The World's First Bitcoin Conference

[Eugen Leitl]

http://spectrum.ieee.org/computing/networks/the-worlds-first-bitcoin-conference/0

The World's First Bitcoin Conference

True believers and profiteers meet in the flesh for a two-year checkup on the
global cryptocurrency

By Morgen E. Peck  /  October 2011

Photo: Nancy Palmieri/The New York Times/Redux

Being at the opening of the worldbs first Bitcoin conference was like showing
up for the first day of campba boysb campband finding that everyone already
knew one another in an alternate universe. For a couple of days in August,
the Roosevelt Hotel in New York City served as a real-world meeting place for
about 50 people who had spent months riffing with one another on the phone,
in chat rooms, and over Skype. They came to talk about how Bitcoin could
change the worldband how it could make them rich.

Bitcoin is a digital cryptocurrency designed to resolve the discord between
the way we move money online and the decentralized nature of the Web. The
Internet has already eliminated other barriers to communication and trade,
such as time and geography. You can browse Moroccan floor tiles in a virtual
showroom at 3 a.m. on Christmas Eve if you feel the urge, but paying for your
purchase will inevitably require the cooperation of a third party. The
problem is that dollars do not exist on the Internet, only promises of
payment that require the backing of trusted and centralized financial
surrogates like banks and credit cards.

On Halloween in 2008, a hacker operating under the pseudonym Satoshi Nakamoto
published a paper that described an entirely new currency called Bitcoin,
which was made out of information instead of paper. In Satoshibs system, all
the tasks performed by banks and credit cards, and even some chores of the
federal government, were trusted to a peer-to-peer network instead.

Satoshi ducked into the shadows shortly after delivering the code that
generates and processes Bitcoins, but new programmers, lured by the vision,
quickly stepped in to shepherd the software development and create supporting
websites and applications. In 2010, enthusiasts founded a website called
Bitcoin Market, which allowed individuals to exchange Bitcoins for dollars
and, for the first time, provided a way for curious investors to participate.

Soon after, a Bitcoin owner known on forums as "Laszlo" forked over 10 000
Bitcoins for a pizzaba notorious exchange now regarded as the first time
anyone used Bitcoins to purchase physical goods. As more people became
interested in the new currency, the value of Bitcoins continued to rise,
culminating in a media feeding frenzy in the spring of 2011. The commotion
seems to have enticed new speculators that temporarily drove the price even
higher. When he bought his pizza in 2010, Laszlo spent about US $25 in
Bitcoins. At the Bitcoin conference on 19 August, Laszlobs meal would have
set him back over $100 000 at the new Bitcoin trading rate.

But what exactly is Bitcoin? That was the first question Jeff Garzik, a
developer for Bitcoin and Linux Kernel, asked when it was his turn at the
podium. "Youbd be surprised at how difficult that is to answer," he said. He
began to poll the audience. Is Bitcoin a currency? A commodity? A security?
Hands went up and down with each term, and the only time the room agreed
affirmatively was when Garzik asked whether Bitcoin is a "distributed digital
notary service."

If youbve never heard of Bitcoin, watching this video put together by the
Bitcoin community is probably a good place to start. The simplest way to
understand how Bitcoin works is to think of it as a digital transaction log.
Imagine a bunch of people at a table who all have real-time access to the
same financial ledger on laptops in front of them. The ledger records how
many Bitcoins each person at the table has at a given time. By necessity, the
balance of each account is public information, and if one person wants to
give part of his wallet to the person sitting across from him, he has to
announce that transaction to everyone at the table. The entire group then
produces a new draft of the ledger that they all agree on. The money never
has to exist in a physical form because itbs all accounted for and canbt be
moved without consensus.

This is basically how Bitcoin works, except that the participants are spread
anonymously across a global network, and access to an account on the ledger
is protected by public key cryptography. People who own Bitcoins use a
Bitcoin client to manage their accounts. When they want to access their
funds, they use the client to send an encrypted transaction request. Each
active Bitcoin node then competes to validate the request and sign over the
funds to the new owner.

This effort does not go unrewarded. By volunteering their computers to secure
and facilitate Bitcoin transactions, users can earn new Bitcoins. These
participants are called miners, and like their physical counterparts, the
more time and energy they put into the Bitcoin network, the more they earn.
The reward, however, gets smaller over time and will stagnate when the number
of Bitcoins approaches 21 million, at which point a transaction fee will
likely have already been phased in to replace the built-in incentives.

At the conference, the attendees stood up one by one to introduce themselves.
A few identified themselves as miners. Then there were representatives from
the online Bitcoin exchanges like Mt. Gox and Camp BX, which allow people to
convert Bitcoins into traditional currencies and vice versa. There were also
students in economic theory, programmers working on smartphone apps, general
enthusiasts, a corporate lawyer, and one man who simply introduced himself as
a "Bitcoin millionaire."

