They are the 99 per cent

So where is the Bitcoin tipping point? What exactly constitutes a genuine front-line development of the cryptocoin? Maybe, if around one per cent of the population, or even one per cent of computer users, regularly adopts Bitcoin for use as money, a major Rubicon will already have been crossed, in spite of the mainline economy still being dominated by fiat and big banks.

Recently, I was interested in a social attendance of a "murder-mystery" weekend, where a friend, let's call her S, bought a multi-party-discount ticket and thus I owed her some money if I wanted to come along. Due in part to time constraints, I offered her a bitcoin payment for its benefits, in particular its immediacy, while stating simultaneously that cash would be fine, subject to a time delay, for we would have to arrange to meet up for the payment. (While I sometimes use PayPal for purchases, I do not have a live registered account with them, primarily because of their asinine rules.) This all culminated in S being practically offended even at the notion of Bitcoin, in spite of me protesting that it's the government and central banks who can coerce us to use fiat and I have no power to coerce her into accepting BTC.

Since you're reading this, there's a fair chance you have some kind of interest in Bitcoin. But for every one of you, how many like S are there? I've been pondering this for a while and drawn a tentative conclusion that it does not matter that much. There are bound to be dozens like S for every Bitcoin user/enthusiast, aren't there? On the other hand, if even about one per cent of computer users get seriously into Bitcoin, the market cap will be more than sufficient to sustain a viable Bitcoin economy, maybe even in the event that governments or other exterior forces stifle cryptocoin-fiat exchange.

Alternative cryptocurrencies such as Litecoin (LTC) may yet prove to play a greater rôle in this economy than perhaps might currently be envisaged.

If you meet people like S above, do not despair - they'll always be there. And hopefully it matters not.

The immediate aftermath

Now the Bitcoin London conference 2012 is over, there is lots and lots to ponder over, and I don't just mean future prospects related to speculating on and mining bitcoins, though those are major topics in and of themselves. Life in London (or “the Grad” or “the Burg” as I sometimes like to call it) goes on seemingly as normal, merchants in town dealing in the same old fiat bankster paper as before, probably, a few financiers, investors, gamblers, geeks and anarchists aside, blissfully unaware of the conference and possibly even Bitcoin itself. That is the first and most obvious problem: general awareness, or lack thereof. Bitcoin needs to be promoted and publicized a lot more, not to mention become more widely understood, to go mainstream and boost the BTC economy. There have already been occasional mainstream-media articles about Bitcoin published in the last year or two, but they alone did not really trigger much interest from me, at least not at the time. I just thought it was a silly little “geek thing”, which it pretty much was and maybe still is at the moment, if we're really brutally honest amongst ourselves.

The overall content of many of the conference's lectures was not exactly hard-core geekology, though a bit of it surely was, but neither are we looking at “Bitcoin for Dummies”. Now now, there's an idea for a book! Does it even exist yet? There are oodles of possible ways to draw more public interest in Bitcoin, but they will most likely have to involve the utmost user-friendliness and one-click simplicity. Technology possibly requiring an IQ above 120 to use effectively is never going to gain massive traction. Talking publicly about fiat currencies, sound money, austrolibertarianism, Ron Paul and so on and so forth is not the answer either: that might be gibberish to some, but worse than that, is even a kind of politicization that we really don't need right now. The YouTube video Screw Banks! Use bitcoins instead is much closer to the mark, in my opinion.

I have noticed a few social BTC donations arriving, and I suspect at least some of them are associated with this blog. Thank you very much for your support! Whatever I managed to achieve within the Bitcoin community and beyond, I can't do without the help of geeks like you, some of whom are undoubtedly even smarter and more geeky than I, so it's great to have you on board in any capacity!

