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Podcast #64: Everything You Ever Wanted to Know About Bitcoin

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Bitcoin is one of those things that everyone seems to be discussing and few  understand. A technology something like digital cash, it can be used to electronically send money, and is controlled by a network of users. At the same time, you cannot pay your taxes with Bitcoin. Nor can you pay your mortgage with it. Bitcoin requires a vendor to accept it as payment, and in most venues, cash is still king.  Nevertheless, Bitcoin has quickly become one of the most alluring technologies of the twenty-first century. This week on The New York Public Library Podcast, we're pleased to share this conversation between New York Times financial columnist Andrew Ross Sorkin, Bitcoin Chief Scientist Gavin Andresen, New York Times reporter Nathaniel Popper, and venture capitalist Fred Wilson. The four discuss all things Bitcoin.

Bitcoin panel at NYPL
Bitcoin panel, LIVE from the NYPL

For many people, what's really puzzling about Bitcoin is that it defies categorization. Andresen thinks these ambiguities point to just how innovative it is:

"It’s potentially a currency, it’s a commodity, it’s a global ledger that you can put stuff on. I don’t know. I would guess most of the time, you know, we try to pigeonhole technologies into like something that came before, and, you know, we had the horseless carriage because cars were just horseless carriages, but usually they’re very different, right, and they don’t fit into that neat pigeonhole, and I think Bitcoin won’t fit into that neat pigeonhole, and I think because we have the permissionless innovation and all sorts of really smart people looking at it in all sorts of different ways that frankly I don’t know what it will be, I don’t know how we will look at it in ten years, I don’t know if we’ll think of it as a currency, as a ledger, as, you know, something that banks use behind the scenes to process transactions and we never think about it."

Popper believes that Bitcoin gained traction as a currency when users began to use it for illegal trading, such as purchasing drugs online via the online marketplace Silk Road:

"I think that illegal transactions aren’t necessarily terribly important anymore. I think they were very important in the development of this technology...You couldn’t buy drugs with PayPal, you couldn’t buy drugs with Visa. No, it—you can do most transactions in the United States electronically. You cannot buy drugs—you could, there were actually ways and that’s a whole other interesting story, but Bitcoin really allowed you to do something new, and that’s where technologies separate themselves, it’s when they allow you to do something that you couldn’t do before. And I do think that illegal transactions were the thing, the first easiest thing where you could do something that you couldn’t do before, and one of the interesting things is that Satoshi Nakamoto knew this. And, you know, they were actually looking for some illicit use, not because they wanted to break the law but because they wanted to find somebody who would have a reason to use this."

At the same time, Wilson observed that although Bitcoin has been used to make illegal purchases, Bitcoin does not protext criminals from prosecution. In fact, government agencies can easily surveil Bitcoin movement:

"Well, you know, the funny thing about Bitcoin is it’s not as anonymous as many of the people who use it illegally would wish it to be. Meaning that your transactions are out in the open. Who you are is hidden behind an address, so that gave a lot of people the feeling that they could transact in Bitcoin and not be caught, but the reality is the transactions are out in the open and you start to see, there’s this whole thing called network analysis, which is what our government uses to basically spy on us and bad people too. You can use that same technology on Bitcoin transactions and you can look at certain kinds of transactions and you can say, these transactions look sketchy, and then, you know, the FBI will come in and they’ll start poking around these transactions and they’ll eventually find the Silk Road. And that’s sort of how the Silk Road. That’s not exactly how the Silk Road was found, but I’m pretty sure that some of that was involved in the takedown of the Silk Road."

Popper described the banking industry's ambivalence toward Bitcoin:

"I think that there’s certainly large segments of the banks, generally the compliance segments of these banks that don’t really like this and aren’t eager to get far enough into it to see where it might provide something new. But these are people whose day jobs is dealing with money, and money is usually pretty boring and this suddenly has made money kind of interesting, and it seems like it might provide a cheaper way for them to operate. So, you know, J. P. Morgan has a twenty-five-person Bitcoin working group that’s meeting once every two weeks or once a month to figure out what they can do and it has people from across the bank working on it. And so I think that there is as much interest in the banks as there is concern about it supplanting their business model."

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