March 12, 2014 • 37 mins
What is happening with Bitcoin? What was Mt Gox and Flexcoin and why have they shut down?
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Speaker 1 (00:04):
Get in touch with technology with text stuff from stuff
dot com. Hey there, everyoneted, Welcome to tech Stuff. I'm
Jonathan Strickland and I'm Lauren. And in our last episode
we kind of laid the groundwork about what bitcoin is,
kind of refreshing your your memory, and also the breaking
(00:25):
news at the time of recording about the possible identity
discovered of the guy who who came up with the
whole idea in the first place, Sato Nakamoto, who might
in fact be a guy named Satoshi Nakamoto. And this
was a surprise. So if you missed that episode, go
back and give it a listen, Yeah, because it'll it'll
definitely give you some context for what we're going to
(00:47):
talk about today, which is the controversies of bitcoin and
also what's in the future. Yo. That's a that's a
really great question that many people are asking themselves because
there have been so many con troversies of over bitcoin,
especially in the past like three to five months. Yeah. Yeah, So,
I mean, first of all, they're just the very nature
(01:09):
of bitcoin, the fact that you get at the coins
by either purchasing them in an exchange or you mind
them through using computer power to solve mathematical problems. Well,
if you're thinking, hey, I've done a computer I can
solve math problems. Well, if you listen to our last episode,
you know that you need a lot of computing power
because they're you're just you're The competition you're up against
(01:31):
is crazy. Yeah, and so some people will join mining
groups sort of like almost like a lottery pool, like
we were saying in the last episode. And some people
force other folks to join a mining group without them
necessarily knowing about it, by creating buttonets a k a.
You might have also heard of buttonets being referred to
as zombie computer armies. Yes, these are the boy. If
(01:52):
you're a longtime fan of tech stuff, you've heard us
talk about this. This was one of our first episodes.
But essentially what this is is when a hacker uses
software to get administrative access to someone else's computer. Generally,
this is done by fooling the person into installing a
program and then yeah, there's usually a trojan horse malware
(02:13):
that will install a backdoor access point for for someone
to go over in network and then send commands remotely
so that they make your machine do stuff they wanted
to do. And there are lots of different ways that
hackers use bought nets, and one of them is to
direct computers to mine for bitcoins. So what they're doing
(02:34):
is they're trying to get as many different computers as
possible to coordinate in this task, and then the hacker
reaps the benefits. So your computer might have actually been
the one to mind that bitcoin, but you don't see
any of that because it's going to some hacker somewhere. Yeah.
One particularly widespread bit of malware like this was was
busted back in April. Jonathan actually blogged about it back then. Yeah. Yeah, So,
(02:59):
I mean it's it's still one of those things that
remains a concern because it's, you know, it's the world
of the digital realm. I mean, it's it's one of
those things where you've it's different from our physical world, right,
and as we alluded to in our previous episode, the
fact that all of this is different from our physical
world lens bitcoins. I mean that and the fact that
they are necessarily decentralized and unregulated means that sometimes people
(03:24):
use them for less than upright purposes. Yeah, okay, so
we're gonna we're gonna lay it down. Uh, you know,
just be perfectly honest and blunt here, because when when
I did an episode way back in the day, I
think it wasn't wasn't two thousand eleven, I think we
said in our previous episode, but we kind of danced
around it because we didn't really want to address it
(03:46):
very much. But it's very much something that we have
to talk about, and this is markets that would support
illegal trades, and illegal would depend heavily upon where you
happen to be in the world, because I guess you know,
laws are different in different places. But absolutely largely this
was mostly focused on drugs, illicit drugs. So the famous
(04:08):
market was the Silk Road, now the Silk Road at
first of all, it took took its name from a
historic trade route that connected Asia to Europe, and the
idea was that this was a market where buyers and
sellers could meet anonymously have these transactions. Bitcoins were accepted there,
one of the few places that bitcoins were excepted, one
(04:29):
of the earliest two and uh and you it was
a tour hidden service. So this meant that you could
actually log again and you don't have to worry that
you're being tracked or that your identity is out there
for everybody. So it was kind of a haven for
this sort of activity, so much so that, uh that
the illicit activity made up the majority of the things
(04:52):
you could buy on the Silk Road. It wasn't just
illegal stuff. You could buy legal stuff too. You could
go to the Silk Road and buy clothing or computer
parts and things like that. Sure, but one report from
the Guardian said that drugs were up to sevent of
what was available on that market. Yeah, at that point,
you're like, I'm going to an illegal drug store that
also has a computer aisle. That's essentially what you're talking
(05:14):
about there. So I mean, and here's the thing. You'll
see Bitcoin community folks, some of them, not all of them.
I don't want to paint everyone with a broad brush.
Certainly not, but there were some who would say, look,
this is just a free market. The fact that drugs
are there is that's irrelevant. We're talking about. This is
where merchants and buyers can get together and exchange goods.
It's meant without government interference on that level. Sure, I
(05:37):
mean that that's intellectually I can understand what you're saying.
But practically seventy percent of the stuff there was illegal.
So when you when you strip away the philosophy and
look at the reality, you have to be you have
to be intellectually honest and say, all right, there, these
things are being done to to purchase illegal goods. Now
(05:59):
you might think that those goods shouldn't be illegal, but
that's a totally different issue. That's the whole other discussion.
And at any rate, in October, the FBI got pretty
deeply involved. Yeah, they arrested a man named Ross William
Albrich on charges of drug trafficking, computer hacking, money laundering,
and here's the big one, soliciting murder, essentially assassination. So uh,
(06:24):
they ended up arresting him. They claim that Albrecht is
the man behind the Silk Road, that he was using
the handle dread pirate Roberts. Uh. You know, I do
not think it means what he thinks it thinks it means.
But at any rate, they arrested him. They claimed that
that what that he was the guy behind the Silk Road. Albrick,
for his part, denies it. Uh, and the FBI shut
(06:46):
down the Silk Road, although almost immediately Silk Road two
point oh popped up into its place. Certainly, but shutting
down the system froze all of all of the bitcoins
that were in circulation in that in the market in
the market right, which was some three point five million
US worth at the time, and the fact that the
FBI sees that amount of bitcoin means that they are
(07:09):
one of the largest holders of the currency in the world. Yeah,
Makamoto and the FBI point that'd be a great children's
book at any rate. Uh So, Yeah, there were a
lot of people who were not happy about this, including
the ones who started up Silk Road two point oh
and Dreadpirate Roberts was active again, presumably on being controlled
by a different person, assuming of course that Olbrick was
(07:30):
in fact the original Dreadpire Roberts. So Silk Road two
point oh on February two thousand fourteen made these would
be drug dealers unhappy a second time because they announced
that they had been the target of hackers and that
the s grow accounts of the Silk Road two point
oh have been cleaned out of two point seven million
(07:52):
dollars worth of bitcoins. Uh Following Silk Road two point
oh was another market called Utopia, which not only allowed
for the sale of drugs, but opened it up to
guns as well, because when you're called utopia, that's really
the true avenue. Yeah no, yeah, that's I think there
might have been some irony there anyway. They were also
(08:14):
shut down just days after the site launched. Uh, the
police held a sting operation and shut that one down.
Now here's the thing, um, as soon as one of
these markets goes down, I'm sure other ones pop up
because the demand is there. So until you get to
a point where either the demand is not there or
(08:34):
people feel that there's just not a too much risk
and on a reward, then it's just going to keep happening. However,
decentralizing it, you could argue, is um a worthy cause
if you believe that shutting down this kind of thing
is a good, good plan, right right. There are people
in the bitcoin community who say, hey, this shows that
bitcoins work because you can shut down the markets that
(08:56):
aren't playing fair and everything else can keep on operating. However,
the rest of the world is saying, this is a
currency where the markets can get shut down and then
all your money goes away, which can of course reduce
confidence in that currency. So these these events are hurting
bitcoin in the sense that its value can suffer because
(09:17):
people feel less confident of it. I can, but that's
not always the practical outcome of this kind of thing,
and we'll talk a little bit about that later on,
I think. Meanwhile, in November, in response to all of
this hubbub, it was basically right after the FBI had
had shut down Silk Road one UM, the U S.
