Jump into Bitcoin with Intuitive Understanding

In the past, I have written articles for beginners:

More recently, I have written about economics of adoption, tech issues / growing pains, and the politics of a stateless money that cannot be controlled:

It’s time to try something different. The largest segment of society is still sitting on the sidelines. They want to know more about Bitcoin, but they don’t want baby steps. They are business people, students, armchair economists or investors—and they want to get up to speed quickly.

Grab a cup of coffee and view these two videos by the eloquent and charismatic Andreas Antonopoulos. They can bring anyone up to speed on the economic and geopolitical ramifications of Bitcoin—without wading through code, math or gobbly-geek. If you are college educated or experienced in finance or economics, these short presentations are all you need. You can fill in the blanks with your own experience or by checking out the articles linked above. They provide the missing details.

Who is Andreas Antonopoulos?

No one knows who is Satoshi Nakomoto, the effusive genius behind Bitcoin and the blockchain. So without an inventor or founder to appear on TV news interviews or the evening talk shows, we have Andreas Antonopoulos as the charismatic face of Bitcoin. He is intelligent, passionate, incredibly articulate and he is an advocate for individual empowerment.

Like Andreas, I teach a class on the Blockchain, give academic lectures, consult to banks and businesses, write columns and develop courseware. But there is no way to get around the fact that I run a distant second behind Andreas. His voice (and his widow’s peak hairline) are associated with the most important financial development of the 21st century.

I first met Andreas at the 2015 MIT Bitcoin Expo. Later that month he was keynote speaker at the New York Bitcoin Event at which I was co-host and producer. Way back then, Andreas told me that Bitcoin would never become a money—and so, it would never be a threat to national currencies. Well, if these two videos are any guide, then he has certainly changed his mind. Either way, my more popular peer is now in violent agreement with my view of Bitcoin’s full potential, and so it is no accident that these videos will also give you a dose of our shared economic and political perspective.

  1. Fake News, Fake Money (26 minutes)

2. Money as a System of Control (17 minutes)

These videos don’t describe how Bitcoin works, where to obtain it, or how it is mined. Those are just details. Instead, the videos put Bitcoin into perspective against the history of money and the geopolitical interests of governments. Once you have viewed the videos, browse the articles linked at the top of this page. They backfill the details. Then, you will have become a Bitcoin pundit the quick way…by jumping into the deep end of the pool!

Meeting Andreas Antonopoulos

This isn’t really a post, it’s more of a boast… If you don’t know the name Andreas M. Antonopoulos, you don’t know Bitcoin. Since Satoshi prefers to remain invisible,* Andreas is the defacto face of Bitcoin.

I had the good fortune to meet Andreas at the MIT Bitcoin Expo this month. That chance meeting in the outer lobby of building 26-100 led to his live Keynote address at The Bitcoin Event at LaGuardia, a workshop in New York organized by CRYPSA and CUNY (City University of New York).

Ellery & Andreas-02

The Bitcoin Event at LaGuardia

Ellery & Andreas-01

MIT Bitcoin Expo 2015









* I was about to say that Satoshi prefers to remain underground, but that would imply that he is guilty of something or on the run. Far from it. He is a father of invention!

Governments head toward Bitcoin without realizing it

This weekend, Ecuador joined at least 5 other countries in walking toward a future that replaces paper and coins with cryptocurrency. But, are these national experiments likely to lead to the future that comes to mind when we think of Bitcoin?

AWildDuck offers this 2-sentence analysis:

  • Most governments and national banks that experiment with cryptocurrency have no intention of empowering citizens nor decoupling their monetary supply from political control
  • But in the end, that’s exactly where they are headed

Ecuador 5000 SucreThese national experiments are fascinating. Including Ecuador, there are at least 6 national efforts to embrace cryptocurrency around the world, including two in Africa, two in Latin America, Iceland and Israel.

It’s unfortunate that each potentate has created a disparate, internal and proprietary currency. Most of these territorial adopters have adopted neither a mathematical supply cap nor a permissionless blockchain. They buy into the legacy ‘wisdom’ that controlled inflation is necessary to stimulate spending and grow an economy.

Perhaps they see cryptocurrency as a an evolutionary mechanism to lower the production and distribution cost of coins and bills and thwart counterfeiting—just as  many countries have switched from paper bills to plastic. That’s a limited view of a very positive revolution in the making. The leaders and central banks of many countries seem to miss the point. It’s not just about new technology. It’s about free markets, limited supply, public trust and citizen empowerment. In fact, it’s all about growth, free markets and the expansion of wealth.

