For Jeff Garzik, core developer for Bitcoin, the cryptocurrency may be the biggest game changer since the Internet.
“I do think it’s very disruptive, it’s very exciting, and I agree … that it’s the next major internet technology,” Garzik said, “and it’s going to impact the world in a big way.”
Garzik spoke Sunday during the fourth annual TEDxBinghamton University during his presentation, titled “Bitcoin: the organism.”
While the Bitcoin has surged in popularity, breaking into the mainstream, Garzik said there is a lot of confusion surrounding it.
“What is Bitcoin? It’s in the headlines quite a bit,” Garzik said. “I got a text message from my landlord the other day telling me that Bitcoin had filed for bankruptcy. That was interesting because I didn’t know that was possible.”
Garzik examined the Bitcoin as a technology. According to Garzik, there are three building blocks that served as the foundation for Bitcoin: open source software, the freedom of information and the Internet.
Open source software is free to license and redistributed universally, allowing others to improve on it. Garzik compared it to the peer review process in academia, and contrasted it to the cathedral model, in which only the developers have access to the code.
According to Garzik, Edward Snowden’s leak of thousands of classified government documents is just one example of the fact that information inherently wants to be free.
“That’s not a philosophical statement,” Garzik said, “That’s a statement of engineering reality.”
Garzik attributes this to the nature of digital file sharing, as copies can be made without a loss of quality and that it’s more challenging to hide information than to reveal it.
The final component of Bitcoin is a global decentralized communication system: the Internet.
“Bitcoin is a global, decentralized way that — for the first time in history, the first practical way to do business over the Internet with no prior relationship, no central administrator and no central hub to trust,” Garzik said.
While Bitcoin is generally regarded as a currency, Garzik said it’s capable of much more.
“Any digital asset can be securely transferred over the Internet to anywhere in the world, completely borderless, within seconds,” Garzik said.
Garzik compared Bitcoin to a cashier’s check, an “irreversible guaranteed payment,” but similar to cash, as if it is stolen, it’s gone forever. Transactions are publicly broadcasted information to prevent counterfeiting.
While Bitcoin is an experimental currency, Garzik said it has many advantages, including the inability to inflate supplies and low cost remittances.
However, Garzik said that Bitcoin as a technology will have the most long term effects, with governments and companies adopting transparency policies.
“Wouldn’t it be wonderful if we could go to a Fortune 500 company or our own government and look exactly at every line item in their books,” Garzik said.
Overall, Garzik said the future is unclear for Bitcoin, and while it may impact future software, it isn’t set in stone.
“Bitcoin is … an experiment,” Garzik said. “It’s a social experiment, it’s an economic experiment, it’s a technology experiment.”
Pipe Dream: Can you tell me the details of your work starting from when you first found out about Bitcoin?
Jeff Garzik: In general, I’ve been working in open source for two decades, been working with Linus Torvalds on Linux for, like I said, about two decades, starting in ‘95 or so, and Bitcoin itself is open source as well. So when in July 2010 there was a posting on slashdot.org — we call that the great slashdotting of Bitcoin — and that was when a lot of the tech community really woke up to Bitcoin’s existence, and I found out about it at that time. Bitcoin was something that I, as a computer scientist, thought was completely impossible. What Bitcoin does is fundamentally, you have a digital file on your computer, and logically you should be able to copy that to someone else. You know, copy it to your mother or your brother — whatever. And so therein lies the problem with digital money — can’t you copy digital money and create money simply just by simply making a copy onto someone else’s hard drive. Bitcoin solved that problem, called the double-spending problem. Bitcoin created a peer-to-peer network system where you store all the Bitcoins in the cloud, and the only thing that’s on your smart phone or your computer are your keys to the Bitcoin, and I thought that was a brilliant solution to it, and you use the collected power of the Internet to prevent counterfeiting and to create a monetary system.
PD: How would you describe the benefits of cryptocurrencies to someone unfamiliar with them?
JG: First, I would caution people because it is still an experimental currency, so you don’t want to assume this is going to be as stable, being a brand new currency, as the U.S. dollar or something like that. So with that caveat in mind, I would say that it’s very easy. You could just download some software to your computer, to your smart phone or visit, say, blockchain.infor, and you have your own Bitcoin wallet — and from there it’s easy to purchase Bitcoins at a Bitcoin exchange such as coinbase.com and you can just play with it with as little as a dollar or two.
PD: What other cryptocurrencies have you found interesting?
JG: A lot of the first — and second-generation — we call them Altcoins — the Altcoins tend to be just really cheap clones of Bitcoins, and they don’t really add a whole lot of interesting features, and furthermore, in terms of the raw numbers, the Bitcoin network security is literally one million times more secure than the next cryptocurrency — that’s Litecoin. And Litecoin is several hundred thousand times more secure than the next Altcoin. People need to understand that they’re really toys because they are not secure. In the past 24 hours, one of the Altcoins, Auroracoin — they were going to donate some cryptocurrency from Auroracoin to the Icelanders, and that failed because, like the other Altcoins, it’s not really secure, and so that experiment did not work. Now there are any interesting Altcoins, for example, that are doing currency related experiments that might interest economists. One of them, Freicoin is an experiment in demurrage, and demurrage is basically the answer to hoarding in their mines. Demurrage encourages you to spend your coins rather than hoard them and keep them under your mattress, and that’s a very interesting currency experiment. Some other coins such as iNxt and Peercoin are looking into proof of stake, which is different from Bitcoin in that you do not rely on mining equipment running 24/7 to secure your currency. You rely on different cryptographic primitives which are, in their estimation, more environmentally friendly. In general, Bitcoins are an experiment, and Altcoins are even more of an experiment. Bitcoin is a risk and Altcoins are a risk times 1,000. So you really don’t want to put money in that you don’t mind losing, because it really is an experimental field.