Senate held a hearing on bitcoin and the general potential
(09:39):
of virtual currencies. The Federal Reserve Chairman at the time,
Ben Brannank, released a letter ahead of the hearing that
acknowledged that UM that the government you know, of course
does not have authority to supervise virtual currencies like bitcoin UM,
but also said that this kind of stuff and I
quote may hold long term promise, particularly if the innovations
(10:00):
promote a faster, more secure, and more efficient payment system UM,
and that that idea, along with general curiosity about it,
seemed to really be the moral of this of this
Senate hearing, which was really interesting to me. UM. There
was of course concern raised about bitcoin being used to
drive crime, but the fact that people in the government
(10:22):
were open to the concept and then thought that it
was pretty cool and not only you know, to be
used as a marker for stuff that should be shut down.
I think it's great. Yeah, there's a there's a there's
an unequal distribution of savv nous in the government. Absolutely,
and we're gonna we're gonna cover a little bit more
of that just second, because you know, some people they
(10:44):
get it for one thing. You know, once you open
a door on the Internet, that doors open, right, I mean,
even if you try and remove everything, it's once it's
on the internet, the idea is out there. And as
we've said, bitcoin is not the only digital currency out there,
and digital currency certainly is poised to be very disruptive. Uh.
And you know this Bitcoin is kind of the perfect
(11:06):
example of how disruptive it can be in the extreme.
It doesn't even have to be that extreme to be disruptive.
So uh, it's interesting. And and that that senate hearing
where we had senators talking frankly about this kind of stuff,
lent a lot of legitimacy to bitcoin in the eyes
of the community and really the world outside the community.
(11:26):
A lot of people who were curious about this currency
but didn't know a whole lot about it. However, that
does not mean that we suddenly entered a a beautiful
dream state in which no one was using bitcoin for
nefarious purposes, and sometimes they may or may not have
been fully aware of how nefarious they were. So Charlie
(11:47):
shrim he's a he's a former head of a company
called bit Instant, who was on a trip. He was
for the past couple of years been living a pretty
lush lifestyle, a lot of wining and dining, flying around. Uh,
this fellow from Brooklyn was living the high life. And
the reason was he was using you know, a bit
Instant was this company that was kind of a handler
(12:09):
for bitcoins, could could facilitate bitcoins and and really acting
as like a transaction house. Now, he was arrested as
soon as he got off a plane under charges that
he had committed conspiracy to commit money laundering and also
he failed to report suspicious activity. Plus he had a
(12:29):
charge of acting as an unlicensed money transmitter. Now all
of those charges are from his alleged business with an
with a man named Robert Faia, who was accused of
being a bitcoin merchant who was working with drug dealers
to buy and sell items on the silk Road. And
so it's kind of Ah. There's an email exchange between
(12:52):
shrem and Faia. That's the key of this case, that
so Faia's approach was that he was trying to transmit
large amounts of money and bitcoins, and the law is
still trying to catch up in the United States particularly,
but across the world in general with the existence of
bitcoins and how is that handled in transmissions when it's
(13:15):
not actual US dollars And in general, if you're considered
you're considered to be a money transmitter once you reach
a certain level. So a lot of people were telling
shrim hey, you know, let's let's make the the top
amount a thousand bitcoins. You can't transmit more than that
because more than that you're going to get and then
(13:35):
they're gonna say you are an unlicensed money transmitter, which
in fact is one of the charges. But this guy
f i AA was doing a lot of business with them,
and eventually shrim I guess was feeling really pretty comfortable
with the whole thing, and they were possibly, uh transmitting
as much as ten thousand or more bitcoins in a week.
So yeah, it eventually got the the attention of the
(13:57):
the government and they went after them. So although part
of that Senate hearing included the canny observation that that
cash is probably still the best medium for laundering money. Yeah,
and in fact, that was that would come back. In
February two, fourteen, Uh, following this whole bit instant and
shrim thing, a U S senator proposed that the United
(14:19):
States put a ban on bitcoins, which doesn't work when
you're talking about decentralized virtual currency. Yeah, you can't really
ban something that isn't technically legalized in the first place.
But in this case, it was funny because you know,
you had other senators saying this doesn't make any sense.
And in fact, I propose we banned currency because, as
it turns out, currency is often used for illegal activities.
(14:42):
In fact, if you look at currency, the US dollar
versus the bitcoin, boy, dollars are used in crime way
more frequently, all the time, every day. So we got
to get rid of that. And that was I mean,
that's about where that that new story. It was very
much a kind of uh, you know, said drowbone kind
(15:03):
of moment. Then we get to the hacking stories, the
bigger hacking stories, because we previously mentioned um, uh, well no,
and also the bot net kind of stuff, of of
individual hacking. But um, but there is of course hacking
of bigger fish, bigger money fish. Yes, exactly, because bitcoin
(15:24):
the currency. They they're very quick to say that the people,
the keepers of the bitcoin are quick to say that
the currency itself is not what has been hacked. It's
not someone has figured out how to unravel the bitcoin
so that they can make copies of it, which was
one of the big fears about digital currency. Yeah, because
people think, hey, if I download a song, I can
make copies of that song for all of my friends,
(15:47):
which is exactly what the music companies don't want me
to do. But I'm totally gonna do it anyway. What
would stop me from doing the same thing about downloading
a bitcoin and then making lots of copies. So that
has remained safe. However, institutions that are dedicated to handling
bitcoins have not had the same level of safety and security. Absolutely.
(16:09):
So one of the big ones you've probably heard it, Uh,
It was a Japanese company called mount Cox, which was
originally a Magic the Gathering card exchange. Yeah, so weird,
but at any rate, I believe it was in January. Man,
this was a big one, right, This was the one
where they were robbed. Hackers had managed to exploit a
(16:30):
security vulnerability in the Mount Cox Exchange non exchange. Think
of an exchange as a place where you can exchange currencies,
So you could purchase bitcoins or you could sell off
bitcoins at this exchange. They would base the value on
whatever the market would bear at that time. Well, the
hackers had been able to exploit a security vulnerability for
the course of a couple of years. Actually, Uh, it
(16:53):
was just that the Mount Cox folks kind of figured
it out gradually, and then then the news broke and
then that's when every thing really fell apart. Yeah, February.
By the way, I mistook that January. Well, it had
certainly been happening before, but but it wasn't announced till
till then. Yeah, And and it turned out that they
lost seven hundred fifty bitcoins that belonged to customers, plus
(17:15):
an additional hundred bitcoins that belonged to the exchange itself.
And at the time, that was about half billion dollars
worth of bitcoins. Uh at if you took it at
the that the the value of bitcoins in US dollars
at the time the news was announced, keeping in mind
these stuffs had been going on for a while as
(17:36):
hackers had found this vulnerability. So that was pretty much
the end of Mount Gus at least, maybe not the end,
but it certainly sent them into the equivalent of bankruptcy
in Japan. In fact, the CEO had to step forward
and bow and apologize to uh to customers, because that's
the that's the custom in Japan. And the last I heard,
(17:59):
the ends are that he will step down once a
suitable replacement is found for him. There are other companies
that are even in worse shape than that. Yeah. Just
a couple of weeks later, flex Coin, which which is
a kind of bank for bitcoins UM, had to shut
down after being hacked and and losing how many eight
(18:19):
nine bitcoins? Yeah yeah, Now by this time the value
of those bitcoins were less valuable than the ones from
the previous ones because bitcoin had taken quite a hit
in its value. H So, yes, there were more bitcoin
stolen in the flex coin story, but they were you know,
they weren't worth quite as much. Yeah, they were. Oddly,
they were worth less because confidence was lower UM, and
(18:43):
it also was you know, banking quotation marks because well,
it's not technically a bank because it is necessarily uninsured.
