Everyone Says Bitcoin Is Back

Everyone Says Bitcoin Is Back. But It Never Truly Left

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Slide: one / of two . Caption: Caption: Bitcoin price (USD) since February 15, 2013. Coinbase

Slide: two / of two . Caption: Caption: Number of transactions per day. Blockchain.info

Everyone Says Bitcoin Is Back. But It Never Truly Left

The price of bitcoin topped $500 last week, and some hailed the moment as a turning point for the seven-year-old digital currency. “We may well look back on this,” said one pundit, “as the time that switched everything for bitcoin.”

Then the price dropped again, and some said it had climbed so high only because of some bitcoin-powered Chinese pyramid scheme. Yesterday, the price stood at $311. That’s about $800 below its high point in late 2013, just before Mt. Gox, the world’s largest bitcoin exchange, totally imploded amid claims that hackers had cracked into its systems and stolen more than $460 million in customer funds. “The question prompted by the latest movement in bitcoin is whether it marks a resurgence for the cryptocurrency,” wrote The FT, “or merely highlights its turn in the endless parade of get rich quick schemes.” Fair question.

But for Brian Armstrong—the CEO of Coinbase, today’s superior bitcoin exchange and a company with the backing of some very big Silicon Valley players—the price of bitcoin (see graphic above) isn’t the best way of judging the health of the digital currency. “Sometimes, I feel like running a bitcoin company must be like running a public company,” he says. “Everyone is so focused on the price, and that causes short-term thinking.”

A better barometer, he says, is how much the world is using bitcoin (see graphic below). And that figure proceeds to rise. Bitcoin usage has risen pretty much steadily since the brief dip it took in the wake of the Mt. Gox implosion. In fact, last week, as the price of bitcoin topped $500, the usage rate reached an all-time high, after toughly doubling over the past twelve months. “The real usage is catching up to the hype,” Armstrong says.

Armstrong’s point is that for people like him—and companies like Coinbase—the ultimate aim is to turn bitcoin into something that anyone can use to more lightly store, send, and receive money. “We want the world to have an open payment network,” an Internet for money, he says. And, well, the price of bitcoin may not have much to do with that. Yes, bitcoin is also a means of speculation, a way of making money from money. And according to Peter Van Valkenburgh—director of research at the Coin Center, a non-profit dedicated to bitcoin public policy issues—the latest price fluctuations are likely driven by such speculation. But this is only part of the fatter bitcoin story.

More Bitcoins Moving

To be sure, that graph displaying the rise in bitcoin activity doesn’t necessarily mean that lots of people are actually using the digital currency to pay for stuff like socks and food and apps. In early 2014, Overstock.com began accepting payments in bitcoin—becoming the largest online retailer to do so, and almost two years later, bitcoin transactions account for only about 0.05 to 0.1 percent of the company’s sales, according to company spokesperson Judd Bagley. Armstrong’s graph shows the total number of transactions on the bitcoin network—the worldwide network of Internet machines that drives the digital currency—and that includes any movement of bitcoin from one place to another, not just people paying for goods and services.

“With basic payment applications, we do see usage creep up. But it’s significant not to be overly optimistic there,” Van Valkenburgh says. “It’s fairly clear that a American consumer—someone in a developed country—has a fair number of ways to pay for stuff already.”

What’s more, a lot of that latest bitcoin activity is very likely just, well, speculation. But the fact remains: more and more people and organizations are adopting bitcoin for one reason or another. The big question—and it’s not that far from the question asked by The FT—is whether bitcoin will ever become a mainstream currency, rather than just a trading commodity. We don’t have an reaction yet, but there are signs that we’re moving in that general direction.

Money Without Borders

Coinbase says that more than 41,000 businesses and Two.8 million people are using its various services, which include not only an exchange for buying and selling bitcoin, but also digital wallets for storing bitcoin and making payments, as well as contraptions that let apps and websites accept payments. It’s signing up about Trio,500 fresh users a day, and this rate hopped about seventy percent in the wake of last week’s price rally. And across the pond, European bitcoin payment processor Coinify says its business is growing thirty percent a month, and six hundred percent year-over-year—tho’ it doesn’t provide specific user numbers.

Meantime, Cameron and Tyler Winklevoss, best known for suing Mark Zuckerberg over the creation of Facebook, recently launched a fresh bitcoin exchange with approval from regulators in Fresh York and other states. And an exchange called ItBit has received similar approval. Regulators, even here in the U.S., are beginning to embrace the technology in ways they haven’t in the past.

As more and more businesses and people adopt bitcoin, the currency comes closer to Armstrong’s vision of an Internet for money. If you have an open network for money—as opposed to networks managed by banks and other big companies—we can more quickly and lightly build and adopt fresh financial technologies. “A lot of innovation is blocked today because of the crimson gauze—or hurdles or friction or whatever—that comes with launching a fresh business and accepting payments or paying money out to people,” Armstrong says.

