In recent months, Bitcoin’s fluctuating market value has been the object of much speculation, as has the identity of its creator(s), the anonymous Satoshi Nakamoto. Touted by some as the untraceable peer-to-peer digital money of tomorrow, Bitcoin has been demonized by others as the computer-savvy criminal’s e-cash of choice. A.J. Samuels spoke with Steven Levy to find out more about the political implications of crypto currencies.
A.J. Samuels: Steven, you’ve written about crypto currencies in the past—electronic money with each unit defined by a number of digits. Since the nineties, we’ve seen all sorts of e-currencies come and go: Facebook credits, Second Life credits, Xbox credits, to name a few. In comparison, Bitcoin seems not only designed for broader use; it also has a decidedly political thrust.
Steven Levy: Absolutely. Bitcoin isn’t centrally controlled or based on trusting some federal or international regulator—which in theory is supposed to make it more stable. But even more interesting for me is that you can earn Bitcoin currency by being part of the system that makes it trustworthy—which, in some ways, is almost the exact opposite of today’s financial system. You can “mine” Bitcoins by allowing your computer to be used to process the cryptographic activity of individual transactions—that is, the process which ensures a single Bitcoin is not used twice in a single payment. My sense is that Bitcoin was launched more as an experiment or as digital money performance art than as a real currency . . . but it is impressive.
AS: Certainly the volatility of Bitcoin’s market value in recent months would make it seem less stable than its proponents would have you believe.
SL: Well, it’s definitely tough to imagine how Bitcoin could scale outwards because the system was devised to only have a fixed amount of currency—meaning that its value in the long run will just continue to increase.
AS: So what’s it good for?
SL: I think what Bitcoin has made clear is that some people don’t want to have all their transactions be traced. The father of digital money, David Chaum, was an early proponent of untraceability, and he came up with some brilliant cryptographic methods to make that a reality. I think it’s a tragedy that we have the technology to make digital cash untraceable, but not the appetite. That just means that eventually governments will move in on digital currencies, because untraceability means untaxability . . .
AS: Not to mention the best way to pay for drugs, child porn and human trafficking . . .
SL: Who knows—maybe one day you’ll have entire pedophile rings paying in World of Warcraft credits instead. But seriously, crypto currencies are just the natural evolution of fiat money: since today’s currencies are no longer of any intrinsic value like, say, salt, it makes sense that after “worthless” paper would just come code. Trust me, our pockets won’t be jingling in the future.
AS: Have you ever bought or paid for anything in Bitcoin?
SL: No. I truly believe that crypto currencies have a future, but I’m not so sure about Bitcoin. You know, these days people pay for their coffee in Starbucks with a credit card. With that kind of behavior, you end up with a pretty granular credit card statement. Personally, that would drive me nuts.
AS: People are trading anonymity for the ability to track their own payments.
SL: Hopefully one day you won’t have to sacrifice one for the other. ~
Published January 16, 2012.