That's you know, that's part of the whole anarchist package, right,
it's not it isn't beholden to some government agency or
some other corporate entity. And so because they weren't ensured,
there's no way to to to cover that money. Yeah,
(19:06):
so that money is gone and as a result, the
company is shutting down. The only bitcoins that they retained
were what in what they called cold storage. They had
two different styles of storage. There was a hot wallet,
which was called that because the the bitcoins were active
on network servers that were connected to the Internet. And
the reason for that was so that they would be
(19:28):
available for transactions, because you don't want that transaction to
take forever. You don't. You don't you don't want to
have someone to have to go physically hook a hard
drive up to a server in order to access your
bitcoin every time. Um, but that cold storage is very
much the Battlestar Galactica kind of kind of the new
the New. Okay, I'm looking at you, frankly, I'm like,
what the big silver cylon or is this sexy cylon
(19:51):
by Well, it's about sexy silocek. But but but but
I'm referring, of course, to to the part of Battlestarre
Galactic at the new series in which a few members
that the government had started going like, you know, we
really shouldn't have computer networks or large networks hooked up
to other large networks, because that's a terrible plan for
security for security purpose. So and that's exactly what they
were doing with cold storage, and that they were essentially
(20:13):
having these on servers that were not connected to the Internet,
and they said, you know, it's really hard to steal
money when that money is not connect to the Internet.
It's not impossible. You can use some social engineering and
get direct access to the actual machine and be able
to do it that way. Sure, but that is much
more difficult. Yeah, that's mission impossible, risky as opposed to
(20:33):
the net risky. Yes, if I could mix my terrible
Hollywood depictions of stealing stuff anyway, flex Coin said, it's
going to work very hard to make sure that the
coins and cold storage get to the valid owners of
that currency before they shut down totally. So you would
think that because we're talking, you know, we're recording this
(20:55):
in March two thousand fourteen. We're talking about story that
broke in late February two fourteen. Clearly we wouldn't have
any more stories to talk about about hackers getting access
to bitcoins. Ah, yeah, now we do. Yeah, because it
turned out that this morning, when I was looking at
the news, one of the items was that actually was
this afternoon. It was even later than this morning. There
(21:15):
was a company called Poland Polo n X p O
l O n I e X poloni x I guess uh.
They lost around fifty grand worth of bitcoins in US dollars. Uh.
The actual number of bitcoins lost were seventy six point
six nine. Like we said in our previous episode, bitcoins
can be divided down into teeny tiny numbers. They lost
(21:36):
seventy six point six nine bitcoins, which represents about twelve
point three percent of all the bitcoins they had in storage.
So their solution temporarily is to reduce everyone's account by
twelve point three percent to distribute the loss across all customers.
That's a terrible way of covering a loss, right, you
might think, but my money wasn't stolen, and now you're
(21:57):
stealing my money. Not supposed to be temporary they are
supposed to work at trying to recover in some fashion
the value of those bitcoins and restore it to everybody
so that uh, this distributed loss is not felt so
keenly and that it's eventually restored. But yeah, you would
imagine that this would probably make some customers a little miffed. Certainly.
(22:19):
I've seen some online responses to that my fitness um
of of people just going like, you participated in a
currency designed for thievery, and you were surprised when it
attracted thieves. And I think I think that that's a
little bit harsh um, but perhaps an interesting point. Yeah,
there's a there's more than a little speck talk. But
(22:41):
you know, we've got some more we want to say
about the crazy shenanigans, what goes on with this crazy currency.
But before we do that, let's take a quick break
to thank our sponsor. Now we mentioned before that one
of the other controversies, or or at least one of
the other concerns about bitcoins is how did they fit
in with the world of taxes. Because it's a decentralized currency,
(23:04):
it's not dependent upon any government. However you are doing
using it to do business, you may be doing business
at least you know, the the equipment you use, maybe
within the confines of a particular country. I'm pretty sure
you haven't figured out how to put a server someplace
beyond the reach of all law, right, most most servers
are not physically in the clouds. Yeah, maybe you found
(23:25):
some way. Maybe you bought an island and it's your
own little sovereignation, in which case you can skip forward
a little bit in this. But does call us because
that sounds like an awesome party. Yeah, especially if that
islands like somewhere near the equator, I will totally go.
But anyway, the the the problem here is that governments
don't really know how to deal with this properly, in
(23:47):
the in the sense of how how would we tax
the use of bitcoins? Could we tax it? Should we
tax it? I think most governments say, yeah, we should
totally tax. Now. What what is not beyond question is
making money through the exchange of bitcoins, Because if you
are exchanging bitcoins for other currencies and you're making money
that way, that's something that the government, at least in
(24:08):
the United States, will totally tax. The old buying, low
selling or h had a moment of terrible doubt. Yeah,
well I do whenever I look at the market. Se
this is why I don't play the stock playing is
the right word for it. Uh. Yeah. So the idea here,
of course, is that if I if I invest in bitcoins,
(24:28):
like and I'm not mining, if I'm actually uh using
them as a like a commodit change, right, yeah, like
I exchange. But yes, yeah, I've purchased some bitcoins using
US dollars. So now I have the equivalent in bitcoins
available to me, and then the value increases over time,
and then I sell those bitcoins to get US dollars
(24:48):
again and thus make a profit. I could be taxed
on that. So that's in the future we may see
taxes being applied more broadly across different types of transactions.
So that's that's another problem with bitcoins in general. And
uh and the biggest one is kind of related, I think,
because it's all about the volatility of that market, of
(25:10):
the exchange market, of how much a bitcoin is worth
in um forgive me, but real dollars oh sure, yeah, well,
or just value. You could just say, what's the value
of a bitcoin? What can a bitcoin get me? And
the truth of the matter is that changes so quickly
and so dramatically, even over the course of a day,
that it's hard to answer that question in a meaningful way.
(25:33):
I mean, we've seen bitcoin's value go from around a
dollar per bitcoin US to twelve hundred dollars US per bitcoin. Yeah. Yeah,
in the span of thirteen alone. Um it went from
between twelve and thirteen bucks to uh to one thousand,
two hundred forty two dollars per coin on November twenty nine,
(25:54):
and then had crashed back to under six hundred by
late December. So, in other words, here's here's how I
want to put my argument that I always make, and
I've made it multiple times, and I've debated this with
other people in the technology space. I say that bitcoin
is not really a currency. It's more like a commodity.
It's more like investing. Yeah, it's something where it you
(26:17):
know it. You could use it to exchange, but that's
almost more like bartering than than a currency because the
value changes so dramatic. Well, although I mean, any any
money that you're using is a little bit imaginary and
you're technically bartering with it. But again, that one of
the benefits of having a regulated currency is that the
government can take steps to try and keep the value
(26:38):
as consistent as possible. It doesn't always work, because there
are situations where you know, inflation will get out of control,
maybe uh, due to external circumstances. That does happen. We've
seen it happen across the world, certainly. But I guess
the thing that you're arguing, and and it's a fair argument,
is that if you if you're going to believe in
a money system, then the more official and founded that
(27:00):
belief is. So the example I have here is, let's
say that dollars behave the same way that bitcoins have
behaved over the last couple of years. And I have
a five dollar bill in my hand, and I'm peckish,
and I decided I want to go out and buy
myself it's last pizza. So I go outside and there's
a pizza vendor and he's selling slices of pizza and
(27:22):
it's five dollars of slice, and I think, well, you
know that's I'm hungry, it's exactly what I want to me.