Hopefully, these experiments are just a step toward combining monetary policy with an open digital currency while fostering a grass roots revival of public trust… Eventually, governments will recognize that properly implemented cryptocurrency—one that is free to usurp the national mint—leads to increased faith in government. At least, if one’s  government demonstrates a willingness to decouple politics from monetary policy.

Ellery Davies is a founding member of CRYPSA, the Cryptocurrency
Standards Association. He is also chief editor at AWildDuck. Catch
all of his Bitcoin articles here.

Why are Governments Against Bitcoin?

bitcoin_accepted_here-aI contribute to LinkedIN community discussions on Bitcoin and other cryptocurrencies. That’s because in my day job, I am a principal at the standards organization that defines and promotes a framework of best practices and safety valves for this rapidly growing community.

You might think that a digital currency standards organization is comprised of Bitcoin miners, economic anarchists, Geeks and “bleeding-edge” adopters. If you do, then you would be mistaken. Our founders come from a background of compliance, anti-money laundering and Internet services. Interest from prospective members points to a broad cross section of government, academia, banks, brokers and exchanges.

Today, the event host for an industry forum posed this question (abbreviated version):

Why are regulators and governments afraid of Bitcoin?

Based on the elaboration, it seems that he is focused primarily on the US government.

I may be a minority voice in this particular discussion, but for what it is worth, I respectfully disagree with the fundamental assumption in the question…

Certainly, in some countries governments are concerned that Bitcoin presents a threat to banks, the reserve mechanism, commercial and consumer protection, and the centralized control of monetary policy & supply. But the US is not among these countries. The few official policies that have hit the streets advise caution (especially among banks and speculators), but recognize that Bitcoin is an asset—and in some states, even a currency. A few regulators have even suggested that in the long term, cryptocurrency may represent more of an opportunity than a threat.

Banks, card service collaboratives and regulators are warming up to Bitcoin. The evidence is legion. Influential individuals are tentatively embracing Bitcoin or waiting with an intent to jump in when they sense an alignment of interests, education, regulatory guidance and safety mechanisms.

These individuals are among the strongest voices calling for standards and well defined practices. Standards—even ones that are voluntary but verifiable—are the key to safety, and thereby to adoption and growth.

CRYPSA is an independent standards organization gaining attention within business and government. It is moving quickly on a plan that does not exclude anyone. In fact, the voluntary standards and applications that CRYPSA produce will not weaken the allure of Bitcoin to early adopters, including “Libertarians” or those who value privacy above the rule of law. That is, new standards and mechanisms do not force disclosure or impose rules on P2P transactions between trusted parties.

WildWest-3But what CRYPSA and other best-practices organizations hope to achieve is added trust, security, and even insurance—by demonstrating standards compliance in real time. Ultimately, they will make Bitcoin safe for the rest of us.

It’s not very different from the wild west. Gold, minerals, buffalo and opportunity abounded. But, in the early days, plucking this bounty was limited to the most strident thrill seeker. For all others, the risk of becoming a homesteader was too high. Threats came from all directions: Natives, rattlesnakes, gunslingers, stage coach gangs, and scam artists.

Gradually things change. The wild west was tamed.

The federal government deployed a network of sheriffs and marshals. Risk abated and productivity spread across the west. With Bitcoin, the solution won’t come from the federal government, because one of the key tenants of Bitcoin is a inherent decentralized and personally-empowering architecture. But the government is not blind to this, and a surprising number of politicians even recognize that an empowered consumer can be an asset to national financial health. For this reason, regulators are gradually moving from “wait-and-see” to “How can we help?”

WildWest-1For some, these observations defy the popular conception of government, because governments typically try to consolidate, regulate and enforce. But with Bitcoin, the CRYPSA staff is finding that representatives of government are generally receptive, and even acknowledging that the role of a Federal Reserve or of central banks may be greatly transformed in the next decade.

As with many of the members, I was surprised with the open and friendly nature of discussions. My conclusion is that a popular conception of government with its head it he sand—or one that is unwilling to work with “facts on the ground”—does not apply to US policy makers and regulators. The people in these roles are prepared to embrace change and they want to facilitate the process for everyone’s benefit.

