Update on Bitcoin: The Rise & Fall
Bitcoin, the virtual peer-to-peer currency that was launched in 2009 (see CAT blog June: Barter P2P Currency Gains Traction), had a meteoric rise in April-June of this year—but after a hacking attack on the premier bitcoin exchange, the currency plummeted, then rose again. Today it traded at $2.40, down from a peak of $30, but still way up from the pennies it priced at 18 months ago.
In a recent WIRED article Benjamin Wallace reports that –
In the public’s imagination, overnight the bitcoin went from being the currency of tomorrow to a dystopian joke. The Electronic Frontier Foundation quietly stopped accepting bitcoin donations. Two Irish scholars specializing in network analysis demonstrated that bitcoin wasn’t nearly as anonymous as many had assumed: They were able to identify the handles of a number of people who had donated bitcoins to Wikileaks. (The organization announced in June 2011 that it was accepting such donations.) Nontechnical newcomers to the currency, expecting it to be easy to use, were disappointed to find that an extraordinary amount of effort was required to obtain, hold, and spend bitcoins. For a time, one of the easier ways to buy them was to first use Paypal to buy Linden dollars, the virtual currency in Second Life, then trade them within that make-believe universe for bitcoins. As the tone of media coverage shifted from gee-whiz to skeptical, attention that had once been thrilling became a source of resentment.
The currency isn’t backed by any government or organization, so its only value lies in the fact that various individuals and organizations are willing to accept bitcoins as payment. The currency was created by Sakoshi Nakamoto, a name some believe is a pseudonym . Both The New Yorker and Fast Company have launched investigations but ended up with little more than speculation.
WIRED’s Benjamin Wallace –
If Nakamoto has forsaken his adherents, though, they are not prepared to let his creation die. Even as the currency’s value has continued to drop, they are still investing in the fragile economy. Wagner has advocated for it to be used by people involved in the Occupy Wall Street movement. While the gold-rush phase of mining has ended, with some miners dumping their souped-up mining rigs—”People are getting sick of the high electric bills, the heat, and the loud fans,” Garzik says—the more serious members of the community have turned to infrastructure. Mt. Gox is developing point-of-sale hardware. Other entrepreneurs are working on PayPal-like online merchant services. Two guys in Colorado have launched BitcoinDeals, an etailer offering “over 1,000,000 items.” The underworld’s use of the bitcoin has matured, too: Illegal drug mart, Silk Road, is now just one of many Tor-enabled back alleys, including sites like Black Market Reloaded, where self-proclaimed hit men peddle contract killings and assassinations.
“You could say it’s following Gartner’s Hype Cycle,” London-based core developer Amir Taaki says, referring to a theoretical technology-adoption-and-maturation curve that begins with a “technology trigger,” ascends to a “peak of inflated expectations,” collapses into a “trough of disillusionment,” and then climbs a “slope of enlightenment” until reaching a “plateau of productivity.” By this theory, bitcoin is clambering out of the trough, as people learn to value the infallible code and discard the human drama and wild fluctuations that surround it.