Bitcoin.org Owner Asks the Community to Change Bitcoin’s Central PoW Algorithm
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Republished with permission from Knowledge Whartonthe online research and business analysis journal of the Wharton School of the University of Pennsylvania. Is Bitcoin a high-tech pyramid scheme or an important piece of finance for the future? That has added volatility concerns to those of viability.
While many observers continue to scratch their heads about the ultimate value of the Bitcoin concept, others are investing in the idea that it will entirely change how finance works before long.
He explains how Silicon Valley and Wall Street are now locked in a power struggle over the future of Bitcoin technology, in which the former believes may allow it to wrest financial power from the latter. What drew you to the Bitcoin story? And why did you think it was an important story to tell?
Most editors thought it was some Tamagotchi-like trend that would hopefully pass, and we could ignore it. A lot of other articles that had been written about Bitcoin focused on the technology, which is very complicated. Through them I could ask questions and understand why they thought Bitcoins were worth something. What do you do if you want to buy them? The story ended up being the most-read story on The New York Times for a week afterwards.
So I kept covering it over the next year and the price of Bitcoin went up and down. I was diving deeper into the topic and seeing how many serious people were taking Bitcoin seriously. This is a human tale. You have to tell it. You are in the middle of it. You have to tell this story. I was trying to understand why this idea resonated so deeply with people and I finally decided that it was worth spending a year of my life trying to understand it. I wanted to dive into it, talk to people and try to figure out where it came from.
Most people thought it was a joke when it was founded. Even people who understand cryptography and the technology thought this was going to fail when it was first created in For two years, Bitcoins were worth nothing. The Economist is featuring a cover story about how the technology underlying Bitcoin — the blockchain — is going to change every industry that involves trust. Every Wall Street bank has a working group looking at Bitcoin technology. My goal was to understand how we went from Bitcoin being a plaything to becoming something that central banks and Wall Street take seriously.
One of the hardest things to do is describe it. People get the wrong idea, because it is many things, not just one thing. Ultimately, it is a digital token that moves around and can be traded. Anybody can download and tap into this open source software that governs the way the tokens are created and the way the tokens move around. It is a new type of decentralized network. There are many metaphors to describe Bitcoin. But Bitcoin allows that. Many people who care about Bitcoin say that Bitcoin right now is like the Internet in There are only 5 million people who have e-mail addresses.
Why do I need to participate? Why do I care about it? It took a long time for the basic infrastructure to develop. But once it did, it encompassed all of those things, including communication, media and publishing. Every venture capital firm in Silicon Valley has a Bitcoin or blockchain investment. You mentioned the investments that Silicon Valley venture capitalists have made in Bitcoin. One of the things I found really fascinating in your book is the tug of war that seems to be going on between Silicon Valley and Wall Street.
Could you lay out what the fight is all about — and the implications? But the two parties that are currently most interested in using Bitcoin are central banks and Wall Street. I tell a story in the book about previous technological efforts to create digital cash and disrupt Wall Street. Some of this was in the hacker community. Essentially, the Edward Snowdens of the world wanted to bring the anonymous nature of cash into the digital world.
Experiments were going on that led to things like DigiCash in the s, which ended up failing. At the same time, you had Paypal, which originally set out to be like Bitcoin. Paypal wanted to create a financial system that was outside of government. So, for example, people in Argentina could use Paypal to move their money when the Argentine peso was failing to another economy where the currency was working.
PayPal actually failed in its big ambitions. But the guys who founded it — Peter Thiel and Max Levchin — sometimes talk about it as a failure. But part of the PayPal story was the ambition to circumvent the existing financial industry. Silicon Valley has disrupted many other industries, including media and publishing. But finance kept its little circle closed and kept its business.
For example, only banks held and hold money and only banks make financial transactions. So Wall Street has remained the center of power and influence in the United States. But these PayPal guys were slowly won over to Bitcoin. This is where we challenge the center of power in the United States and we become that power. Bitcoin is not the entirety of that challenge.
Over the past year, Wall Street has become the industry that is most interested in this technology. Attendees include people from the Bank of England and the Federal Reserve. Banks are trying to harness this technology, but not necessarily in obvious ways. Right now, the dominant automated clearinghouse ACH network takes two to three days to make a basic bank transfer. The banks want that to happen faster and they think the blockchain system might help them make instant transactions, which would please consumers.
The Nasdaq exchange just recently unveiled a blockchain system for settling some trades. Those networks are keeping a ledger of transactions, which is being communally maintained around the world.
That big ledger is the blockchain. So people are now thinking that anything that is kept on a database or centralized ledger is something that could be disrupted by this blockchain concept.
For example, previously people had to rely on a mortgage company to determine if somebody had the title to a certain mortgage. But it might be better if you went to check a decentralized, reliable database that everybody held. That would allow you to find the information you need about a mortgage. Of course, this is looking way ahead. The beginning of the story starts with digital cash. But you get from that to talking about a new way of recording property everywhere in the world.
This gives you a sense of why I got interested in this and why people get so passionate about it. Meanwhile, Bitcoin itself is still there and the currency continues trading on the network.
And people have sometimes treated it like a digital gold rush and invested in it, but sometimes the price goes up and sometimes it crashes. People have lost a ton of money on this. I also think some of the economics of the Bitcoin system are flawed. There have been a lot of failures. People have trust in the credit card system and confidence that they will get what they paid for.
How did it create that network effect and pick up users? The way that Bitcoin originally created this network effect was through something called Silk Road, which was a drug website. Silk Road was really the first place where you could use Bitcoin and it proved that Bitcoin worked. Before Silk Road came along inBitcoins were worth almost nothing. That is what Bitcoin has to offer that existing systems do not.
It has worked for illegal transactions, gambling and drugs. A Bitcoin virtual currency paper wallet with QR codes and a coin are seen in an illustration picture.
The views expressed in this article are those of the author alone and not the World Economic Forum. We are using cookies to give you the best experience on our site. By continuing to use our site, you are agreeing to our use of cookies. Here are six bold ideas to accelerate sustainable energy innovation Tatsuo Masuda 22 May China is a renewable energy champion.
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