple of tabs of LSD.
Just like you might lose your $10 if you gave it to a kid in the school yard
for a dime bag and he never came back.   


Letbs Make Some Predictions

============

We are 100% certain that governments will start banning bitcoins in the next
12 to 18 months. Additionally, webre certain bitcoins will soar in value and
a crush of folks will flood the system and start using them.

Currently there are 6M coins at $6.70 each for a total economy of about $40M.
Bitcoin speculation and hoarding will also cause a massive spike in bitcoin
value. For example, if 10M people find out about bitcoins in the next year
and want to buy $100 worth, $1B will be infused into the bitcoin economy.

Finally, there will be massive breakage in bitcoins. If your laptop crashes
and you didnbt back up your bitcoins, well, youbre SOL. If someone steals you
laptop that has 10,000 bitcoins on it you won on Bitcoin Poker, youbre SOL.
Lost your USB drive with 500 bitcoins on it after a night out on the town?
Youbre SOL.

Sites like 99designs, eLance and oDesk will start accepting bitcoins for
payment. If they donbt, they will face competition from folks who do.

Bottom line: The world is going to be turned over by bitcoins unless
governments step in and ban them by prosecuting individuals.

This is about to get really interesting, everyone.


* We made this term up to describe the bgood peopleb of the internet who
believe in the fundamental rights of individuals to be free, have free
speech, fight hypocrisy and stand behind logic, technology and science over
religion, political structure and tradition. These are the people who build
and support things like Wikileaks, Anonymous, Linux and Wikipedia. They think
that people can, and should, govern themselves. They are against external
forms of control such as DRM, laws that are bought and sold by lobbyists, and
religions like Scientology. They include splinter groups that enforce these
ideals in the form of hacktivism, such as the takedown of the Sony
Playstation Network after Sony tried to prosecute a hacker for unlocking its
console.  


-----------------

TWIST Bitcoin episode

============

Full show here.

Gavin explains the fundamentals of Bitcoin - clip

Who is Satoshi, the mysterious bitcoin founder? clip

The million-dollar bitcoin question: Can the system be hacked? clip

Jason sets his software to generate bitcoins and Gavin explains why that's a
bad idea - clip


-----------------

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LAUNCH Coda

#61: Money changes everything if you let it.

AuthorLaunch Conference | Comment8 Comments | Share ArticleShare Article

Reader Comments (8)

I've been mining bitcoins for almost about a month now. I was watching your
show live, and it was pretty interesting. The point is, our currency is no
longer backed by gold, and inflation just sucks for everyone honestly.
Currency is supposed to be like Bitcoin in the first place!

May 15, 2011 | Unregistered CommenterThilak

All the social service agencies that rely on a tax base for social justice
just want to say a big F - U!

May 15, 2011 | Unregistered CommenterB Real

This is going to be bigger than Diaspora!!!

May 15, 2011 | Unregistered Commentermakes points with sarcasm

Calacanis... that name sounds familiar. Has he done anything successful,
interesting, or worthwhile lately?

May 15, 2011 | Unregistered Commentermugabo

I will trade you 100 nukem cola caps for 10 bitcoins.


For some reason I just feel this is a libertarian dream come true where they
can live in Fallout 3 style get off my lawn style old crotchy man land way of
being asinine. A virtual currency that changes inflation with real money. It
still based on the fact you need legit US dollars to trade it around. It has
to have an exit strategy and brokers to transfer it around. I just don't see
it going anywhere but for illicit illegal trades like the article said.

May 15, 2011 | Unregistered CommenterOutLandRebel

It is entirely possible for bitcoin to remain in the bitcoin ecosystem and,
as the parallel economy expands, this will be easier to accomplish.
Real-world taxation will be driven from income-based to consumption-based
because it will be increasingly more difficult to ascertain true income. To
the extent that participants can purchase their needs in bitcoin, they will
be sovereign un-taxed individuals. I believe that smaller central banks will
begin to compete with each other by pegging their convertible national
currencies to bitcoin in an attempt to establish the 'reserve currency' of
the parallel economy. See, http://themonetaryfuture.blogspot.com

May 16, 2011 | Unregistered CommenterJon Matonis

If we'll take everything else aside and concentrate on the product itself for
a second, you'll see that bitcoin is basically cash. It's on your computer
(if it's stolen, you lost it), and so it's basically physical. the next
logical thing to do is exactly what happened with cash - you'll need banks to
keep it safe (if you have enough), and banks to loan you more (if you don't).
Those banks will invest the money they have in between. you get the idea.
Even best case scenario that bitcoin succeed - we're back to square one with
the same systems in place.

Gavin's site, as an example, is exactly the step in this direction. And since
you'll NEED sites that like (exactly like any system) - you are back at
square 1.

May 16, 2011 | Unregistered CommenterLior Sion