New york times after the bitcoin boom

A Fed president predicts the Bitcoin boom won't last. Feb. the head of the regional central bank, said in an interview with The New York Times on Friday. After 19 Years in Hawaii, They Were Missing Something: Winter.
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But it is much more activity than the network handled before the price spiked in As the proponents of the tulip bulb version of Bitcoin will tell you, most of the transactions today are speculative: people buying and selling Bitcoin in the hope that it will be worth more in the future. A more generous viewpoint would compare Bitcoin to gold, a scarce commodity that goes up and down in value and provides an alternative to national currencies. Speculative transactions accounted for roughly 60 to 80 percent of all transactions on the blockchain, according to Chainalysis, a start-up that does analysis of the blockchain for big companies and governments.

Most of those transactions are Bitcoins moving between cryptocurrency exchanges around the world. There is still quite a bit of mystery about what accounts for the other 20 to 40 percent of the transactions. No one can force Bitcoin users to register their identity, so Chainalysis and other firms are in the dark about many transactions. But they have identified some useful chunks. When Bitcoin was introduced in , it was described as a new way to make payments online, without the fees that credit card companies charge.

Chainalysis estimates that last year, companies handling Bitcoin payments accounted for 0. This is a healthy dose of apparently legal commerce, but it was not a good sign for Bitcoin that it was shrinking for most of last year when the price of Bitcoin was going down, according to Chainalysis data. Paying with Bitcoin requires you to become a speculator on its volatile price for the time you are holding on to tokens and waiting to pay.

The payment data leads to the question of where this technology might gain momentum, beyond speculation. The most compelling use that Bitcoin fanatics talk about is its value to people in repressive countries that have currencies that are even more volatile than Bitcoin.

Because of the open nature of Bitcoin, Venezuelans can buy it without the government stopping them. There are stories of Venezuelans using Bitcoin to rescue their savings. Those purchases were growing even as the price of Bitcoin was falling. But it caught on with only a tiny sliver of Venezuelans. And there are reasons to wonder how many of these transactions were really just corrupt government officials or wealthy Venezuelans who had other means of getting their money out of the country. People who have traveled to Venezuela have told me that most ordinary people they spoke to would prefer to have their money in dollars instead of Bitcoin.

The bigger problem facing Bitcoin is that the practical and legal uses have struggled to outpace illegal or clearly unethical activity. The list of ways that Bitcoin has proved useful to criminals keeps growing, from the ransom payments on locked-up computer files — or even hostages — to illegal drug sales. Many of these misdeeds are hard to quantify, but Chainalysis has managed to put numbers on Bitcoins used to buy drugs on the so-called dark net. Chainalysis numbers show that drug purchases rose last year, even when the price of Bitcoin was falling. Bitcoin fans will tell you that this is a drop in the bucket compared with how much the dollar is used to buy drugs.

And Bitcoin has enabled new kinds of deadly drug traffic , like the synthetic opioids that have flowed from China to small towns in the United States. Call that imaginary firm GeoBook. Initially, the embrace of GeoBook would have been a leap forward for consumers and other companies trying to build location awareness into their hardware and software.

But slowly, a darker narrative would have emerged: a single private corporation, tracking the movements of billions of people around the planet, building an advertising behemoth based on our shifting locations. Any start-up trying to build a geo-aware application would have been vulnerable to the whims of mighty GeoBook. Appropriately angry polemics would have been written denouncing the public menace of this Big Brother in the sky. But none of that happened, for a simple reason. Geolocation, like the location of web pages and email addresses and domain names, is a problem we solved with an open protocol.

The open, decentralized web turns out to be alive and well on the InternetOne layer. The biggest problems that technologists tackled after — many of which revolved around identity, community and payment mechanisms — were left to the private sector to solve.

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This is what led, in the early s, to a powerful new layer of internet services, which we might call InternetTwo. For all their brilliance, the inventors of the open protocols that shaped the internet failed to include some key elements that would later prove critical to the future of online culture.

Perhaps most important, they did not create a secure open standard that established human identity on the network. Units of information could be defined — pages, links, messages — but people did not have their own protocol: no way to define and share your real name, your location, your interests or perhaps most crucial your relationships to other people online.

The Bitcoin Boom: In Code We Trust

This turns out to have been a major oversight, because identity is the sort of problem that benefits from one universally recognized solution. But online, the private sector swooped in to fill that vacuum, and because identity had that characteristic of being a universal problem, the market was heavily incentivized to settle on one common standard for defining yourself and the people you know.

That standard is Facebook. With more than two billion users, Facebook is far larger than the entire internet at the peak of the dot-com bubble in the late s. Facebook is the ultimate embodiment of the chasm that divides InternetOne and InternetTwo economies.

Will This Boom Go Bust?

