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?