The hottest commodity market today is for something that does not exist. That commodity is Bitcoin, a “crypto-currency” whose price has nearly doubled over the past three months to more than $2,300 per share. (By contrast, an ounce of gold now costs around $1,270.)
Like other crypto-currencies, Bitcoin is created or “mined” by discovering encryption keys. Each key is a coin, which can be divided, digitally, into as many pieces as you want. It was launched in 2009 and is based on blockchain, an encrypted database organized as a ledger.
The attraction of Bitcoin is its anonymity. That feature is also its bug.
The hackers who created the WannaCry ransomware demanded payment in Bitcoins, $300 worth for the first week after infection, then $600, expecting to remain anonymous. Bitcoin prices fell in response.
Neil Walsh, who heads cyber-crime efforts for the United Nations, insists Bitcoin transactions can be traced and the anonymity of its holders broken. So do other crypto currency advocates.
But it’s not easy. It’s the same cat-and-mouse game as in other areas of crime. Bitcoin users afraid of the cops (or just someone else knowing what’s in their wallet) are already creating another privacy platform, Parcicl. (There are more than 1,000 crypto-currencies already.)
Good guys have had some success. The “Silk Road” drug marketplace was busted in 2013, and the vice chairman of the Bitcoin Foundation convicted of money laundering two years later. Drug cases in Denmark are also being cracked this year by tracing Bitcoin transactions.
Legalities aside, Bitcoin has replaced gold as the vehicle of choice for people who distrust government of all kinds, like Eric Voorhees, who calls the U.S. Federal Reserve system fraudulent for continuing to create new money, from his current base in Panama.
Creating Bitcoin Governance
The world of Bitcoin is a wild west of gamblers, activists, criminals and legitimate financial institutions, all trying to make a market in a virtual world where the concept of governance is sneered-at, as with the late Bill Hicks’ People Who Hate People Party. No wonder it has been called the “blood diamonds” of the digital era.
Add stable governance to Bitcoin and you have a government, which is bearish. Without stable governance, on the other hand, Bitcoin is a black market without trust, which is also bearish.
The federal Office of the Comptroller of the Currency created a regulatory charter for Special Purpose National Banks last year, which would govern fintech and blockchain startups, but states have sued on behalf of their own Vision 2020 plan under which state regulators will assume control.
This is on top of a host of national and international regulatory efforts, around the world, for a technology and currency that is global in nature. Good luck with that.
About 20 years ago, Lawrence Lessig derided attempts like this to regulate what happens online as “East Coast Law,” writing that “West Coast Law” — rules written in computer code — would be more binding.
So, meet Tezos, which says its self-upgrading ledger format can become blockchain’s West Coast Law. The system is due to be undraped, as it were, by venture capitalist Tim Draper in June.
The Myriad decision, under which genes can’t be patented, was hailed as a privacy breakthrough when it came out in 2013, but if your genes can’t be patented then anyone can use them, right?
Enter Encrypgen, which plans to use blockchain so people can protect their own genetic data, effectively rendering it anonymous. In the world of blockchain, it may be the only way for you to own you.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.