What On Earth Is Going On With Bitcoin?
Throughout history, currency has taken one of two forms: physical assets, like gold or beads, and fiat currency, like government-backed paper and coins. Bitcoin and its brethren introduce a third category: digital currencies that run on a combination of game theory, economics, and cryptography—thus, cryptocurrencies. If all money is the sharing of an illusion, bitcoin wants to build a better way to share it.
Like many people, I’ve long regarded bitcoin’s rise with both wonder and confusion. To help me make sense of it, I started calling cryptocurrency experts and academics to ask, is bitcoin just a dumb bubble, like 17th-century tulip bulbs? An investment hedge, like gold? A currency, like dollars? The answers I got weren’t satisfyingly unanimous. I heard “all of the above” and “none of the above” and “nobody knows for sure, yet.”
Toward a More Perfect Money
What’s wrong with dollars, anyway? If you ask me, very little. I like my credit card. I don’t even mind cash.
But to others, the dollar’s dangers are glaringly obvious: a single omnipotent entity, the federal government, strictly controlling money supply and the rules that govern it. Some worry that the creation of too many dollars will lead to out-of-control inflation. “Cypherpunks have dreamed of fully decentralized electronic payment systems for decades” that would allay these concerns, writes Timothy Lee, a senior tech-policy reporter at Ars Technica. Most digital-currency ideas, however, had the same tragic flaw—replicability. Just about everything that exists online (think text, photos, or files) can be copied. Fear of rampant counterfeiting would spell death for a digital currency.
Bitcoin solved this problem with the blockchain, an online ledger that records and validates all peer-to-peer payments to eliminate double-spending. For those inclined to less-than-legal behavior, it helps that the blockchain encrypts transactions to provide anonymity. The payment network is maintained by bitcoin “miners,” a decentralized group of individuals with powerful computers that approve transactions and are rewarded with new bitcoins for their work. The total possible supply of bitcoin in the world is capped. Thus, bitcoin solves both of the cryptopunk money problems—the blockchain thwarts centralization, and the planned scarcity of bitcoins checks inflation.
The blockchain is an ingenious and potentially transformative technology. People like Marc Andreessen, the well-known venture capitalist, have predicted that it could become the scaffolding of the entire economy, like the internet. Here’s a taste of the transformative vision from an interview Andreessen held with TheWashington Post:
Digital stocks. Digital equities. Digital fundraising for companies. Digital bonds. Digital contracts, digital keys, digital title, who owns what—digital title to your house, to your car … You’ve got digital voting, digital contracts, digital signatures … And then every aspect of financial services: insurance contracts, insurance derivatives, currency exchange, remittance—on and on and on.
Nobody knows for sure whether the blockchain will transform the economy of the future, as Andreessen foresees. What’s clearer, however, is that it has not transformed the economy of today. While the number of bitcoin transactions is growing every year, it’s nothing close to a mass-market consumer technology, like Google, or Netflix, or even PayPal. Bitcoin remains cumbersome to use (the typical transaction can take up to 10 minutes) and the price is extremely volatile. It is, for now, a frankly terrible currency built on top of a potential transformative technology.
Which leads to perhaps the most obvious question: If bitcoin appears to have flopped as a mass-market currency, why has it so suddenly succeeded as an investment vehicle?
There are countless theories about why bitcoin’s valuation has gone berserk. But for the purpose of time and sanity, let’s reduce them to four mega-arguments.
1. Venture capital (and a green light from the feds) got the ball rolling.
For the first five years of bitcoin’s existence, venture capital’s interest in bitcoin-related products and companies was minimal. After all, the very idea of cryptocurrency was infamous for its association with online black markets like Silk Road, where criminals used digital tokens to anonymously sell drugs and other illegal stuff. (In fact, one could argue that bitcoin’s rising valuation is just a bet that its most dubious uses—say, avoiding taxes or laundering money—will keep rising.) It seemed for a while that the U.S. government might try to crush the ostensible competitor of the almighty dollar.
But in November 2013, shortly after the FBI shut down Silk Road, several senators praised bitcoin and other virtual currencies at an official hearing as“legitimate financial services.” Senatorial droning on C-SPAN doesn’t always move markets. But when it does, it really does. The value of bitcoin tripled within the month to $900, and venture capital got its green light. VC investments in bitcoin rose from nearly nothing in 2012 to $400 million in 2014 and $600 million in 2016. Bitcoin didn’t yet have an obvious mainstream purpose. But it had something even more valuable: legitimacy from Washington, with curiosity and cash from Silicon Valley.