Day Two, afternoon session

First we have Juraj Bednár, a bubbly Slovak anarchist speaker. His topic: free markets, e-money and cryptocurrency. He rightly recognizes that our current socioeconomic system is not capitalist. Money in itself is not wealth, because we don't become richer simply by printing money. Printing money (counterfeiting) is fraud. Bednár points out the moral superiority of voluntary exchanges in lieu of government violence. The current model (statism) erects major barriers to entry for small private business and thus favours larger corporations, who in many cases have lobbied successfully for more regulations that they can afford to comply with but which force smaller competitors out of the market. Free markets are not just about reducing taxes but reducing regulatory burdens generally. Then there's one more reassertion of the sanctity of the non-aggression principle.

Next up we have Frank Braun, IT security consultant and self-described “privacy extremist”, wearing a fully-fledged face mask, not to protect himself from swine flu (haha) but state surveillance (CCTV). Why is Bitcoin an important step towards a free society? A free society needs a free market and a free market needs sound money. Bitcoin is such money.

“No state, no banks, no OTC”: in the Bitcoin community we should not focus on interoperability with the old state/bank/over-the-counter trifecta. Braun's firm anarcho-voluntarist-revolutionary roots are clearly displayed in his use of such colloquialisms as banksters and sheeple.

A key point is that Braun believes Bitcoin will fail if it remains too dependent on exchange with the legacy banking system. The Bitcoin economy needs to flourish in its own right, perhaps with underground face-to-face exchanges to physical monies, bypassing the state-monitored banking system. He's making the entire world feel like the former East Germany! I had the audacity to pose this notion as a question and he replied that in some ways he thinks today's surveillance state is worse than the apparatus of the former east German régime! This is a seriously sobering thought.

The sound-money theme continues with a talk by Charles Vollum comparing bitcoins with real gold. Gold is precious but bitcoins share similar properties as sound money. Both are limited-supply, unforgeable, durable, divisible, free-market currencies. However, bitcoins are much more versatile as means of payment; Vollum points out you could wire bitcoins to Mars in a quarter of an hour!

One weakness of Bitcoin is its poor liquidity, resulting from a small economy at present and no easy instant means to exchange large volumes of legacy monies into bitcoins. Vollum does, however, believe that Bitcoin offers huge potential to develop into a store of value possibly superior to physical gold. The future of Bitcoin is obviously still uncertain (but it is that very uncertainty that opens up opportunities).

Vollum produces a few graphs quoting price changes in gold grams as well as US$, showing how the bankers have robbed everybody blind via inflation, debasement of the paper currency. Yale tuition, for example, priced on a gold basis, has experienced a few peaks and troughs, but today is almost exactly the same price as in 1900! In dollar terms it costs over $55k annually today compared with $700 in 1900. “Free your mind from fiat currencies” - Vollum.

A brief interlude brings on the BFL auction, the main highlight of which is their current FPGA rig, with a retail price of US$15000 or so. Josh is auctioning off one such system (with a faulty display!) and it finally sells for BTC 1070.

4pm sharp, and finally! It's the famous/notorious (delete as appropriate) Max Keiser! Yes, the guy on RT! He's a huge supporter of, and believer in, the bitcoin currency and is representing himself at this conference for no pay.

Keiser opens by pointing out that barter is once again all the rage in this new age, as the fiat banking system breaks down. Communities trade with detergent or even chewing gum. Think what Bitcoin could achieve. As Keiser points out, finance has become more abstract and elastic since the globally dominant US$ detached from the theoretical gold standard in 1971. The fiat system is no longer fractional reserve but fictional (zero) reserve. Keiser has repeated all this well-known fact on his RT show many times already.

In under an hour's talking time, Keiser's given us a showdown of a lot of the malfeasance the global banking élite constantly get up to. They're robbing the lot of us blind, and sooner rather than later the house of cards known as fiat money and the global banking system is bound to come tumbling down. This sounds catastrophic but it will open up a big opportunity and finally relieve the world of the bankers' fraud. Max Keiser never pulls a punch, he calls a spade a spade and so he also calls fraud what it is: fraud. He claims London, as a major banking centre, is the fraud capital of the universe. He tells us a little story of a Chinese woman sentenced to death for bilking about $57 million in assets from her investors. “Now that's a deterrent!” he says almost gleefully.

