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Bitcoin

Bitcoin the open source decentralized Internet currency

Finance and banking are two areas where basic transparency requirements are seriously breached. Opaque pratices and string-pulling by a few for their own self interest is rampant. The consequences have been dire for all but those few.

Gavin Andreson
Gavin Andresen

This interview is with Gavin Andresen, spokesperson and lead developer of the Bitcoin Project, which aims to develop an open source, decentralized Internet currency: the bitcoin.

We believe that this initiative is one of the pillars necessary for building a fairer and more just world, thanks to advances in information technology and a smart economic model. We encourage you to spread the word and get involved with this exciting project.

Big thanks to Gavin for his time.   – interview by Mehdi 27-07-2011

Gavin, tell us what bitcoin is and who is behind it.

Bitcoin is an experimental new Internet currency. It is a new way of paying for things over the Internet. It was invented by Satoshi Nakamoto and released as open source software in 2009.

What is your role in this project?

I've been acting as the lead developer for the open source project for the last six months or so and have also been thrust into the role of spokesperson for the Bitcoin Project. Lately I've been trying to make both the development and public relations for the project less centralized because the whole point of the project is decentralization. Bitcoin is
special because it is the first digital money that doesn't rely on a central government or organization.

Are the people developing and maintaining the bitcoin infrastructure volunteers or employed. If so, by whom?

There is no formal bitcoin organization paying anybody salaries. Some people are paid by start-up companies creating bitcoin-related businesses to work on bitcoin-related infrastructure .

Since it is not a physical currency, how can one hold bitcoins?

Bitcoins are digital bits – so you can store your bitcoin wallet on a USB memory stick or a computer hard drive and hold them that way.

You can also print them out and hold them, although if you do that (and erase the copy of the bitcoins that was on your computer), you can't spend them until you scan them back into your computer.

A company produces bitcoins you can "hold" – see bitbills.com. Basically, they basically print them for you.

Where can one get bitcoins?

There are three main ways to get bitcoins:
  • The best way to get them is to provide a product or service that people want and accept bitcoins as payment. There are several "online wallet" services that will hold your bitcoins for you. Unless you are a pretty sophisticated computer geek that is the best way to start. After creating an online wallet at a web site like Mybitcoin or Instawallet, you'll have a bitcoin receiving address that you can use to ask people to pay you.

  • The second-best way of getting bitcoins is to buy them on one of the bitcoin currency exchanges. Mt. Gox.com, TradeHill.com and Camp BX.com are three examples. They all have different ways of transferring dollars (or euros or yen or zloty) to them to be traded for bitcoin at the current exchange rate.

  • The last way of getting bitcoins is to try to generate them. Bitcoin is decentralized, so there is no organization creating them. Instead, computers connected to the bitcoin network generate new bitcoins. However, it is over a million times more difficult to generate bitcoins than when the project first started because there is more than a million times more computer power trying to generate bitcoins.  "Bitcoin mining" (as the generating process is called) has become highly specialized, so unless you have the right computer hardware, you shouldn't even bother trying to generate them yourself.

Is it legal to buy and use bitcoins?

I'm not a lawyer and can't give legal advice, but I've been told that buying and selling bitcoins is (in the United States) just like buying and selling any other digital item.

However, there are still legal issues surrounding digital items. Most existing laws weren't written to deal with things like bitcoin, and legal systems move much slower than technology.

What is the stage of development of the infrastructure behind bitcoin, and what are the risks related to using bitcoins?

At this point, bitcoin should be treated like a startup Internet company – as a high-risk experiment. The infrastructure is immature, and you should get involved only if you have a high tolerance for inconvenient, unpolished software and websites.

What guarantees of reliability and transparency does it provide (availability of the code, etc)?

Bitcoin provides no guarantees of reliability. In fact, I can almost guarantee that there will be reliability problems as bitcoin "scales up" and supports more and more people and transactions. Anticipating the problems and coming up with solutions is one of the biggest challenges, although I'm optimistic that the problems will get solved quickly because so many people are committed to making the project a success.

Bitcoin is completely open and transparent. Anybody can read the source code for the software and all bitcoin payment transactions are transparently transmitted across a peer-to-peer network that is open for anybody to join.

Do you think bitcoin is part of what could be the more transparent digital world many are hoping for?

I think bitcoin could be a much more transparent alternative to our existing monetary systems, which are famously opaque. The U.S. Federal Reserve Bank or European Central Banks (to take two examples) are, to almost everybody,
mysterious elite organizations that we trust to control our money without really understanding what they're doing or why they're doing it.

What are the economics behind bitcoin? Did it make sense at all so far? What about its projected future?