If bitcoin goes mainstream, it would permit companies to more lightly send and receive money across borders. And in the developing world—where online banking and payments aren’t almost as prevalent as they are here in the States—it gives people a power they wouldn’t otherwise have.

Switching Markets

Armstrong’s graph also reflects devices that are using the bitcoin blockchain—the vast digital ledger that underpins the digital currency—to treat all sorts of stuff beyond just money. Overstock, for example, runs a fresh company called TØ that’s using the blockchain to treat stock trades, and in latest months, some of the big Wall Street players have followed Overstock’s lead. The Nasdaq is building a system that will use the blockchain to oversee stock trades in the private market (before companies go public). And the exchange believes the blockchain could be applied to the public market, too.

“The blockchain could have some pretty fundamental and transformative effects on the capital markets,” says Terry Roche, a principal analyst with capital market research stiff The TABB Group.

The current trope is that the blockchain will reinvent Wall Street, but that bitcoin as a currency will never fairly get there. JP Morgan CEO Jamie Dimon said as much last week. When Armstrong hears such talk, his very first thought that the bitcoin’s mindshare is expanding—and that’s a good thing. He very much believes that alternative uses for the blockchain are just a stepping stone to the adoption of bitcoin as a currency.

“They’re making an iterative step,” Armstrong says of Wall Street. “They’ll do a few experiments. Maybe it’ll be a year or two. And they’ll realize that the blockchain is fine, but that the thickest use of the blockchain is bitcoin. I still believe, one hundred percent, that bitcoin is the future.”

It may or may not be. But as Van Valkenburgh points out, the sustained rise in bitcoin activity may indicate that many others feel the same as Armstrong. Some are certainly in search of short-term build up, but the broader expansion of the bitcoin community may indicate that many others see it a good bet on the future. They may be speculating because they believe it will indeed become the Internet of money.

“Bitcoin has been in the news a lot as of late, and it has been good news. People will see that and say, basically: ‘I want a cash option on the future of the technology,’” Van Valkenburgh says. “It’s like if you were able to buy a petite chunk of the Internet in 1994. Would you?”

Everyone Says Bitcoin Is Back

Everyone Says Bitcoin Is Back. But It Never Truly Left

Get The

6 months for $Five – plus a FREE Portable

WIRED’s largest stories, delivered to your inbox.
  • 11 hours

Measuring how quickly machines are getting smarter could help us prepare for the consequences wrd.cm/2wDA4BT

Go after Us

Don’t miss our latest news, features and movies.

We’re On

See what’s inspiring us.

Go after Us

Don’t miss out on WIRED’s latest movies.

Slide: one / of two . Caption: Caption: Bitcoin price (USD) since February 15, 2013. Coinbase

Slide: two / of two . Caption: Caption: Number of transactions per day. Blockchain.info

Everyone Says Bitcoin Is Back. But It Never Indeed Left

The price of bitcoin topped $500 last week, and some hailed the moment as a turning point for the seven-year-old digital currency. “We may well look back on this,” said one pundit, “as the time that switched everything for bitcoin.”

Then the price dropped again, and some said it had climbed so high only because of some bitcoin-powered Chinese pyramid scheme. Yesterday, the price stood at $311. That’s about $800 below its high point in late 2013, just before Mt. Gox, the world’s largest bitcoin exchange, totally imploded amid claims that hackers had cracked into its systems and stolen more than $460 million in customer funds. “The question prompted by the latest movement in bitcoin is whether it marks a resurgence for the cryptocurrency,” wrote The FT, “or merely highlights its turn in the endless parade of get rich quick schemes.” Fair question.

But for Brian Armstrong—the CEO of Coinbase, today’s superior bitcoin exchange and a company with the backing of some very big Silicon Valley players—the price of bitcoin (see graphic above) isn’t the best way of judging the health of the digital currency. “Sometimes, I feel like running a bitcoin company must be like running a public company,” he says. “Everyone is so focused on the price, and that causes short-term thinking.”

A better barometer, he says, is how much the world is using bitcoin (see graphic below). And that figure proceeds to rise. Bitcoin usage has risen pretty much steadily since the brief dip it took in the wake of the Mt. Gox implosion. In fact, last week, as the price of bitcoin topped $500, the usage rate reached an all-time high, after harshly doubling over the past twelve months. “The real usage is catching up to the hype,” Armstrong says.

Armstrong’s point is that for people like him—and companies like Coinbase—the ultimate aim is to turn bitcoin into something that anyone can use to more lightly store, send, and receive money. “We want the world to have an open payment network,” an Internet for money, he says. And, well, the price of bitcoin may not have much to do with that. Yes, bitcoin is also a means of speculation, a way of making money from money. And according to Peter Van Valkenburgh—director of research at the Coin Center, a non-profit dedicated to bitcoin public policy issues—the latest price fluctuations are likely driven by such speculation. But this is only part of the thicker bitcoin story.

