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