This slice of pizza is probably worth the five dollars,
a little more than what I would normally pay, but
open so I hand over my my hard earned five
dollar bill, and he hands over his hard earned slice
of steamy pizza, and then I devour it and I
(27:44):
go on my merry way. The next day, the value
of that five dollar bill now has the equivalent buying
power of what five hundred dollars would have gotten me
the day before. So, in other words, it's still a
five dollar bill, but now it can buy five worth
of stuff. Yeah, from the previous day, from the previous day.
So so in other words, I just in my mind,
(28:06):
I'm thinking, yesterday I bought a five hundred dollar slice
of pizza. I no pizza in my life has ever
been that good. And I've been to Sorrento, Italy when
I had amazing pizza there. It was not worth five
dollars a slice. I can I can imagine it's really
good truffle oil. I don't know, but maybe twelve dollars
(28:27):
maybe if I were feeling like like hoity toity. This
is like a you know, a chic place, and I'm
there to be seen, Yeah, exactly, but not five dollars
a slice. So the point I'm making is that the
volatility makes you nervous about spending the currency. I would
I would be reluctant to spend my bitcoins for fear
(28:47):
that I would miss out on the next giant jump
and value. So that if I ended up, you know,
having like three or four bitcoins and I'm thinking, oh, wow,
this is worth five dollars United States money, I'm gonna
I'm gonna exchange it now, and then a year later
it's worth thirty six dollars, I would be a little
perturbed at myself. I'd be upset. And it discourages people
(29:11):
from using it as a currency. They might use it
to invest, and they might hold onto stuff, and some
of the markets we talked about, some of the illegal
markets might use bitcoins for currency because of the other. Yeah,
it's easy, but it's you know, if the very basis
of your currency discourages you from using it, then it's
not successful as a currency. That's not the fault of
(29:32):
bitcoin itself. The fault of that is with the market.
Because the value of something is based upon its demand.
If demand is high, the value is high, especially if
you compare it against the supply. If the supply is
low and demand is high, that thing is valuable, right,
And in some cases we see things that manipulate markets
so that you have an artificial value on something because
(29:57):
it looks like supply is low and demand is high,
even supply is also high. Yeah. Yeah, if you ever
want to really get this illusion, look into the diamond
business and see how there is no shortage of diamonds
and yet they're being treated like they're this incredibly precious resource.
I think I'm nearly positive that one of our fellow
podcasters here at how stuff Works has done an episode
(30:18):
on that. And I know that there are articles on
how stuff works dot com that go into deep detail
and they are they're fascinating, insulting, and terrifying. Um. But yeah,
I mean, you know, and it's it's the kind of
thing where it behaves like like a stock, like a commodity.
And uh, you know, after the news about Mount Cox
broke in in February, on that exchange, at any rate
(30:41):
before it was shut down totally, the value of bitcoins
dropped all the way down to something around two twenty
dollars for bitcoin. Um, that's that's that's pretty dramatic. Yeah.
Since then, on on most US exchanges, it's it's hovering
right around uh six and in eighty dollars or it
(31:02):
was as of Tuesday. Right now it's around six sixty dollars,
because that's how it does. Yeah. Yeah, So that's the
thing is that you see these stories too, and these
stories start to mount up, and there are two big
pathways that people have started to say this is what
bitcoin is going to go down, and they are two
pathways that go in opposite directions. So you have one
(31:23):
population saying the currency is robust, it can survive these controversies,
it can survive all these problems. It's not the currency's
fault that the bank was robbed, just as you would
say it wasn't the dollar bills fault. If someone robbed
a physical bank and stole dollar bills out of it,
you would say it was the bank's fault for not
having the right security to meet up with the the
(31:45):
challenge of fighting off these robbers. Same sort of thing.
You would argue that these institutions didn't have the security
to keep it safe from hackers, but the currency itself
was perfectly fine. Um, so those people say everything's gonna
be fine, We're gonna weather the storm, it will actually
end up proving that bitcoin is a viable currency currency, right,
(32:08):
and that in the future this is something we're all
going to be using. Um, So you still have the
faithful who really believe in that. I'm sure many of
them probably hold quite a few bitcoin, sure, and I
am honestly it has surprised me that, in the face
of Mount Cox and all all of these other robberies
that have happened recently, that the value of bitcoin has
(32:29):
not permanently plummeted or more permanently over the course of
two weeks, right, right, and and part of this is
you know, again, the value is all based on perception.
If everyone loses confidence in bitcoins, then the value will
will plummet, like you said, but it's only if people
lose confidence in it. If people don't lose confidence in it,
if they kind of roll with this, then bitcoin will
(32:51):
remain valuable. It's all based psychologically. So there are other
people who say, you know, bitcoin is just doomed to fail.
There's Antical in New York magazine that's all about the
cult of bitcoin. Yeah, it's a really long article. It's
very critical of bitcoin and the bitcoin culture. Uh, and
also includes a quote from a computer science professor at
(33:14):
Cornell named Erman Gunn Serrier who said that Bitcoin at
the moment is in a slump with a community that
has become its own parody. The bitcoin masses, judging by
their behavior on forums, have no actual interest in science, technology,
or even objective reality when it interferes with their market position.
(33:36):
They believe that holding a bitcoin somehow makes them an
active participant in a bold new future, even as they
passively get fleased in the Boulder current present burn Yeah.
So uh, these two camps obviously very much in disagreement
about what the future of bitcoin will be. Um, Honestly,
(33:59):
I don't know. Uh, I'm frankly like you, Lauren, I'm
kind of surprised that the value hasn't taken a harder
hit than what it is that right now. Based upon this,
I would think that people's but they would have all
pulled out or pulled out more so at least the
people who aren't, like the hardcore bitcoin community members like that,
(34:21):
the ones who are really who have who have totally
bought into that philosophy, that ethos I can completely understand them,
being like dedicated to the very end, like a like
a cold computer teddy bear. Yes, And the investors who
are more likely the ones who they are interested in
playing the market are who are using it to their
(34:42):
advantage as a curiosity. I could see them being the
ones who really are have lost the confidence and want
to get out. It's it's it's not because they don't
buy into the philosophy or the ethos they're buying into
it as this is like yeah, so um, but they
but they haven't or not enough of them have and right,
so it'll it'll remain to be seen which of those
two pathways happen. And again we will eventually not not
(35:06):
in the very near future, we will eventually cover other
digital currencies, uh and talk about those and how they
are similar to and different from bitcoin. And I do
think that we're going to see some digital currency. We
may see government regulated digital currencies as well. Who knows.
We could have lots of competing currencies out there on
(35:28):
the global market, and uh, it may be that it
will take years before it settles into something that is,
you know, stable and reliable. It may very well be
that we have fractured currencies where if you want to
buy things off one market, then you need one kind
of digital currency and another market you need another. For us,
video gamers were used to this because you can't use
(35:50):
warcraft dollars to buy stuff in ever. Quest. What I
what I really hope comes out of all of this
HUBU is a greater interest in and understanding of cryptography
and it's potential use for monetary systems. Because whether or
not you you want to buy into this, this counterculture movement,
(36:11):
I think that it's a really terrific application for making
things more secure. Exactly yes, and uh, of course, with
quantum computers right around the corner, cryptography is going to
become more and more of a challenging field all on
its own. But that's another podcast. So we're gonna wrap
this up. Guys. If you have any suggestions for future
topics we can tackle here on tech Stuff, let us know.