So, the top-line question, “Why are governments (or regulators) against Bitcoin?” is a bit like asking “When will you stop beating your mother?” It is not possible to answer, because in my opinion, the question is based on a false assumption. Bitcoin is gaining steam, and legitimate objections are rapidly falling away.


Trust a Bitcoin Exchange without Regulation

Yesterday, after the spectacular failure and bankruptcy filing of Mt. Gox, the world’s largest Bitcoin exchange, Peter Finn, an IBM architect, launched a survey within a LinkedIN discussion group. The single question and multiple choice options were:

“In Light of MTGOX what level of transparency should there be for Bitcoin Exchanges?”

1. None. Exchanges Can do as they please
2. All Public Keys Disclosed and Signed
3. Show Public Keys, Source Code, Processes
4. Fully Regulated, Monitored, Audited

One day after it was published, respondents were decidedly negative on the option #1 (no regulation). They responded like this: 1–14%, 2–28%, 3–28%, 4–28%. I am among the 14%: No regulation. But only because Peter failed to cover all the bases. There is a far better option than regulation. But I am getting ahead of myself…

Regulation in a Decentralized, P2P
market, with Open Source Tools 

Suggesting that Bitcoin be “fully regulated” is like demanding that feral cats be licensed to procreate. Perhaps the point can be better illustrated by a metaphor closer to home: Perhaps we should regulate the use of file encryption or bit torrent clients. After all, they can both be used for circumventing copyright law or transmitting illegal content.

Governments are inevitably weakened by legislating against what cannot be regulated. The US has already tried to regulate encryption (PGP/Zimermann and Clipper chip) and they tried to legislate against the use of torrents (Actually, it was a prelude to torrents. Who remembers Napster?)

You can enact laws and regulations, but when you ignore motives, access and facts in evidence, you promote bureaucracy with a head-in-the-sand morality. Feral cats don’t read edicts. Their compulsion to reproduce is strong and they possess the tools they need to procreate. The same is true for bit torrent, encryption and a fully-distributed, low-cost, p2p payment mechanism that is adding users like a wild fire.

Considered in another light, Bitcoin was created to circumvent—or at least—transcend regulation. For many legitimate users, the whole point of a distributed, p2p network built upon open source tools is to unfetter users and disentangle government.

So the real question is not whether we should engage in useless legislation that ignores the facts on the ground. A better question is “How can we make the Wild West a bit safer?” I understand the need for public trust. ! But trust comes from transparency, accountability and outside audits. It doesn’t come from government regulation. Peter alluded to this in the very last sentence the text accompanying his sruvey. He said:


“Will users decide through consensus that
exchange XYZ chooses to fully disclose?”

Bingo! Create standards and practices—especially for security and transparency. Then, make it simple for anyone choosing an exchange or entering into a transaction to determine if the organization complies with industry best practice. Finally, offer a modest level of consortium insurance (to the user, or at least compliant exchanges), so that public trust can be tied to something tangible.

On Feb 25, one day after championing a joint statement from the few credible Bitcoin exchanges, Coinbase took a big step toward this goal when then invited a research analyst from a competitor to audit their internal security practices and randomly compare a customer transaction log to the public blockchain. The report includes an explanation of the test conditions and the results.

Laws are meaningless in a market that cannot be regulated. But industry standards, audits and certification can certainly step up to the task. They can build trust, confidence and stability. Just as importantly, they won’t interfere with the fraction of users who demand personal, private, p2p transactions without auditing or oversight. After all, we must never forget that these individuals started the revolution from which we will all benefit… even the “legitimate” commercial transactions that require transparency, security and an audit trail.

So, let’s revisit Peter Finn’s survey: What level of regulation should be mandated for Bitcoin exchanges?…

I propose Option #5: None. Exchanges can do as they please. But establish an easily verified, independent certification of standards & practices that can be tested at the URL throughout user interaction. Users can avoid the tool, add the tool, or ignore its warning. The certification (and a gut-simple way to see it & test it), empowers the user instead of the government. It also avoids entangling a new technology with unimaginable potential in red tape.

Incidentally, a group of individuals from this discussion group is working toward this goal right now. Although they have barely completed introductions, the Virtual Currency Collaborative Cryptocurrency Standards Association [CRYPSA] has hammered out a charter that will lead to a set of voluntary standards and practices to facilitate open, transparent, safe and auditable transactions within a community that often takes pride in their inherent freedom from regulation. Taming the Wild West will not be too difficult. And it won’t even be necessary to restrict gunslingers from walking into the saloon at high noon.