Max Keiser's lecture has brought the conference to a timely end, and I “sneakily” film a few snippets of him and his now fiancée, Stacy Herbert, together answering a few questions in the hotel lobby. Skip forward a few hours after I had a nice dinner on Tottenham Court Road with my uncle, and I find myself here in the dingy environs of the Star of Kings pub in north London, a few blocks north of Kings Cross rail station. It is a slightly odd anticlimax to a slightly hectic weekend. I've enjoyed myself reasonably well on what has been, after all, a semi-serious business trip. Maybe I deserve a day or two to mess around London seeing a few sights, but there'll always be a chance for that in future.

From the conference's end, it's over and out. Amir certainly did a good job on the organizational side of things. Me, I shall try to keep blogging on Bitcoin-related material. Don't take this as online panhandling, but extra money flowing toward my “donations” address (q.v.) will certainly help in keeping the blog taps flowing! However, money or no, I will make my best effort to post something of note here periodically, especially at future Bitcoin-related events.

Satoshi!

Day two, morning session

The second day begins early (9:30am!) with Bitcoins & browsers: Tales of a difficult marriage. Amir gives a brief reintro, then first speaker Stefan (Java expert) comes to the fore to discuss the compatibility issues between Bitcoin and web browsers/Javascript. It's difficult to run an entire Bitcoin client through Javascript. Updated code is permitting decryption algorithms to run up to sixteen times faster on average, making life easier and smoother for regular payers, including those using mobile devices.

Now Pieter Wuille talks about the complexity of the Bitcoin blockchain and the importance of full nodes to the network. Bandwidth usage is relatively limited. A challenge for Bitcoin is to move away from the idea that the block chain is accessible. It's not practical to rescan the entire blockchain just to verify one new transaction, for example. A drawback of the peer-to-peer system is that the end user is responsible for verifying (and reverifying) that any transaction is universally accepted by the Bitcoin network where all (s)he really cares about is whether the money is accepted and received by the receiver or merchant. Wuille proposes a kind of web intermediary to smooth this process but ostensibly this appears clumsy at present. Is this idea just a glorified online wallet?

The next lecture is the important-sounding State of the Coin 2012 by Jeff Garzik. He says Bitcoin is the most challenging technical project he's run into in his entire lifetime and there's no room for mistakes. If you try to upgrade the Bitcoin network and have a serious problem, then everyone could lose their money!

The basic “Satoshi” Bitcoin client is constantly being reviewed and reprogrammed. Garzik summarizes some of the techincal reference client changes in the later versions. He condemns the Wired magazine article The Rise and Fall of Bitcoin (November 2011).

Garzik then gives a brief reminder of good basic security practices when using Bitcoin. Many victims of fraud have failed to follow them so there's no harm in making such reminders.

Next up, Marek Palatinus is talking about the future of pooled mining. One issue highlighted is the susceptibility of mining pools to DDoS attacks. So far so good, but now he's starting to get a little more technical. He is, after all, talking from the perspective of managing an entire mining pool, not just being a single mining node as part of a pool!

There'll be some potentially interesting economics-leaning lectures coming up in the afternoon, including Max Keiser from the RT TV show Keiser Report (a show cohosted by Stacy Herbert).

Day one, afternoon session

Birgitta Jónsdóttir MP

This Icelandic heroine gives a speech about the importance of online privacy. At the start of this lecture, conference organizer Amir Taaki mentioned the excellent point that today's politics are not so much about left versus right, as liberty versus tyranny. Last year, Iceland was ranked as the country with the best press freedom on earth. (China, Singapore and North Korea are among the worst. These are differing degrees of totalitarian régimes.)

Birgitta explains that Internet privacy is so important it drove her into politics. It is therefore a little ironic, by her own admission, that she hitherto considered herself pretty much an anarchist (as far as I'm concerned, there's not much wrong with that). She says that if we allow tyranny and censorship to blossom online, it will adversely affect our lives offline too. Many countries are at the very minimum authoritarian states that have already passed laws requiring people unlock their private-encryption keys on request by the authorities so as to prove innocence. Birgitta believes we in the Bitcoin community need to forge our own paths and write and establish our own basic rules of operation before our currency really becomes entrenched.