(36:33):
Send us a message on many of the social networks
were on that includes Twitter, Facebook, and Tumbler. We have
the handle of tech Stuff hs W or if you're
old school and you like sending those emails, you can
send us an email with the address tech stuff at
Discovery dot com and Lauren and I will talk to
you again really soon for more on this and thousands
(36:55):
of other topics. Because it how staff works dot Com
Get in touch with technology with text stuff from stuff
dot com. Hey there, everyoneted, Welcome to tech Stuff. I'm
Jonathan Strickland and I'm Lauren. And in our last episode
we kind of laid the groundwork about what bitcoin is,
kind of refreshing your your memory, and also the breaking
(00:25):
news at the time of recording about the possible identity
discovered of the guy who who came up with the
whole idea in the first place, Sato Nakamoto, who might
in fact be a guy named Satoshi Nakamoto. And this
was a surprise. So if you missed that episode, go
back and give it a listen, Yeah, because it'll it'll
definitely give you some context for what we're going to
(00:47):
talk about today, which is the controversies of bitcoin and
also what's in the future. Yo. That's a that's a
really great question that many people are asking themselves because
there have been so many con troversies of over bitcoin,
especially in the past like three to five months. Yeah. Yeah, So,
I mean, first of all, they're just the very nature
(01:09):
of bitcoin, the fact that you get at the coins
by either purchasing them in an exchange or you mind
them through using computer power to solve mathematical problems. Well,
if you're thinking, hey, I've done a computer I can
solve math problems. Well, if you listen to our last episode,
you know that you need a lot of computing power
because they're you're just you're The competition you're up against
(01:31):
is crazy. Yeah, and so some people will join mining
groups sort of like almost like a lottery pool, like
we were saying in the last episode. And some people
force other folks to join a mining group without them
necessarily knowing about it, by creating buttonets a k a.
You might have also heard of buttonets being referred to
as zombie computer armies. Yes, these are the boy. If
(01:52):
you're a longtime fan of tech stuff, you've heard us
talk about this. This was one of our first episodes.
But essentially what this is is when a hacker uses
software to get administrative access to someone else's computer. Generally,
this is done by fooling the person into installing a
program and then yeah, there's usually a trojan horse malware
(02:13):
that will install a backdoor access point for for someone
to go over in network and then send commands remotely
so that they make your machine do stuff they wanted
to do. And there are lots of different ways that
hackers use bought nets, and one of them is to
direct computers to mine for bitcoins. So what they're doing
(02:34):
is they're trying to get as many different computers as
possible to coordinate in this task, and then the hacker
reaps the benefits. So your computer might have actually been
the one to mind that bitcoin, but you don't see
any of that because it's going to some hacker somewhere. Yeah.
One particularly widespread bit of malware like this was was
busted back in April. Jonathan actually blogged about it back then. Yeah. Yeah, So,
(02:59):
I mean it's it's still one of those things that
remains a concern because it's, you know, it's the world
of the digital realm. I mean, it's it's one of
those things where you've it's different from our physical world, right,
and as we alluded to in our previous episode, the
fact that all of this is different from our physical
world lens bitcoins. I mean that and the fact that
they are necessarily decentralized and unregulated means that sometimes people
(03:24):
use them for less than upright purposes. Yeah, okay, so
we're gonna we're gonna lay it down. Uh, you know,
just be perfectly honest and blunt here, because when when
I did an episode way back in the day, I
think it wasn't wasn't two thousand eleven, I think we
said in our previous episode, but we kind of danced
around it because we didn't really want to address it
(03:46):
very much. But it's very much something that we have
to talk about, and this is markets that would support
illegal trades, and illegal would depend heavily upon where you
happen to be in the world, because I guess you know,
laws are different in different places. But absolutely largely this
was mostly focused on drugs, illicit drugs. So the famous
(04:08):
market was the Silk Road, now the Silk Road at
first of all, it took took its name from a
historic trade route that connected Asia to Europe, and the
idea was that this was a market where buyers and
sellers could meet anonymously have these transactions. Bitcoins were accepted there,
one of the few places that bitcoins were excepted, one
(04:29):
of the earliest two and uh and you it was
a tour hidden service. So this meant that you could
actually log again and you don't have to worry that
you're being tracked or that your identity is out there
for everybody. So it was kind of a haven for
this sort of activity, so much so that, uh that
the illicit activity made up the majority of the things
(04:52):
you could buy on the Silk Road. It wasn't just
illegal stuff. You could buy legal stuff too. You could
go to the Silk Road and buy clothing or computer
parts and things like that. Sure, but one report from
the Guardian said that drugs were up to sevent of
what was available on that market. Yeah, at that point,
you're like, I'm going to an illegal drug store that
also has a computer aisle. That's essentially what you're talking
(05:14):
about there. So I mean, and here's the thing. You'll
see Bitcoin community folks, some of them, not all of them.
I don't want to paint everyone with a broad brush.
Certainly not, but there were some who would say, look,
this is just a free market. The fact that drugs
are there is that's irrelevant. We're talking about. This is
where merchants and buyers can get together and exchange goods.
It's meant without government interference on that level. Sure, I
(05:37):
mean that that's intellectually I can understand what you're saying.
But practically seventy percent of the stuff there was illegal.
So when you when you strip away the philosophy and
look at the reality, you have to be you have
to be intellectually honest and say, all right, there, these
things are being done to to purchase illegal goods. Now
(05:59):
you might think that those goods shouldn't be illegal, but
that's a totally different issue. That's the whole other discussion.
And at any rate, in October, the FBI got pretty
deeply involved. Yeah, they arrested a man named Ross William
Albrich on charges of drug trafficking, computer hacking, money laundering,
and here's the big one, soliciting murder, essentially assassination. So uh,
(06:24):
they ended up arresting him. They claim that Albrecht is
the man behind the Silk Road, that he was using
the handle dread pirate Roberts. Uh. You know, I do
not think it means what he thinks it thinks it means.
But at any rate, they arrested him. They claimed that
that what that he was the guy behind the Silk Road. Albrick,
for his part, denies it. Uh, and the FBI shut
(06:46):
down the Silk Road, although almost immediately Silk Road two
point oh popped up into its place. Certainly, but shutting
down the system froze all of all of the bitcoins
that were in circulation in that in the market in
the market right, which was some three point five million
US worth at the time, and the fact that the
FBI sees that amount of bitcoin means that they are
(07:09):
one of the largest holders of the currency in the world. Yeah,
Makamoto and the FBI point that'd be a great children's
book at any rate. Uh So, Yeah, there were a
lot of people who were not happy about this, including
the ones who started up Silk Road two point oh
and Dreadpirate Roberts was active again, presumably on being controlled
by a different person, assuming of course that Olbrick was
(07:30):
in fact the original Dreadpire Roberts. So Silk Road two
point oh on February two thousand fourteen made these would
be drug dealers unhappy a second time because they announced
that they had been the target of hackers and that
the s grow accounts of the Silk Road two point
oh have been cleaned out of two point seven million
(07:52):
dollars worth of bitcoins. Uh Following Silk Road two point
oh was another market called Utopia, which not only allowed
for the sale of drugs, but opened it up to
guns as well, because when you're called utopia, that's really
the true avenue. Yeah no, yeah, that's I think there
might have been some irony there anyway. They were also
(08:14):
shut down just days after the site launched. Uh, the
police held a sting operation and shut that one down.
Now here's the thing, um, as soon as one of
these markets goes down, I'm sure other ones pop up
because the demand is there. So until you get to
a point where either the demand is not there or
(08:34):
people feel that there's just not a too much risk
and on a reward, then it's just going to keep happening. However,
decentralizing it, you could argue, is um a worthy cause
if you believe that shutting down this kind of thing
is a good, good plan, right right. There are people
in the bitcoin community who say, hey, this shows that
bitcoins work because you can shut down the markets that
(08:56):
aren't playing fair and everything else can keep on operating. However,
the rest of the world is saying, this is a
currency where the markets can get shut down and then
all your money goes away, which can of course reduce
confidence in that currency. So these these events are hurting
bitcoin in the sense that its value can suffer because
(09:17):
people feel less confident of it. I can, but that's
not always the practical outcome of this kind of thing,
and we'll talk a little bit about that later on,
I think. Meanwhile, in November, in response to all of
this hubbub, it was basically right after the FBI had
had shut down Silk Road one UM, the U S.
