A new online currency has taken the world by storm in recent months. Bitcoin promises to break the monopoly of credit-card companies and online-payment firms by allowing people to buy goods and services using a decentralized, digital currency. The currency is already plagued by security concerns. Its value recently underwent a near collapse, which, as it turns out, was caused by fake Bitcoins flooding the market. The anonymity that Bitcoin allows has also led some to fear it will allow illegal activities to flourish online. But, as Jerry Brito explains, Bitcoin could ultimately force governments to be smarter about how – and which – laws are upheld.
THE MARK: How would you explain Bitcoin to someone without much tech knowledge?
JERRY BRITO: It's the world's first completely digital distributed currency. What that means is that it's like a dollar, or a euro, or a yen, except that it's not issued by any government – or anyone else, for that matter. We've had virtual currencies before – like Flooz, or Beanz, or e-gold, for instance. In each of those cases, there was some company that issued the currency. So if we both have an account with, let's say, Beanz, and I send you some Beanz, the Beanz corporation keeps a ledger where it subtracts Beanz from my account and adds them to yours. That's the way PayPal works, and that's the way the Bank of America works, with real dollars. What Bitcoin does is eliminate the need to have that intermediary, so that the ledger – where money is subtracted from me and given to you – is distributed among all the users. There's no central bank, and no central authority of any kind.
THE MARK: So it's distributed similar to the way torrents are distributed?
BRITO: That's right. It's a peer-to-peer network. That's actually a good example, because if you think about Napster – Napster and BitTorrent essentially did the same thing, but Napster was centralized – there was a Napster index where you went and checked for stuff. That means that once the government decided that Napster was illegal, it could shut it down. But because BitTorrent's distributed, there is no one place you can go to shut it down.
THE MARK: What's the advantage of Bitcoin over hard currency?
BRITO: Here are the advantages, from my point of view. One, it's censorship-proof. If you remember, after Cablegate, many folks here in the U.S. wanted to express their political beliefs by making a contribution to WikiLeaks. They went to use PayPal or their Visa to make a donation, and they weren't allowed, because the U.S. government – especially Senator Joe Lieberman – put pressure on these companies to block payments to WikiLeaks. So you couldn't express yourself politically that way. They didn't even need to pass a law to block that – it was just political pressure. That's a big problem.
What Bitcoin allows you to do – but which transactions through dollar-payment processors don't allow you to do – is to make payments to anyone you want without the government being able to tell you, "You can't do this." It’s like cash.
There's also the anonymity or pseudonymity aspect to it. If you're trying to buy something that's a little bit embarrassing, and you don't want Amazon or Visa to know that you're buying whatever this may be – whether it is something related to your sexuality or a disease you may have … something that's sensitive – you can use Bitcoin to make the transaction.
Finally, one kind of overlooked thing about Bitcoin is that transaction costs are very low, so it could very well allow micropayments in a way that traditional payment processors haven't. So, right now, if I wanted to buy an article from The Mark News – let's say I wanted to pay five cents to read an article – with PayPal or Visa, payment processing might cost 50 cents. It wouldn't work; people wouldn’t buy into that. Bitcoin’s low transaction costs make it much more feasible for this sort of thing.
THE MARK: Is the stability of Bitcoin's value against the U.S. dollar going to be a problem?
BRITO: Sure, of course that's a problem. Right now, as Bitcoin gets more attention, and more people come in, you have a lot of speculation related to it – and that's healthy, because speculation is how we get market values. But people can get carried away, especially with something like this, which is so new and so unknown. You're going to have ups and downs, and you're going to have bubbles, but I think it will eventually settle down.
I think the metric to look at to see if Bitcoin is succeeding is not so much the value of Bitcoin, in dollar terms, but the number of merchants that are accepting Bitcoin. If that number steadily increases, that's going to be the sign that Bitcoin is succeeding.
THE MARK: What, in your view, is the biggest advantage of Bitcoin?
BRITO: I think this is really revolutionary because of the decentralization. That's the part of this that really gets me excited. Governments seek to regulate the internet through intermediaries. They don't regulate the end users. So take gambling, for example. Say you make internet gambling illegal, as we have in the United States. How do you enforce that? Do you go after the individual gamblers? No. Here in the U.S., what we do is go after the third-party payment processors – the Visas and Mastercards of the world – and we tell them they can't make those transactions. That way, we're sort of deputizing these folks that really have nothing to do with the transaction. The casino's overseas, so you can't regulate it. What would happen if you went after individual gamblers? What do you think?
THE MARK: It would be a nightmare.
BRITO: It would be really unpopular, wouldn't it? Because it's probably your uncle, or your friends, who are betting on Monday-night football or whatever.
THE MARK: … the constituents of the congress members who voted for it ...
BRITO: Right. It would be very, very unpopular. So what does that tell you about the law? When you have this decentralized currency, there's no intermediary to go after. And you can't go after the casino. So then you're forced to go after the gamblers, and you're going to learn pretty fast that that's a bad law.
Now, take child pornography. What happens if you go after the individual persons who are buying child pornography? (Presuming you can [find them].) I think, right now, part of the problem is that governments are relying on going after intermediaries. They're going after hosts and domain name system servers; they're not putting the resources into going after the actual people who are buying child pornography, and I think that they can. But if you were able to go after these guys, that would be very popular. So what does that tell you about that law?
THE MARK: It's a good law. Right.
BRITO: My point is that Bitcoin removes one more point of intermediary control, so that governments have to face the real issue and thus determine whether it is a good law. And I like that.
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