Now, new speaker “jaromil” speaks on the challenges for Bitcoin to become a fully-fledged mature economy in its own right. The bankers currently shaft as many people as they can, and the poorest get shafted the most. He says the biggest challenge is to get the bitcoins circulating (this seems obvious but sometimes that needs to be stated).

After a brief intermission I move rooms to hear economist/programmer Peter Šurda and what do we have here? He's reiterating elements of Economics 101 – but that's ok! What is money? Why does money become money? People base their decisions on what to use for money on transaction costs. But don't confuse transaction costs with specific transaction fees. A key feature of money is elimination of the double coïncidence of wants. What are the merits of inflation versus deflation? Transaction costs/opportunity costs are influenced by state/cartelized price fixing, barriers to entry, capital controls, regulations, etc. Most significant in the context of Bitcoin: “Economic development tends to reduce [economic sacrifices], with the result that even between the mosts distant lands more and more economic exchanges become possible which previously could not have taken place.” (Menger, 1871) Bitcoin can improve liquidity through more trade and value-added services.

I award bonus points to Šurda for quoting the great Ludwig von Mises in regard to commodity money (sound money!) vis-à-vis the intrinsic monopolistic tendencies (via the state directly or state backing of private central banks) of fiat currency. I consider Bitcoin to be an electronic version of sound money, and for me and presumably a large portion of the Bitcoin community this is essential. Here's a debate on the Bitcoin forums about the value of bitcoins: https://bitcointalk.org/index.php?topic=109746.0

Šurda maintains that a moderate long-term deflation of the money supply will not turn consumers into misers. A real-life encapsulation of this is seen in Moore's Law of computing power (and especially computer power per unit of currency). People aren't dissuaded from purchasing computers because there'll be better computers offering three times as much value for money a couple of years down the line. So it is thus that deflation does not automatically induce major hoarding of currency.

Day One, morning session

On this heady morning we begin gently in the cheekily named Satoshi conference room (in honour of Bitcoin's still-unidentified creator) at the Royal National Hotel, with a little lecture from Eli Sklar about the possible future of a moneyless society with almost limitless basic resources. Hopefully this isn't going to end up in ideas extracted from The Communist Manifesto, but I don't think so. He discusses economic changes over time and the shift away from traditional labor toward an information economy, borderless both physically and financially. He sees Bitcoin as a key cog in this, of course, because it eliminates financial borders.

On the overhead projector comes a mini history lesson depicting the advancement of our economy from an agrarian, intensive-manual-labor-based society 200+ years ago, through mechanization and industrialization in the late 19^th century, through modern infotech and agribusiness nowadays. The headline is “Increased Productivity”. The production of food has risen almost 250% in less than sixty years. “Not only do we produce a lot more with the same amount of work as we needed to do sixty years ago, but we produce more than we actually need.” - Eli Sklar.

In the absence of monetary incentives (because, presumably, the cost of living is so low), Sklar says we can extract value from social interactions and convert gaming activities into productivity. But the moneyless society will be an evolution rather than an overnight revolution. This is for me still an idealistic vision but in principle we should have the tools to move in this general direction; we just have to believe in the future and shape it accordingly?

Next it's Caleb James DeLisle, on for a discussion about “the sociopolitical effects of network protocols”, i.e. the Internet, security issues, service providers, intellectual property philosophies, and so on. Now he fires up the Internet on his Linux-equipped (kudos) laptop and gives a brief demonstration of IPv6. I guess this truly is the future: eat your heart out, Marty McFly! :)

Then we are blessed with Mike Hearn for a lecture specifically recommended by the organizer (it's thus one of “Amir's Picks”). Mike is discussing practical applications and improvements of Bitcoin to improve the efficiency and security of transactions, ideas he says are implementable now by sufficiently determined and capable programmers, not hypothetically n years ahead. A lot of this focuses on escrow and trust between parties, which is critical because regular two-party bitcoin transactions are cash-like and irreversible.