Senate held a hearing on bitcoin and the general potential
(09:39):
of virtual currencies. The Federal Reserve Chairman at the time,
Ben Brannank, released a letter ahead of the hearing that
acknowledged that UM that the government you know, of course
does not have authority to supervise virtual currencies like bitcoin UM,
but also said that this kind of stuff and I
quote may hold long term promise, particularly if the innovations
(10:00):
promote a faster, more secure, and more efficient payment system UM,
and that that idea, along with general curiosity about it,
seemed to really be the moral of this of this
Senate hearing, which was really interesting to me. UM. There
was of course concern raised about bitcoin being used to
drive crime, but the fact that people in the government
(10:22):
were open to the concept and then thought that it
was pretty cool and not only you know, to be
used as a marker for stuff that should be shut down.
I think it's great. Yeah, there's a there's a there's
an unequal distribution of savv nous in the government. Absolutely,
and we're gonna we're gonna cover a little bit more
of that just second, because you know, some people they
(10:44):
get it for one thing. You know, once you open
a door on the Internet, that doors open, right, I mean,
even if you try and remove everything, it's once it's
on the internet, the idea is out there. And as
we've said, bitcoin is not the only digital currency out there,
and digital currency certainly is poised to be very disruptive. Uh.
And you know this Bitcoin is kind of the perfect
(11:06):
example of how disruptive it can be in the extreme.
It doesn't even have to be that extreme to be disruptive.
So uh, it's interesting. And and that that senate hearing
where we had senators talking frankly about this kind of stuff,
lent a lot of legitimacy to bitcoin in the eyes
of the community and really the world outside the community.
(11:26):
A lot of people who were curious about this currency
but didn't know a whole lot about it. However, that
does not mean that we suddenly entered a a beautiful
dream state in which no one was using bitcoin for
nefarious purposes, and sometimes they may or may not have
been fully aware of how nefarious they were. So Charlie
(11:47):
shrim he's a he's a former head of a company
called bit Instant, who was on a trip. He was
for the past couple of years been living a pretty
lush lifestyle, a lot of wining and dining, flying around. Uh,
this fellow from Brooklyn was living the high life. And
the reason was he was using you know, a bit
Instant was this company that was kind of a handler
(12:09):
for bitcoins, could could facilitate bitcoins and and really acting
as like a transaction house. Now, he was arrested as
soon as he got off a plane under charges that
he had committed conspiracy to commit money laundering and also
he failed to report suspicious activity. Plus he had a
(12:29):
charge of acting as an unlicensed money transmitter. Now all
of those charges are from his alleged business with an
with a man named Robert Faia, who was accused of
being a bitcoin merchant who was working with drug dealers
to buy and sell items on the silk Road. And
so it's kind of Ah. There's an email exchange between
(12:52):
shrem and Faia. That's the key of this case, that
so Faia's approach was that he was trying to transmit
large amounts of money and bitcoins, and the law is
still trying to catch up in the United States particularly,
but across the world in general with the existence of
bitcoins and how is that handled in transmissions when it's
(13:15):
not actual US dollars And in general, if you're considered
you're considered to be a money transmitter once you reach
a certain level. So a lot of people were telling
shrim hey, you know, let's let's make the the top
amount a thousand bitcoins. You can't transmit more than that
because more than that you're going to get and then
(13:35):
they're gonna say you are an unlicensed money transmitter, which
in fact is one of the charges. But this guy
f i AA was doing a lot of business with them,
and eventually shrim I guess was feeling really pretty comfortable
with the whole thing, and they were possibly, uh transmitting
as much as ten thousand or more bitcoins in a week.
So yeah, it eventually got the the attention of the
(13:57):
the government and they went after them. So although part
of that Senate hearing included the canny observation that that
cash is probably still the best medium for laundering money. Yeah,
and in fact, that was that would come back. In
February two, fourteen, Uh, following this whole bit instant and
shrim thing, a U S senator proposed that the United
(14:19):
States put a ban on bitcoins, which doesn't work when
you're talking about decentralized virtual currency. Yeah, you can't really
ban something that isn't technically legalized in the first place.
But in this case, it was funny because you know,
you had other senators saying this doesn't make any sense.
And in fact, I propose we banned currency because, as
it turns out, currency is often used for illegal activities.
(14:42):
In fact, if you look at currency, the US dollar
versus the bitcoin, boy, dollars are used in crime way
more frequently, all the time, every day. So we got
to get rid of that. And that was I mean,
that's about where that that new story. It was very
much a kind of uh, you know, said drowbone kind
(15:03):
of moment. Then we get to the hacking stories, the
bigger hacking stories, because we previously mentioned um, uh, well no,
and also the bot net kind of stuff, of of
individual hacking. But um, but there is of course hacking
of bigger fish, bigger money fish. Yes, exactly, because bitcoin
(15:24):
the currency. They they're very quick to say that the people,
the keepers of the bitcoin are quick to say that
the currency itself is not what has been hacked. It's
not someone has figured out how to unravel the bitcoin
so that they can make copies of it, which was
one of the big fears about digital currency. Yeah, because
people think, hey, if I download a song, I can
make copies of that song for all of my friends,
(15:47):
which is exactly what the music companies don't want me
to do. But I'm totally gonna do it anyway. What
would stop me from doing the same thing about downloading
a bitcoin and then making lots of copies. So that
has remained safe. However, institutions that are dedicated to handling
bitcoins have not had the same level of safety and security. Absolutely.
(16:09):
So one of the big ones you've probably heard it, Uh,
It was a Japanese company called mount Cox, which was
originally a Magic the Gathering card exchange. Yeah, so weird,
but at any rate, I believe it was in January. Man,
this was a big one, right, This was the one
where they were robbed. Hackers had managed to exploit a
(16:30):
security vulnerability in the Mount Cox Exchange non exchange. Think
of an exchange as a place where you can exchange currencies,
So you could purchase bitcoins or you could sell off
bitcoins at this exchange. They would base the value on
whatever the market would bear at that time. Well, the
hackers had been able to exploit a security vulnerability for
the course of a couple of years. Actually, Uh, it
(16:53):
was just that the Mount Cox folks kind of figured
it out gradually, and then then the news broke and
then that's when every thing really fell apart. Yeah, February.
By the way, I mistook that January. Well, it had
certainly been happening before, but but it wasn't announced till
till then. Yeah, And and it turned out that they
lost seven hundred fifty bitcoins that belonged to customers, plus
(17:15):
an additional hundred bitcoins that belonged to the exchange itself.
And at the time, that was about half billion dollars
worth of bitcoins. Uh at if you took it at
the that the the value of bitcoins in US dollars
at the time the news was announced, keeping in mind
these stuffs had been going on for a while as
(17:36):
hackers had found this vulnerability. So that was pretty much
the end of Mount Gus at least, maybe not the end,
but it certainly sent them into the equivalent of bankruptcy
in Japan. In fact, the CEO had to step forward
and bow and apologize to uh to customers, because that's
the that's the custom in Japan. And the last I heard,
(17:59):
the ends are that he will step down once a
suitable replacement is found for him. There are other companies
that are even in worse shape than that. Yeah. Just
a couple of weeks later, flex Coin, which which is
a kind of bank for bitcoins UM, had to shut
down after being hacked and and losing how many eight
(18:19):
nine bitcoins? Yeah yeah, Now by this time the value
of those bitcoins were less valuable than the ones from
the previous ones because bitcoin had taken quite a hit
in its value. H So, yes, there were more bitcoin
stolen in the flex coin story, but they were you know,
they weren't worth quite as much. Yeah, they were. Oddly,
they were worth less because confidence was lower UM, and
(18:43):
it also was you know, banking quotation marks because well,
it's not technically a bank because it is necessarily uninsured.