More Bitcoins Moving

To be sure, that graph displaying the rise in bitcoin activity doesn’t necessarily mean that lots of people are actually using the digital currency to pay for stuff like socks and food and apps. In early 2014, Overstock.com commenced accepting payments in bitcoin—becoming the largest online retailer to do so, and almost two years later, bitcoin transactions account for only about 0.05 to 0.1 percent of the company’s sales, according to company spokesperson Judd Bagley. Armstrong’s graph shows the total number of transactions on the bitcoin network—the worldwide network of Internet machines that drives the digital currency—and that includes any movement of bitcoin from one place to another, not just people paying for goods and services.

“With basic payment applications, we do see usage creep up. But it’s significant not to be overly optimistic there,” Van Valkenburgh says. “It’s fairly clear that a American consumer—someone in a developed country—has a fair number of ways to pay for stuff already.”

What’s more, a lot of that latest bitcoin activity is very likely just, well, speculation. But the fact remains: more and more people and organizations are adopting bitcoin for one reason or another. The big question—and it’s not that far from the question asked by The FT—is whether bitcoin will ever become a mainstream currency, rather than just a trading commodity. We don’t have an response yet, but there are signs that we’re moving in that general direction.

Money Without Borders

Coinbase says that more than 41,000 businesses and Two.8 million people are using its various services, which include not only an exchange for buying and selling bitcoin, but also digital wallets for storing bitcoin and making payments, as well as contraptions that let apps and websites accept payments. It’s signing up about Three,500 fresh users a day, and this rate hopped about seventy percent in the wake of last week’s price rally. And across the pond, European bitcoin payment processor Coinify says its business is growing thirty percent a month, and six hundred percent year-over-year—tho’ it doesn’t provide specific user numbers.

Meantime, Cameron and Tyler Winklevoss, best known for suing Mark Zuckerberg over the creation of Facebook, recently launched a fresh bitcoin exchange with approval from regulators in Fresh York and other states. And an exchange called ItBit has received similar approval. Regulators, even here in the U.S., are beginning to embrace the technology in ways they haven’t in the past.

As more and more businesses and people adopt bitcoin, the currency comes closer to Armstrong’s vision of an Internet for money. If you have an open network for money—as opposed to networks managed by banks and other big companies—we can more quickly and lightly build and adopt fresh financial technologies. “A lot of innovation is blocked today because of the crimson gauze—or hurdles or friction or whatever—that comes with launching a fresh business and accepting payments or paying money out to people,” Armstrong says.

If bitcoin goes mainstream, it would permit companies to more lightly send and receive money across borders. And in the developing world—where online banking and payments aren’t almost as prevalent as they are here in the States—it gives people a power they wouldn’t otherwise have.

Switching Markets

Armstrong’s graph also reflects implements that are using the bitcoin blockchain—the vast digital ledger that underpins the digital currency—to treat all sorts of stuff beyond just money. Overstock, for example, runs a fresh company called TØ that’s using the blockchain to treat stock trades, and in latest months, some of the big Wall Street players have followed Overstock’s lead. The Nasdaq is building a system that will use the blockchain to oversee stock trades in the private market (before companies go public). And the exchange believes the blockchain could be applied to the public market, too.

“The blockchain could have some pretty fundamental and transformative effects on the capital markets,” says Terry Roche, a principal analyst with capital market research stiff The TABB Group.

The current trope is that the blockchain will reinvent Wall Street, but that bitcoin as a currency will never fairly get there. JP Morgan CEO Jamie Dimon said as much last week. When Armstrong hears such talk, his very first thought that the bitcoin’s mindshare is expanding—and that’s a good thing. He very much believes that alternative uses for the blockchain are just a stepping stone to the adoption of bitcoin as a currency.

“They’re making an iterative step,” Armstrong says of Wall Street. “They’ll do a few experiments. Maybe it’ll be a year or two. And they’ll realize that the blockchain is fine, but that the largest use of the blockchain is bitcoin. I still believe, one hundred percent, that bitcoin is the future.”

It may or may not be. But as Van Valkenburgh points out, the constant rise in bitcoin activity may indicate that many others feel the same as Armstrong. Some are certainly in search of short-term build up, but the broader expansion of the bitcoin community may indicate that many others see it a good bet on the future. They may be speculating because they believe it will indeed become the Internet of money.

“Bitcoin has been in the news a lot as of late, and it has been good news. People will see that and say, basically: ‘I want a cash option on the future of the technology,’” Van Valkenburgh says. “It’s like if you were able to buy a puny chunk of the Internet in 1994. Would you?”

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