I like to say that half of the genius of bitcoin is the technology. The other half is the economic incentives built into the design of the system.

There are lots of attempts at alternative currencies, but most eventually fail because they get the incentives wrong. (Maybe the early adopters don't have an incentive to keep using the alternative currency, or maybe there is
no incentive for the people running the currency to work hard to make sure it is run correctly).

It will be a few more years before I'm completely convinced all of the incentives in bitcoin are correct, but as far as I can see the economics look solid. Certainly bitcoin's success so far makes the future for it look bright.

Do you keep track of how fast bitcoin is being adopted?

I don't spend much time looking at this. I'm too busy trying to make the system and software better. You can get a rough idea of it's going by looking at download statistics at SourceForge.

Has bitcoin been subject to any kind of threat, intimidation or attacks? (Given the way the traditional financial system disappoints by central banks, investment managers, regulator and rating agencies working for their own interests, bitcoin could be considered a threat.)

Bitcoin hasn't been directly threatened; the closest thing was statements by U.S. Congressman Charles Schumer at a press conference about a website that was selling illegal drugs via bitcoin.

Assuming the project continues to grow, I expect there will be the usual "this is a dangerous new technology" talk that almost EVERY new technology generates. Based on what has previously happened, I predict that some governments will shoot themselves in the foot by trying to ban or over-regulate bitcoin, losing to more liberal countries that embrace new technologies.

Who is using it? Since bitcoin operations can be anonymous, some say it will only serve and encourage illegal activities.

Bitcoin is used for everything that any other money is used for; there is a long and growing list of people and companies that accept bitcoins for products or services.

We don't know what kinds of products or services are most popular. Perhaps as the bitcoin economy grows, an economist will figure out a way of measuring that.

Could people speculate with bitcoins? What if some people want to make it more attractive by buying them en masse, raising its value and making it attractive to investors so as to undermine current financial systems?

It would be silly to try to disrupt the current financial system by making bitcoin more attractive. The current financial system is mind-numbingly large. Nobody has a large enough percentage of it to have the ability to do ANYTHING to demand more transparency.

If bitcoin does end up having an impact on existing financial systems, I think it will take decades and will be the result of millions of people deciding that bitcoin is better.

Maybe in 10 or 20 years some country will decide to use bitcoin or bitcoin-like technology to create a more transparent national currency. If a country were willing to give up micro-managing control of its currency and trust that a predictable supply of easy-to-trade currency would be attractive to entrepreneurs and investors, I think it would give that country a big advantage over using a currency that is subject to manipulation by central banks.

Are there any virtual competitors of bitcoin out-there? How are they different?

As far as I know bitcoin does not yet have any noteworthy competitors. Several people are taking the bitcoin source code and creating various bitcoin-like currencies. Actually, that's encouraged. Anybody can take the bitcoin software and do whatever they like with it. Its security doesn't rely on the software being kept secret.

None of these has attracted a significant number of users. It is difficult to get people to invest time and money to create the infrastructure necessary to support a new currency.

Are you looking for volunteers to improve bitcoin, and if so with what kind of background?

The Bitcoin Project needs all sorts of volunteers. On the technical side, we need people to test the software, and we need people to help write software that will make sure that alternative implementations of bitcoin are implemented correctly (several are being developed).

Bitcoin has gotten a lot of attention in Western Europe, Russia and the United States, and is starting to get attention in South American countries. I'd like to see people excited about bitcoin in other parts of the world (Africa, Central America, Asia), starting up exchanges and talking to the technical press and developers.

I tell people not to wait to ask for permission to do something for the Bitcoin Project. If you see something you think needs doing, then do it! Above all, the project needs people willing to jump in and lead it forward, such as recruiting people to do things that you can't do yourself.

What are the next steps for bitcoin?

There are lots of little steps that will move the project forward – for instance, encryption of bitcoin wallets (which will be in the next version of the software). Also, multi-device authentication of bitcoin transactions (already supported by larger bitcoin exchanges).

Progress may be messy. Lots of people are trying lots of different things, and I can't predict which uses will take off and which ones will fail.

Perhaps an alternative will pop up that is vastly better, or maybe bitcoin isn't "enough better" than existing monetary systems to ever become really mainstream. I'm optimistic that the ability to easily pay anybody anywhere in the world without asking for permission from your credit card company or government will be as revolutionary as the ability to communicate with anybody anywhere in the world without asking permission from a newspaper editor or government.

For more information:
The Bitcoin Project website
The founding paper on bitcoin
Bitcoin’s open source licence
Gavin Andresen on Twitter

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