People have long described bitcoin as digital gold. In early November, Bloomberg reported that “buy bitcoin” had overtaken “buy gold” as an online search phrase, suggesting that bitcoin’s rising valuation could be partly due to investors seeing it as the precious metal’s trendy equivalent. Like gold or silver, bitcoin is scarce (by design) and a popular hedge for inflation hawks, worrywarts, conspiracy theorists, and other antiestablishment investors who believe the global economy is always a month away from implosion or hyperinflation.
There is another important way that bitcoin is like gold: Its reputation is much bigger than its market. In any given week, $34 billion in bitcoin is traded, according to Wall Street Journal, less than 1 percent of the global foreign-exchange market.
As New York University professor and so-called “dean of valuation” Aswath Damodaran quipped, bitcoin could become the world’s reserve cryptocurrency or the biggest bust of the century. “Right now it’s not a very good currency, because it’s not a good medium of exchange and it’s not a good store of value, because it’s too volatile,” he told CNBC. He offered a more probable outcome for bitcoin: “gold for Millennials.”
3. It’s the reserve currency of the ICO market.
What’s an ICO? An “initial coin offering” is essentially a way for a company to crowdsource funds without selling shares. Instead of accepting public money in exchange for equity, as in an initial public offering, or IPO, an ICO offers digital tokens denominated in a new cryptocurrency. The conventional wisdom on ICOs is somewhat split. Some see it as an ingenious way for founders to quickly raise money without relying on the gatekeepers of venture capital. Others point out that it’s easy way to con poor dolts looking to buy into the crypto frenzy. And what a frenzy it is: In 2017, the ICO market exploded, raising more than $2 billion for new companies.
There are several ways that the ICO craze feeds, and is fed by, the bitcoin boom. First, some analysts believe that the most lucrative ICOs are driven, not only by gullible rubes, but also by bitcoin millionaires who want to diversify their investments without paying tax by cashing out of cryptocurrencies, which would trigger a capital-gains tax. ICOs fulfill that need.
Second, many ICO investors first convert their cash into bitcoin before buying tokens in a new cryptocurrency. As Tim Lee argues, this makes bitcoin the“reserve currency” of the crypto economy. Just as the U.S. dollar benefits from its status as the world’s reserve currency, accepted worldwide in lieu of or in exchange for the local currency, the same is often true of bitcoin in cryptocurrency markets. It’s possible that these factors work together in a feedback loop, where bitcoin millionaires seeking diversification raise the profile of ICOs, which increase the value of bitcoin.
This much is clear: Bitcoin’s valuation has gone nuts in tandem with the (perhaps equally nuts) boomlet in ICOs.
4. Maybe it’s just this simple: Bitcoin is an unprecedentedly dumb bubble built on ludicrous speculation.
It seems strange to call a currency a bubble. But lacking more specific terminology, bubble seems like the only word that would apply.
Even if one buys the argument that blockchain is brilliant, cryptocurrency is the new gold, and bitcoin is the reserve currency of the ICO market, it is still beyond strange to see any product’s value double in six weeks without any material change in its underlying success or application. Instead, there has been a great and widening divergence between bitcoin’s transaction volume (which has grown 32 times since 2012) and its market price (which had grown more than 1,000 times).
Surveys show that the vast majority of bitcoin owners are buying and holding bitcoin to exchange them for dollars. Let’s be clear: If the predominant use case for any asset is to buy it, wait for it to appreciate, and then to exchange it for dollars, it is a terrible currency. That is how people treat baseball cards or stamps, not money. For most of its owners, bitcoin is not a currency. It is a collectible—a digital baseball card, without the faces or stats.
And yet, great things can be born from such silliness.
As Dan Gross wrote in his book Pop!, the soapsuds of burst bubbles often fertilize the next generation’s breakthrough technologies. Before the national telegraph, train system, and tech giants, there was a telegraph bubble, a train bubble, and (who could forget?) a dot-com and online-retail bubble. The blockchain, like each of those technologies, has the potential to become a critical piece of infrastructure for the digital economy, even if the price of bitcoin is crashing as you read this paragraph.
In my most illuminating conversation about bitcoin, I spoke with Christian Catalini, a professor of technology at MIT Sloan School of Management. He began by reciting the three classic purposes of money: unit of account (you can measure income in dollars), store of value (you can hold dollars in your wallet and they won’t “go bad”), and medium of exchange (give somebody dollars and they’ll trust the value). Would bitcoin meet all three criteria? Maybe, he said. But maybe it won’t—and it won’t matter.