PD: What is your general opinion of the regulation of Bitcoin? Is it beneficial or negative?
JG: It’s beneficial. It’s better to have clarity than to live in a legal gray area, and so now people know how Bitcoins are taxed and what regulations they have to follow. In March 2013, the U.S. Treasury Department’s FinCEN released a guidance which basically said Bitcoins are legal. Traditionally, they were de facto legal prior to that because private currencies have always been legal in the U.S. for hundreds of years. I could start JeffBucks if I wanted to and that would be perfectly legal. The Treasury Department in 2013 explicitly said that Bitcoin transactions were legal which cleared the way for the Bitcoin Venture Capital and Silicon Valley boom that’s really going on today. But in terms of overall benefits, I think the benefits and future promise of Bitcoin is just huge. Bitcoin itself is sort of the first time that you can send digital property to another person without a trusted intermediary, whether that’s money or a house or a car or virtual digital property on “Second Life.” This is the first time in history you can securely send digital value to someone else, and Bitcoin enables that. Obviously there are many other benefits such as lower transaction costs. When I sent $1,000 to my uncle in Croatia, Western Union charged me about $124 to send that $1,000. Bitcoin, it would be about a penny to do the same. So there’s clear usefulness in the remittance markets; there’s clear advantages to people who are unbanked, that is you’re too poor or your credit is so bad that a bank won’t give you an account or in emerging markets where there simply aren’t banks. Bitcoin enables all of those situations to have access to the banking system, to have access to money, to easily and securely transfer money.
PD: Where do you see the future of cryptocurrency and Bitcoin going, and what directions might it be taking?
JG: It’s not going to be any nation’s currency. One of the primary economic values of Bitcoin is that it’s frictionless — it’s very easy to enter Bitcoin and it’s very easy to leave Bitcoin; there’s no lock in. And so that’s why many of the transaction costs are much lower. In terms of the future, you’ll see a lot of big banks, which are right now conducting Bitcoin trials, they’ll roll out Bitcoins to their customers. You’ll see more Bitcoin laws on the books, and you’ll see a lot more penetration into emerging markets. Right now, Bitcoin is big in Western Europe and America, and you’ll see the greater growth in Asia, Africa and some of the other continents as the major tech companies roll out their Bitcoin support. So, is Bitcoin itself going to succeed and be the world’s greatest cryptocurrency? I don’t know. Right now, it benefits not only from momentum, but network effect. It’s the biggest and the strongest, therefore you have a direct incentive to use the biggest and the strongest, because that’s where you get the most security; it’s simply mathematically more secure. If another coin comes along that’s better than Bitcoin, then that might be the [cryptocurrency] the world uses in the end. So Bitcoin 1.0 might not survive, but the Bitcoin technology itself is leading all sorts of tech — it’s catalyzing all sorts of technical, economic and computer science changes throughout those various industries. For example, in the accounting industry, completely separate from cryptocurrency, there’s interest in triple-entry accounting and cryptographically-secured accounting, which is fundamentally what Bitcoin is. Bitcoin is fundamentally an accounting ledger that’s cryptographically secured, and imagine if all the Fortune 500 companies and governments of the world used cryptographically provable accounting. You might not see precisely where the Pentagon’s black budget goes, but you can audit your own government, and for the sake of transparency and democracy, that’s a win for all.
PD: What are your thoughts on the opponents of cryptocurrencies?
JG: We’ve had a number of really good conversations with government officials, and most recently Sen. Manchin from West Virginia. He made headlines several weeks ago saying that he would like to ban Bitcoin. Several days ago, news stories appeared in the Washington Post and elsewhere noting that he has tempered his stance, and he’s not really interested in banning Bitcoin. The most vocal critics tend to be outside the government space where they haven’t really been educated about Bitcoin very much. They just form conclusions based on reading headlines. While there are plenty of Bitcoin critics, in say 90 percent of my personal interactions, education always tempers criticism over time. Bitcoin is just so damn complex that it’s tough, even for technical people to fully understand the system, much less nontechnical people. I view Bitcoin criticism largely as a need for additional education.
PD: While it’s not entirely anonymous, can Bitcoin move even further away from anonymity without compromising its core components?
JG: One of the interesting problems and lines of questioning from journalists is about Bitcoin as anonymous, and my responses tend to be in the exact opposite direction, because right now Bitcoin secures every transaction against counterfeiting by posting that transaction to a public ledger. Every single Bitcoin transaction is available for viewing to the entire world. That’s how the system maintains its security, and so if I make a Bitcoin purchase at Starbucks today, and someone is looking over my shoulder, then they can go online and they can trace my Bitcoin purchases. Contrary to the media headlines, the Bitcoin is not really private at all once you move past the surface. Government regulators actually recognize this and are noting that Bitcoin needs additional consumer privacy, because right now it is not very private if some snooper or whatever wants to find out your financial information.