A particularly interesting idea is “smart property”, in which physical items can be computer-linked to Bitcoin thus permitting loans and some level of electronic recourse by the lessor in the event of default. Also, there's the idea of creating a Bitcoin bond market. It sounds all eminently doable... eventually.

Now, people are asking questions to the speakers and soon it's time for lunch and hopefully some coffee. The afternoon lecture No Privacy – No Freedom by Icelandic MP (?) Birgitta Jónsdóttir sounds slightly mouthwatering.

Preamble

In the run up to the richly-packed 2012 Bitcoin Conference in London, organizer Amir Taaki (the video game programming guru) said he was amassing and writing his thoughts. And concerning this revolutionary new electronic currency there have to be many.

With monopolistic central banks worldwide embarking on “quantitative easing” - a euphemism for printing lots of money to help bail out stricken banks that have wobbled since the 2008 financial crisis and ensuing depression – sparking perfectly rational and justified fears of destructive hyperinflation, investors have rushed to the safe havens of gold and silver (de facto commodity money), and to a lesser extent, Swiss francs, Norwegian kroner, Canadian and Australian dollars, and so on. Gold and silver are brilliant and always to be recommended, but become rather cumbersome if you want to move them anywhere or actually pay someone with them, especially over long distances.

Electronic money is hardly a new concept, but its earlier failed incarnations such as Mondex were nothing more than attempts at reinventing the wheel. The funds became electronically transferable but it was the same old fiat money, the same old monopolistic central bank and the same middle-man banks charging steep commissions to make an electronic note of a nominal financial transfer. With the advent of common Internet banking facilities and other commonly accessible EFT methods via bank cards, electronic money transfers are now already a firm reality. So what comes next?

Bitcoin goes the whole hog and fundamentally combines the merits of commodity money and worldwide EFTs. It is a “cryptocurrency”, a virtual money in its own right backed up (and produced) essentially by cryptographic strength, reinforcing a network “block chain” of all transactions made since the currency's inception (2009). Bitcoins cannot be counterfeited or printed out of thin air. There is no central Bitcoin corporation, no management, no bank, just peer-to-peer EFTs with virtual sound money. To quote Judge Napolitano and also my mother, “it sounds like something out of science fiction”. And here it is, growing into a reality...

...almost. Only a small number of retailers around the world accept bitcoins for payment, although of course from a development perspective, a small number is infinitely better than none. Bitcoin is still very much in its infancy, although having survived a couple of major bubbles already, looks surprisingly well settled. Its soundness proves itself without recourse to hyperbole or deceit. For the time being, Bitcoin traders have to accept the need to exchange to regular fiat currencies at some point or other, and are therefore susceptible to the whims of the exchange rate (the online Bitcoin exchanges are kind of a cross between a bureau de change and stock exchange or auction house). If the Bitcoin economy explodes, as we hope it will, this will be far less of an issue, just as short-term fluctuations in gold prices do not really concern long-term investors viewing gold as a secure store of value rather than something to speculate on. Businesses have every reason to embrace Bitcoin as it cuts out the middle man, i.e. the bank or credit-card company, thereby saving business untold amounts in commissions and bank fees. Bitcoin payments function like cash, in other words, there is no chargeback facility that you find on credit cards. Just as with a cash transaction, therefore, a high level of trust between trading parties is crucial. A key advantage of Bitcoin, though, is buyers really have no need to prove their identity (thus cutting out identity theft risks associated with named and numbered payment cards). Payments are quasi-anonymous and Bitcoin transactions do not need to be verified by a central authority or clearing house. It is an ingenious application of [a complex variant on] public-key cryptography.

It has occasionally been brought up in the mainstream media, on those rare occasions when Bitcoin has reached the mainstream media, that the currency is already being used for illicit activities. This is true. It is money, and sometimes people do illegal trades with money. This applies to all cash currencies, not just Bitcoin!

Once people are accustomed to the idea of electronic financial wires using sound money with no bank (!), just as with many aspects of the Internet, there'll be no turning back. Incidentally, how did we manage to live without the Internet?