“You could imagine that in the future there might be a cryptocurrency that is mostly a store of value, like gold,” he said. “It would be decentralized, and robust, but with high transaction fees. I might use it to buy a house, but not a coffee. On the other hand, others might be more useful for smaller payments. With digital tech, maybe we can have many different kinds of currencies, which altogether unbundle store of value from medium of exchange.”
What seems most certain is that the future of money will test our conventional definitions—of currencies, of bubbles, and of initial offerings. What’s happening this month with bitcoin feels like an unsustainable paroxysm. But it’s foolish to try to develop rational models for when the market will correct itself. Prices, like currencies, are collective illusions. And the history of American bubbles suggests that national hallucinations, like the over-construction of the rail system in the 19th century, can undergird the very real transformations of the next generation.
Achieving a 4.0 doesn’t necessarily translate into success in real life.
About the Author
Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the media. He is the author of .
Agony is the natural state of the news industry. Newspaper sales per capita peaked before color television was a thing, and magazines have been in decline since the Clinton administration. When it comes to the finances of the Fourth Estate, bad news is, generally speaking, the news.
But 2017 has been a uniquely miserable year in the media business, in which venerable publications and fledging sites, divided by audience age and editorial style, have been united in misery. At Vanity Fair, the editorial budget faces a 30 percent cut. At TheNew York Times, advertising revenue is down $20 million annually after nine months. Oath, the offspring of Yahoo and AOL’s union, is shedding more than 500 positions as it strains to fit inside of its Verizon conglomerate. Meanwhile, almost every digital publisher seems to be struggling, selling, or soliciting, whether it’s the media company IAC exploring offers to offload The Daily Beast, Fusion Media Group offering a minority stake in The Onion and former Gawker Media sites, or Mashable selling for a fifth of its former valuation. So many media companies in 2017 have reoriented their budgets around the production of videos that the so-called “pivot to video” has became an industry joke. Today, the pivot seems less like a business strategy and more like end-of-life estate planning.
As an admiral I helped run the most powerful military on Earth, but I couldn’t save my son from the scourge of opioid addiction.
The last photograph of my son Jonathan was taken at the end of a new-student barbecue on the campus green at the University of Denver. It was one of those bittersweet transitional moments. We were feeling the combination of apprehension and optimism that every parent feels when dropping off a kid at college for the first time, which amplified by the fact that we were coming off a rocky 16 months with our son.
We had moved him into his dormitory room only that morning. I remember how sharp he looked in the outfit he had selected, and his eagerness to start class and make new friends. We were happy, relieved, and, knowing what we thought he had overcome, proud. At lunch, I asked Jonathan whether he thought he was ready for the coming school year. “Dad, I can handle it as long as I continue my recovery,” he said. “Everything flows from that.”
The Republican tax plan would stick young people with the bill, right as political influence is shifting to America’s diverse younger generations.
The baby boom is being evicted from the penthouse of American politics. And on the way out, it has decided to trash the place.
That’s probably the best way to understand the generational implications of the tax legislation Republicans are driving through Congress.
The House and Senate measures shower enormous benefits on households at the top of the economic ladder, a group that by all indications is older and whiter than the population overall. Then it hands the bill for those benefits largely to younger generations, who will pay through more federal debt; less spending on programs that could benefit them; and, eventually, higher taxes.
In that way, the bills would intensify the generational inequity in how Washington allocates resources between the country’s increasingly diverse youthful generations and its predominantly white older population, groups I’ve called “the brown and the gray.” At a moment when political influence is inexorably shifting to the brown, the tax bill represents an 11th hour raid by the wealthiest of the gray.
A graduate student sequenced rats all over Manhattan, and discovered how the city affects their genetic diversity.
Combs is a graduate student at Fordham University and, like many young people, he came to New York to follow his dreams. His dreams just happened to be studying urban rats. For the past two years, Combs and his colleagues have been trapping and sequencing the DNA of brown rats in Manhattan, producing the most comprehensive genetic portrait yet of the city’s most dominant rodent population.
As a whole, Manhattan’s rats are genetically most similar to those from Western Europe, especially Great Britain and France. They most likely came on ships in the mid-18th century, when New York was still a British colony. Combs was surprised to find Manhattan’s rats so homogenous in origin. New York has been the center of so much trade and immigration, yet the descendants of these Western European rats have held on.
The cryptocurrency’s current price is completely unreal. Then again, so is money.
