Special Feature
Two Sides of the I
Cryptocurrency and the Bigger Picture By Dave Birch
“The truth is that Bitcoin is far more interesting and far more important than press reports indicate.” Dave Birch believes that with the focus on currency rather than the technology, people are missing the point about Bitcoin.
rarely recommend that people rely on the popular media to learn anything useful about any subject, and Bitcoin is no exception. From trumpetings of “Bitcoin is dead” to an obsession with the founding
myth of ‘Satoshi Nakamoto’ (who is not, apparently, a model train enthusiast from Los Angeles after all) to an unhealthy fascination with the Silk Road site and all its wares (drugs, pornography and above all, Tesco vouchers), consumer journalists know that people prefer to reach for the easy to understand and easy to get upset about.
The truth is that Bitcoin is far more interesting and far more important than these press reports indicate. To understand why they are missing the big picture around Bitcoin (wilfully or otherwise), I think it is useful that we make an early distinction between Bitcoin the currency (XBT) and Bitcoin the technology. It’s the technology that excites me (and a great
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many serious technology investors, I might add) and the technology that is, in my view, the future.
So what does this technology do?
When you transfer digital assets, you have to deal with the problem of copying. In other words, if I send you a digital something (a file or a picture or any old string of bits) to transfer their ownership from me to you, how do you know that I have not sent a copy to someone else? How do you know that your copy is, well, your copy? This is called the ‘double spending’ problem.
We used to think that there were two ways of solving this problem. One of them was to maintain a centralized database of the digital assets and their owners or in
a
cryptographically-protected fashion maintain a database of the ‘spent coins’ (as was done
in the case of DigiCash in the 1980s) and the other was to store the digital assets in tamper- resistant hardware: smart cards, essentially, as in the case of Mondex and, more recently, the Royal Canadian Mint’s Mintchip.
When Bitcoin came along with an entirely new way of solving this problem using a distributed public ledger that was cryptographically- protected and managed in an entirely decentralised fashion (incentivised by the mining process) many people saw this as a breakthrough,
a fundamental shift in technology. I think I agree with them.
Now, how that ledger and the mining process work depend on some fairly complicated mathematics. I won’t pretend that this is easy to understand for the layperson and it is this difficulty that leads to bloopers like JPMorgan’s patent from 1999 for a digital currency, which it recently re-filed, being described as “Bitcoin-
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