Amateur economists mingled with the software programmers and hardware
vendors, who are scrambling to shave off a slice of the nascent economy. At
the tables surrounding them, representatives peddled their waresbnearly
completed iPhone applications; cubes of metal that could be used to
magnetically encode Bitcoin keys as a way to store them in an invisible, yet
physical format; exclusive invitations to a Bitcoin bank. Those aspiring to
create new Bitcoins could purchase a hulking mining systemban amped-up,
liquid-cooled PCbfor a few thousand dollars.

Most people there seemed to be either Bitcoin idealists or Bitcoin
profiteers. Some of them were both. The true believers in the group form a
kind of ideological brotherhood and they imagine a world where online vendors
make direct financial contact with their customers. No need for credit cards,
banks, PayPal, and their inevitable additional costs. No more turning over
sensitive private information with every purchasebalthough account histories
are public, account owners are quasi-anonymous. Many Bitcoin enthusiasts also
dream of replacing the machinations of the Federal Reserve with an inherently
predictable network, one that could never print new money.

But it will take more than enthusiasm to sell Bitcoin to the wider public.
And the resources needed to build infrastructure around the Bitcoin network
are most likely to come from those interested in making money from it. For
now, at least, both the idealists and the profiteers have a shared
prioritybto simply keep the system running. Nearly every conversation at the
conference centered on how best to do that.

In June, a hacker broke into Mt. Gox, the largest Bitcoin trading engine,
stole an administrator account password, and ran off with thousands of
Bitcoins (or the digital keys to access them). More suspicious losses soon
followed at MyBitcoin (whose representatives were noticeably absent from the
conference) and the Polish Bitcoin exchange, causing the price of the
currency to plummet.

Security was the first topic addressed by Gavin Andresen, whom the Bitcoin
community has unambiguously knighted as their lead programmer and ambassador
to the public. Andresen made a clear distinction between online wallets and
trading sitesbwhich struggled to secure their systems after the media
attention early this summerband the Bitcoin client itself. "There have been
no significant problems found," he said. "As far as we can tell, core Bitcoin
is secure." Andresen reported that two security researchers, Dan Kaminsky and
Jacob Appelbaum, looked over the Bitcoin client and gave it a clean bill of
health. Scalability is another issue, and Andresen said hebs spending most of
his time ensuring that Bitcoin will be able to handle its next growth spurt.

Video: Morgen E. Peck

Gavin Andresen explains why stability and scalability are his top priorities
for Bitcoin.

At night, the Bitcoiners took their new economy to the streets of New York
City for a different kind of test. Bruce Wagner, the event organizer and host
of a daily Bitcoin webcast, convinced a restaurant in the area to accept
payments in Bitcoin, and the dinner was a chance for everyone to see how
transactions could work in the physical world. After everyone had eaten,
Wagner asked the members of the group to combine all their individual
payments into a group payment. This was the ownerbs first time using the
system, and everyone there wanted to make it as easy as possible. When
Bitcoin transactions get sent out to the network, it takes about 10 minutes
for the system to confirm them, a feature that could make some vendors
nervous. Yifu Guo, a data analyst at Con Edison who had previously organized
a Bitcoin meet-up in New York City, offered to pay for the group with an
immediate voucher that he could e-mail from his account with Mt. Gox to the
owner of the restaurant. Then everyone else could reimburse him through an
Android-based Bitcoin wallet. All the tips still had to be in cash.

The experiment worked, but it was clumsy.

At the time of the conference, one Bitcoin was selling for around $11, with a
little more than 7 million coins in circulation and an average of 8000 nodes
actively accepting 7000 Bitcoin transactions a day. Itbs a fluffy, downy
fledgling of an economyba curiosity to outsidersbbut very serious to those
who can call themselves bmillionairesb and have invested in its further
success. This week, after months of slow, but steady decline, the exchange
rate hovers around 2 dollars. The drop could be a part of a necessary
readjustment from the artificially inflated prices of the summer. But some
commentators argue that investors may be leaving the network after
discovering that there are very few places to spend the Bitcoins that they
own. If the community is to build a committed list of Bitcoin vendors,
developers will have to step up with some very simple and intuitive solutions
for paying them. A quick swipe. A few keystrokes. Anything more, and the
elegance of the Bitcoin network becomes irrelevant. Plenty of people are
working on it, and in a few months webll get a chance to see how far theybve
come. Wagner has already announced that there will be another Bitcoin
conference in January and a third one next summer.  About the Author

Morgen E. Peck is a freelance writer based in New York City. In August 2011,
she reported on the security vulnerabilities of medical devices.