A bar of gold. A disk of iron. A chain of beads. A card of plastic. A slip of cotton-linen paper. These things are worthless. One cannot eat them, or drink them, or use them as a blanket. But they are valuable, too. Their value comes from the simplest thing. People believe they are money, and so they are.
If every currency is a consensual delusion, then bitcoin, a digital cryptocurrency that changes hands over the internet, feels more like a consensual hallucination on psychedelic drugs. The concept of bitcoin was born in a detailed white paper published in late 2008 by a pseudonymous “Satoshi Nakamoto.” By 2013, one bitcoin was worth $12. As of this writing, it’s worth more than $10,000. Its value has doubled in the last two months alone. For any currency’s value to increase by 100 percent in eight weeks is, to use a technical term, bonkers. If the French franc, Japanese yen, or American dollar did the same, their economies would plunge into an infernal deflationary spiral.
Trump’s supporters backed a time-honored American political tradition, disavowing racism while promising to enact a broad agenda of discrimination.
THIRTY YEARS AGO, nearly half of Louisiana voted for a Klansman, and the media struggled to explain why.
It was 1990 and David Duke, the former grand wizard of the Ku Klux Klan, astonished political observers when he came within striking distance of defeating incumbent Democratic U.S. Senator J. Bennett Johnston, earning 43 percent of the vote. If Johnston’s Republican rival hadn’t dropped out of the race and endorsed him at the last minute, the outcome might have been different.
Was it economic anxiety? The Washington Post reported that the state had “a large working class that has suffered through a long recession.” Was it a blow against the state’s hated political establishment? An editorial from United Press International explained, “Louisianans showed the nation by voting for Duke that they were mad as hell and not going to take it any more.” Was it anti-Washington rage? A Loyola University pollster argued, “There were the voters who liked Duke, those who hated J. Bennett Johnston, and those who just wanted to send a message to Washington.”
Having Kellyanne Conway, a pollster, take point on the fight against opioids reveals a great deal about the seriousness of the White House’s effort.
On Wednesday, Attorney General Jeff Sessions announced the Trump administration’s latest actions to combat the surge of deaths from opioid addiction.
They did not add up to big news. An additional $12 million in grants to local law enforcement. An internal restructuring of the Drug Enforcement Agency. An order to the 93 U.S. attorneys to designate one staff member as their office’s opioid coordinator.
The script for the otherwise ho-hum event contained praise for President Trump’s leadership and a thank-you to the senior-most White House aide in attendance. “I want to thank Kellyanne Conway for being here today. The president has made this a top priority for his administration—including every senior official and cabinet member—as her presence here today can attest.”
The latest report about the secretary of state’s possible ouster undermines his credibility as America’s top diplomat.
The president of the United States and the man he made secretary of state have been at odds almost since the beginning. Donald Trump and Rex Tillerson clashed over the Iran nuclear deal, NATO, the Qatar crisis, and North Korea. Then there were reports that Tillerson called Trump a “moron,” prompting the president to challenge him to an IQ test. Taken individually, each disagreement could be dismissed. Taken together, they made Tillerson’s position untenable.
The New York Timesreported Thursday, citing senior administration officials, that the White House had developed a plan to force out Tillerson by the end of the year and replace him with Mike Pompeo, the CIA director. If the report, which said Trump hadn’t yet signed off on the plan, is accurate, Tillerson would join the list of the secretaries of state with the shortest tenure (Elihu B. Washburne, President UlyssesGrant’s top diplomat, resigned after 11 days; he was then named ambassador to France). Even if it’s not accurate, it further undermines Tillerson’s position as secretary of state, and further saps his credibility: What could be worse for America’s top diplomat than a leaked plan to replace him at some indefinite point in the future?
The structures are so complex that they almost defy belief.
In 2019, if everything goes according to plan, the much-delayed James Webb Space Telescope will finally launch into orbit. Once assembled, it will use an array of 18 hexagonal mirrors to collect and focus the light from distant galaxies. This segmented-mirror design was developed in the 1980s, and it has been so successful that it will feature in almost all the large telescopes to be built in the near future.
But as always, nature got there first. For millions of years, scallops have been gazing at the world using dozens of eyes, each of which has a segmented mirror that’s uncannily similar to those in our grandest telescopes. And scientists have just gotten a good look at one for the first time.
More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.
One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”
Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”
There are an estimated 2,000 serial killers living at large in the U.S. Now, a computer can help find them.
American schools have a long history of teaching students misinformation in health class.
The decline of a once-powerful majority is going to have profound implications.
This content was originally published here.