That's you know, that's part of the whole anarchist package, right,
it's not it isn't beholden to some government agency or
some other corporate entity. And so because they weren't ensured,
there's no way to to to cover that money. Yeah,
(19:06):
so that money is gone and as a result, the
company is shutting down. The only bitcoins that they retained
were what in what they called cold storage. They had
two different styles of storage. There was a hot wallet,
which was called that because the the bitcoins were active
on network servers that were connected to the Internet. And
the reason for that was so that they would be
(19:28):
available for transactions, because you don't want that transaction to
take forever. You don't. You don't you don't want to
have someone to have to go physically hook a hard
drive up to a server in order to access your
bitcoin every time. Um, but that cold storage is very
much the Battlestar Galactica kind of kind of the new
the New. Okay, I'm looking at you, frankly, I'm like,
what the big silver cylon or is this sexy cylon
(19:51):
by Well, it's about sexy silocek. But but but but
I'm referring, of course, to to the part of Battlestarre
Galactic at the new series in which a few members
that the government had started going like, you know, we
really shouldn't have computer networks or large networks hooked up
to other large networks, because that's a terrible plan for
security for security purpose. So and that's exactly what they
were doing with cold storage, and that they were essentially
(20:13):
having these on servers that were not connected to the Internet,
and they said, you know, it's really hard to steal
money when that money is not connect to the Internet.
It's not impossible. You can use some social engineering and
get direct access to the actual machine and be able
to do it that way. Sure, but that is much
more difficult. Yeah, that's mission impossible, risky as opposed to
(20:33):
the net risky. Yes, if I could mix my terrible
Hollywood depictions of stealing stuff anyway, flex Coin said, it's
going to work very hard to make sure that the
coins and cold storage get to the valid owners of
that currency before they shut down totally. So you would
think that because we're talking, you know, we're recording this
(20:55):
in March two thousand fourteen. We're talking about story that
broke in late February two fourteen. Clearly we wouldn't have
any more stories to talk about about hackers getting access
to bitcoins. Ah, yeah, now we do. Yeah, because it
turned out that this morning, when I was looking at
the news, one of the items was that actually was
this afternoon. It was even later than this morning. There
(21:15):
was a company called Poland Polo n X p O
l O n I e X poloni x I guess uh.
They lost around fifty grand worth of bitcoins in US dollars. Uh.
The actual number of bitcoins lost were seventy six point
six nine. Like we said in our previous episode, bitcoins
can be divided down into teeny tiny numbers. They lost
(21:36):
seventy six point six nine bitcoins, which represents about twelve
point three percent of all the bitcoins they had in storage.
So their solution temporarily is to reduce everyone's account by
twelve point three percent to distribute the loss across all customers.
That's a terrible way of covering a loss, right, you
might think, but my money wasn't stolen, and now you're
(21:57):
stealing my money. Not supposed to be temporary they are
supposed to work at trying to recover in some fashion
the value of those bitcoins and restore it to everybody
so that uh, this distributed loss is not felt so
keenly and that it's eventually restored. But yeah, you would
imagine that this would probably make some customers a little miffed. Certainly.
(22:19):
I've seen some online responses to that my fitness um
of of people just going like, you participated in a
currency designed for thievery, and you were surprised when it
attracted thieves. And I think I think that that's a
little bit harsh um, but perhaps an interesting point. Yeah,
there's a there's more than a little speck talk. But
(22:41):
you know, we've got some more we want to say
about the crazy shenanigans, what goes on with this crazy currency.
But before we do that, let's take a quick break
to thank our sponsor. Now we mentioned before that one
of the other controversies, or or at least one of
the other concerns about bitcoins is how did they fit
in with the world of taxes. Because it's a decentralized currency,
(23:04):
it's not dependent upon any government. However you are doing
using it to do business, you may be doing business
at least you know, the the equipment you use, maybe
within the confines of a particular country. I'm pretty sure
you haven't figured out how to put a server someplace
beyond the reach of all law, right, most most servers
are not physically in the clouds. Yeah, maybe you found
(23:25):
some way. Maybe you bought an island and it's your
own little sovereignation, in which case you can skip forward
a little bit in this. But does call us because
that sounds like an awesome party. Yeah, especially if that
islands like somewhere near the equator, I will totally go.
But anyway, the the the problem here is that governments
don't really know how to deal with this properly, in
(23:47):
the in the sense of how how would we tax
the use of bitcoins? Could we tax it? Should we
tax it? I think most governments say, yeah, we should
totally tax. Now. What what is not beyond question is
making money through the exchange of bitcoins, Because if you
are exchanging bitcoins for other currencies and you're making money
that way, that's something that the government, at least in
(24:08):
the United States, will totally tax. The old buying, low
selling or h had a moment of terrible doubt. Yeah,
well I do whenever I look at the market. Se
this is why I don't play the stock playing is
the right word for it. Uh. Yeah. So the idea here,
of course, is that if I if I invest in bitcoins,
(24:28):
like and I'm not mining, if I'm actually uh using
them as a like a commodit change, right, yeah, like
I exchange. But yes, yeah, I've purchased some bitcoins using
US dollars. So now I have the equivalent in bitcoins
available to me, and then the value increases over time,
and then I sell those bitcoins to get US dollars
(24:48):
again and thus make a profit. I could be taxed
on that. So that's in the future we may see
taxes being applied more broadly across different types of transactions.
So that's that's another problem with bitcoins in general. And
uh and the biggest one is kind of related, I think,
because it's all about the volatility of that market, of
(25:10):
the exchange market, of how much a bitcoin is worth
in um forgive me, but real dollars oh sure, yeah, well,
or just value. You could just say, what's the value
of a bitcoin? What can a bitcoin get me? And
the truth of the matter is that changes so quickly
and so dramatically, even over the course of a day,
that it's hard to answer that question in a meaningful way.
(25:33):
I mean, we've seen bitcoin's value go from around a
dollar per bitcoin US to twelve hundred dollars US per bitcoin. Yeah. Yeah,
in the span of thirteen alone. Um it went from
between twelve and thirteen bucks to uh to one thousand,
two hundred forty two dollars per coin on November twenty nine,
(25:54):
and then had crashed back to under six hundred by
late December. So, in other words, here's here's how I
want to put my argument that I always make, and
I've made it multiple times, and I've debated this with
other people in the technology space. I say that bitcoin
is not really a currency. It's more like a commodity.
It's more like investing. Yeah, it's something where it you
(26:17):
know it. You could use it to exchange, but that's
almost more like bartering than than a currency because the
value changes so dramatic. Well, although I mean, any any
money that you're using is a little bit imaginary and
you're technically bartering with it. But again, that one of
the benefits of having a regulated currency is that the
government can take steps to try and keep the value
(26:38):
as consistent as possible. It doesn't always work, because there
are situations where you know, inflation will get out of control,
maybe uh, due to external circumstances. That does happen. We've
seen it happen across the world, certainly. But I guess
the thing that you're arguing, and and it's a fair argument,
is that if you if you're going to believe in
a money system, then the more official and founded that
(27:00):
belief is. So the example I have here is, let's
say that dollars behave the same way that bitcoins have
behaved over the last couple of years. And I have
a five dollar bill in my hand, and I'm peckish,
and I decided I want to go out and buy
myself it's last pizza. So I go outside and there's
a pizza vendor and he's selling slices of pizza and
(27:22):
it's five dollars of slice, and I think, well, you
know that's I'm hungry, it's exactly what I want to me.
