Security Notes: Bitcoin: A Sober Analysis

Seven and one-half billion dollars in ransomware payments per year is the U.S. cost for upholding the tantalizing idea of Bitcoin, and that is but a fraction of the multifaceted criminal activity that owes its surge to a coin that builds trust on ignorance and awe.

Pillars of the U.S. economy are opening their doors to cryptocurrency. Serious economists are warming up to its prospects. And central banks around the world are toying with it. So it’s no wonder that we have all developed herd immunity against intuitive suspicion of a coin that represents no assets, is backed by no authority, and is as strong and as weak as the mathematics that defines it.

If you are not a student of complexity theory, and if you have not done direct reading on the mathematics that gave birth to Bitcoin, then you are a faith-based Bitcoin worshipper. And if you understand complexity theory well, you know that the Bitcoin premise is not supported by the gold standard of “mathematical proof.” Rather, it is upheld by a much weaker, and much more temporary, standard: the absence of a published method to crack it.

Bitcoin, like the entire edifice of modern cryptography, is built on the limitations of common computers. It is only because computers don’t work faster than they do that Bitcoin and national secrets are kept intact. And it’s only because no mathematician who has discovered a cracking algorithm has yet published it that we can hold on to the belief that Bitcoin is as solid as gold.

“You may win the argument,” I am told, “but I have made a small fortune on Bitcoin by not listening to you.” I reply, “Sure. For a balloon to pop, it needs to swell first.” And indeed, everyone who dumps their Bitcoins before the collapse will smile all the way to the bank.

On the other hand, one cannot be left unimpressed by the pioneering layout of the China’s non-crypto digital Yuan. It takes on the unmatched power, and the unprecedented capability, of digital money and uses it to redefine banking, payments, investment, and the economic rhythm of the world.

China reached out to the best in the West, including BitMint, to fashion a monetary system in its own image. The longer we wait to go digital, and do it right, the worse off we will be.

Bitcoin was born in the bosom of a complex algorithm, and it will die when this algorithm surrenders to smarter mathematicians armed with quantum computers. By contrast, durable digital money should emerge from the womb of quantum physics. By capturing randomness in a solid rock of composite material, we hinge cyberspace on material reality. Hackers swim in an ocean of ephemeral bits. Rock-solid data is off their digital grid—and safe.

To be sure, digital money is here to stay. It reveals new horizons for prosperity and living, for sharing and justice, for innovation and industry. Digital money is the only way to live in cyberspace and enjoy the comfort of the growing Internet of (Paying) Things (IoPT) around us.

We are going to have purpose-specified money to reduce fraud, owner-identified money to eliminate theft, and cross-border money to allow retail payments around the planet. We are going to have escrow services. We are going to have a new, unified financial language for debit and credit, for investment instruments, for equitable taxation, and for innovation efficiency.

All this is coming. But it is hard to tell how long the Bitcoin tsunami will last before it recedes and surrenders to rock-minted digital money.

—Gideon Samid, gideon@bitmint.com