No private company owned the protocols that defined email or GPS or the open web. But one single corporation owns the data that define social identity for two billion people today — and one single person, Mark Zuckerberg, holds the majority of the voting power in that corporation. You need forces outside the domain of software and servers to break up cartels with this much power. The upper floor has indeed been built with tools that cannot be used to dismantle it.

But the open protocols beneath them still have the potential to build something better. One of the most persuasive advocates of an open-protocol revival is Juan Benet, a Mexican-born programmer now living on a suburban side street in Palo Alto, Calif. On a warm day in September, Benet greeted me at his door wearing a black Protocol Labs hoodie. Benet, who is 29, considers himself a child of the first peer-to-peer revolution that briefly flourished in the late s and early s, driven in large part by networks like BitTorrent that distributed media files, often illegally.

The web had shown that you could publish documents reliably in a commons-based network. Services like BitTorrent or Skype took that logic to the next level, allowing ordinary users to add new functionality to the internet: creating a distributed library of largely pirated media, as with BitTorrent, or helping people make phone calls over the internet, as with Skype.

He is passionate about the technology Protocol Labs is developing, but also keen to put it in a wider context. For Benet, the shift from distributed systems to more centralized approaches set in motion changes that few could have predicted. What was not clear to me then was how at risk it is. The current protocol — HTTP — pulls down web pages from a single location at a time and has no built-in mechanism for archiving the online pages. To support the protocol, Benet is also creating a system called Filecoin that will allow users to effectively rent out unused hard-drive space.

Think of it as a sort of Airbnb for data. Why did the internet follow the path from open to closed?

More questions than answers

One part of the explanation lies in sins of omission: By the time a new generation of coders began to tackle the problems that InternetOne left unsolved, there were near-limitless sources of capital to invest in those efforts, so long as the coders kept their systems closed. By the mids, though, a promising new start-up like Facebook could attract millions of dollars in financing even before it became a household brand. And yet — as the venture capitalist Chris Dixon points out — there was another factor, too, one that was more technical than financial in nature.

Where do you store that? You need a database. Whenever you look at your Facebook newsfeed, you are granted access to some infinitesimally small section of that database, seeing only the information that is relevant to you. The fact that they have to sell ads to pay the bills for that service — and the fact that the scale of their network gives them staggering power over the minds of two billion people around the world — is an unfortunate, but inevitable, price to pay for a shared social graph.

And that trade-off did in fact make sense in the mids; creating a single database capable of tracking the interactions of hundreds of millions of people — much less two billion — was the kind of problem that could be tackled only by a single organization. But as Benet and his fellow blockchain evangelists are eager to prove, that might not be true anymore. So how can you get meaningful adoption of base-layer protocols in an age when the big tech companies have already attracted billions of users and collectively sit on hundreds of billions of dollars in cash?

Speculators, drug dealers and the oppressed: How cryptocurrencies are used right now

If you happen to believe that the internet, in its current incarnation, is causing significant and growing harm to society, then this seemingly esoteric problem — the difficulty of getting people to adopt new open-source technology standards — turns out to have momentous consequences. Neither approach would upend the underlying dynamics of InternetTwo. The first hint of a meaningful challenge to the closed-protocol era arrived in , not long after Zuckerberg opened the first international headquarters for his growing company.

A mysterious programmer or group of programmers going by the name Satoshi Nakamoto circulated a paper on a cryptography mailing list. At the time, Facebook and Bitcoin seemed to belong to entirely different spheres — one was a booming venture-backed social-media start-up that let you share birthday greetings and connect with old friends, while the other was a byzantine scheme for cryptographic currency from an obscure email list.

But 10 years later, the ideas that Nakamoto unleashed with that paper now pose the most significant challenge to the hegemony of InternetTwo giants like Facebook.

The paradox about Bitcoin is that it may well turn out to be a genuinely revolutionary breakthrough and at the same time a colossal failure as a currency. As I write, Bitcoin has increased in value by nearly , percent over the past five years, making a fortune for its early investors but also branding it as a spectacularly unstable payment mechanism. The process for creating new Bitcoins has also turned out to be a staggering energy drain. History is replete with stories of new technologies whose initial applications end up having little to do with their eventual use.

All the focus on Bitcoin as a payment system may similarly prove to be a distraction, a technological red herring. First, Bitcoin offered a kind of proof that you could create a secure database — the blockchain — scattered across hundreds or thousands of computers, with no single authority controlling and verifying the authenticity of the data. Second, Nakamoto designed Bitcoin so that the work of maintaining that distributed ledger was itself rewarded with small, increasingly scarce Bitcoin payments. Nakamoto designed the system so that Bitcoins would grow increasingly difficult to earn over time, ensuring a certain amount of scarcity in the system.

If you helped Bitcoin keep that database secure in the early days, you would earn more Bitcoin than later arrivals. Together, those two ideas solved the distributed-database problem and the funding problem.