This slice of pizza is probably worth the five dollars,
a little more than what I would normally pay, but
open so I hand over my my hard earned five
dollar bill, and he hands over his hard earned slice
of steamy pizza, and then I devour it and I
(27:44):
go on my merry way. The next day, the value
of that five dollar bill now has the equivalent buying
power of what five hundred dollars would have gotten me
the day before. So, in other words, it's still a
five dollar bill, but now it can buy five worth
of stuff. Yeah, from the previous day, from the previous day.
So so in other words, I just in my mind,
(28:06):
I'm thinking, yesterday I bought a five hundred dollar slice
of pizza. I no pizza in my life has ever
been that good. And I've been to Sorrento, Italy when
I had amazing pizza there. It was not worth five
dollars a slice. I can I can imagine it's really
good truffle oil. I don't know, but maybe twelve dollars
(28:27):
maybe if I were feeling like like hoity toity. This
is like a you know, a chic place, and I'm
there to be seen, Yeah, exactly, but not five dollars
a slice. So the point I'm making is that the
volatility makes you nervous about spending the currency. I would
I would be reluctant to spend my bitcoins for fear
(28:47):
that I would miss out on the next giant jump
and value. So that if I ended up, you know,
having like three or four bitcoins and I'm thinking, oh, wow,
this is worth five dollars United States money, I'm gonna
I'm gonna exchange it now, and then a year later
it's worth thirty six dollars, I would be a little
perturbed at myself. I'd be upset. And it discourages people
(29:11):
from using it as a currency. They might use it
to invest, and they might hold onto stuff, and some
of the markets we talked about, some of the illegal
markets might use bitcoins for currency because of the other. Yeah,
it's easy, but it's you know, if the very basis
of your currency discourages you from using it, then it's
not successful as a currency. That's not the fault of
(29:32):
bitcoin itself. The fault of that is with the market.
Because the value of something is based upon its demand.
If demand is high, the value is high, especially if
you compare it against the supply. If the supply is
low and demand is high, that thing is valuable, right,
And in some cases we see things that manipulate markets
so that you have an artificial value on something because
(29:57):
it looks like supply is low and demand is high,
even supply is also high. Yeah. Yeah, if you ever
want to really get this illusion, look into the diamond
business and see how there is no shortage of diamonds
and yet they're being treated like they're this incredibly precious resource.
I think I'm nearly positive that one of our fellow
podcasters here at how stuff Works has done an episode
(30:18):
on that. And I know that there are articles on
how stuff works dot com that go into deep detail
and they are they're fascinating, insulting, and terrifying. Um. But yeah,
I mean, you know, and it's it's the kind of
thing where it behaves like like a stock, like a commodity.
And uh, you know, after the news about Mount Cox
broke in in February, on that exchange, at any rate
(30:41):
before it was shut down totally, the value of bitcoins
dropped all the way down to something around two twenty
dollars for bitcoin. Um, that's that's that's pretty dramatic. Yeah.
Since then, on on most US exchanges, it's it's hovering
right around uh six and in eighty dollars or it
(31:02):
was as of Tuesday. Right now it's around six sixty dollars,
because that's how it does. Yeah. Yeah, So that's the
thing is that you see these stories too, and these
stories start to mount up, and there are two big
pathways that people have started to say this is what
bitcoin is going to go down, and they are two
pathways that go in opposite directions. So you have one
(31:23):
population saying the currency is robust, it can survive these controversies,
it can survive all these problems. It's not the currency's
fault that the bank was robbed, just as you would
say it wasn't the dollar bills fault. If someone robbed
a physical bank and stole dollar bills out of it,
you would say it was the bank's fault for not
having the right security to meet up with the the
(31:45):
challenge of fighting off these robbers. Same sort of thing.
You would argue that these institutions didn't have the security
to keep it safe from hackers, but the currency itself
was perfectly fine. Um, so those people say everything's gonna
be fine, We're gonna weather the storm, it will actually
end up proving that bitcoin is a viable currency currency, right,
(32:08):
and that in the future this is something we're all
going to be using. Um, So you still have the
faithful who really believe in that. I'm sure many of
them probably hold quite a few bitcoin, sure, and I
am honestly it has surprised me that, in the face
of Mount Cox and all all of these other robberies
that have happened recently, that the value of bitcoin has
(32:29):
not permanently plummeted or more permanently over the course of
two weeks, right, right, and and part of this is
you know, again, the value is all based on perception.
If everyone loses confidence in bitcoins, then the value will
will plummet, like you said, but it's only if people
lose confidence in it. If people don't lose confidence in it,
if they kind of roll with this, then bitcoin will
(32:51):
remain valuable. It's all based psychologically. So there are other
people who say, you know, bitcoin is just doomed to fail.
There's Antical in New York magazine that's all about the
cult of bitcoin. Yeah, it's a really long article. It's
very critical of bitcoin and the bitcoin culture. Uh, and
also includes a quote from a computer science professor at
(33:14):
Cornell named Erman Gunn Serrier who said that Bitcoin at
the moment is in a slump with a community that
has become its own parody. The bitcoin masses, judging by
their behavior on forums, have no actual interest in science, technology,
or even objective reality when it interferes with their market position.
(33:36):
They believe that holding a bitcoin somehow makes them an
active participant in a bold new future, even as they
passively get fleased in the Boulder current present burn Yeah.
So uh, these two camps obviously very much in disagreement
about what the future of bitcoin will be. Um, Honestly,
(33:59):
I don't know. Uh, I'm frankly like you, Lauren, I'm
kind of surprised that the value hasn't taken a harder
hit than what it is that right now. Based upon this,
I would think that people's but they would have all
pulled out or pulled out more so at least the
people who aren't, like the hardcore bitcoin community members like that,
(34:21):
the ones who are really who have who have totally
bought into that philosophy, that ethos I can completely understand them,
being like dedicated to the very end, like a like
a cold computer teddy bear. Yes, And the investors who
are more likely the ones who they are interested in
playing the market are who are using it to their
(34:42):
advantage as a curiosity. I could see them being the
ones who really are have lost the confidence and want
to get out. It's it's it's not because they don't
buy into the philosophy or the ethos they're buying into
it as this is like yeah, so um, but they
but they haven't or not enough of them have and right,
so it'll it'll remain to be seen which of those
two pathways happen. And again we will eventually not not
(35:06):
in the very near future, we will eventually cover other
digital currencies, uh and talk about those and how they
are similar to and different from bitcoin. And I do
think that we're going to see some digital currency. We
may see government regulated digital currencies as well. Who knows.
We could have lots of competing currencies out there on
(35:28):
the global market, and uh, it may be that it
will take years before it settles into something that is,
you know, stable and reliable. It may very well be
that we have fractured currencies where if you want to
buy things off one market, then you need one kind
of digital currency and another market you need another. For us,
video gamers were used to this because you can't use
(35:50):
warcraft dollars to buy stuff in ever. Quest. What I
what I really hope comes out of all of this
HUBU is a greater interest in and understanding of cryptography
and it's potential use for monetary systems. Because whether or
not you you want to buy into this, this counterculture movement,
(36:11):
I think that it's a really terrific application for making
things more secure. Exactly yes, and uh, of course, with
quantum computers right around the corner, cryptography is going to
become more and more of a challenging field all on
its own. But that's another podcast. So we're gonna wrap
this up. Guys. If you have any suggestions for future
topics we can tackle here on tech Stuff, let us know.
(36:33):
Send us a message on many of the social networks
were on that includes Twitter, Facebook, and Tumbler. We have
the handle of tech Stuff hs W or if you're
old school and you like sending those emails, you can
send us an email with the address tech stuff at
Discovery dot com and Lauren and I will talk to
you again really soon for more on this and thousands
(36:55):
of other topics. Because it how staff works dot Com
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