Bitcoin Grows Up

On a recent balmy Friday in beautiful San Jose, an anonymous crypto currency was invading an anonymous convention center.

It was 7:30 pm, one hour before Tyler and Cameron Winklevoss were scheduled to take the stage in the main hall of the McEnery Convention Center at the Bitcoin Foundation's first conference, and Motherboard was eating tiny shrimp sprinkled with caviar and sipping on actual Russian vodka that comes in actual oil cans instead of bottles. Peering around, we wondered, how are they possibly going to fill this giant room. These bitcoin guys are flush but, really, how big was this really going to get?

By the time the lights dim, it's standing room only. The opening act, a routine by a Silicon Valley engineer-turned-comic, falls so flat that it elicits genuine sympathy. The only reprieve comes by way of a desperate and cheap shout-out to any libertarians in the crowd, which garners a robust cheer.

According to the official count, 1200 enthusiasts, techie geeks, trendy investors, eccentric entrepreneurs, crypto hackers, small-government aficionados, and a few downright weirdos had descended on the Bay Area for America's first big bitcoin conference, which, for a $300 fee, promised participants a hard look at the not-so-hard future of money.

In one way it was like a rich guy's LAN party, a chance to put a face to people who had known each other mainly through internet forums. But it also had the vibe of one of those night-long infomercials about the Next Big Thing.

The headline talk, an earnest declaration by the movement's first bona fide celebs arguing why this is bitcoin’s time, was received with head nods. It’s not that the Winklevosses don't make a mean Powerpoint on bitcoin's promise to be as disruptive as the automobile—they did, quoting Gandhi and referencing Dr. Seuss. It’s just that they are Powerpointing to the choir.

Everyone present has already sipped the cryptographic Kool-Aid. Having weathered two bubbles and crashes, sustained periods of complete irrelevance and endless mainstream skepticism, Satoshi’s disciples have developed a keen sense of “us against the world,” a community where, Aaron Sorkin movie or not, the Facebook twins are relative newcomers, and certainly not the heroes, not yet.

Sure, they may claim to own one percent of all bitcoins in circulation, not to mention their recent investment in the New York-based startup BitInstant, but the Winklevosses are actually rumored to be last minute replacements for Mark Karpeles, a bitcoin stalwart who would not be able to attend, apparently because of an investigation by the US government.

Karpeles, a 27-year-old French developer, is a board member of the Bitcoin Foundation and the owner and CEO of Mt.Gox, the world’s largest bitcoin exchange. Domiciled in Tokyo, Karpeles' company handles over 60 percent of all bitcoin trades, with estimated revenues of $22 million a year. A portion of those revenues, gained in North America without registering as a money transmitter led to the seizure of company funds by the Department of Homeland Security.

He had also recently received a $75 million lawsuit filed by fellow board member Peter Vessenes, who happens to be the executive director, chairman, and treasurer of the Bitcoin Foundation. Vessenes also operates CoinLab, a rival exchange.

To many I spoke to, the souring of their partnership represents the first real schism within the community, a public squabble that some feel reflects poorly on a movement founded on purer ideals. Others were more pragmatic. After all, bitcoin is big business. And with real, actual money at stake, this was war—at least figuratively speaking.

“I heard [Mt.Gox] got stopped at the airport,” one bitcoiner joked when the topic came up. But Mt.Gox’s absence—the latest signal that the US government has its eyes firmly on bitcoin—would do little to dampen the buoyant mood. Even hardcore libertarians admitted that government regulation will make bitcoin stronger, more legitimate, although not all agreed.

Anyway, as one insider told Motherboard, based on conversations he had had with men who have studied bitcoin on behalf of some of the nation's three letter agencies, the government thinks it's actually pretty damn cool. That doesn't mean, however, that these same agents aren't going to do what they can to stop criminals from using the currency to deal in drugs, weapons, rare animals, and to simply launder money—which remain some of the top uses of the controversial cryptocurrency, beyond pure speculation.

For now it exists and still thrives, largely unregulated (and, on some level, unregulatable) and unstoppable so long as enough people think its a valuable thing to own and spend. The impressive turnout was one promising sign of its validation; the delicious fact of premium spirits flowing freely at side events sponsored by various bitcoin startups also helped promote the idea that bitcoin has, maybe, actually, finally arrived.

“A few months ago, this would have been a couple hundred people,” OpenCoin CEO Chris Larsen told me. His startup, responsible for Ripple, a rival "math-based" currency that Larsen calls bitcoin’s next iteration, has attracted investments from an assortment of brand name venture capital, including Andreessen Horowitz, Lightspeed Venture Partners, and Google, among others.

“I’ve never experienced anything like this," said Gabe Sukenik, a 25-year-old BitInstant alum who is a now a co-founder at Coinapult. The bowtie-clad Sukenik is a regular on the digital payments conference circuit, where the focus on Visa and PayPal meant bitcoin was always an afterthought, and where there are typically no free drinks and celebrities. Now he was gushing.

"I just met Gavin!” he said, gleefully. He was referring to the open source project's lead developer, Gavin Andresen, who was standing fifteen feet away. Andresen, who began as a volunteer, is now paid a salary by the Foundation (in bitcoins, of course). He told us his wife, a geology professor at the University of Massachusetts, had finally come to admit that this isn't just his "make-believe money project."

Known for his coding acumen and dedication, the mild-mannered Princeton grad has become a god among true believers. He's also pragmatic. He's already paid a visit to the CIA and in the weeks that follow, Andresen will meet with Jennifer Calvery, the head of the US Treasury's anti-money laundering arm, as well as other government agencies, to discuss the digital currency's regulatory future.

Overall, bitcoiners were a friendly bunch, a disposition aided by an environment where only one side of the argument was present. Without the need to win over skeptics, everyone instead had an elevator pitch. Imagine the crowd at the Consumer Electronics Show in Vegas: technically savvy and fashionably nondescript, veering from pasty poindexter to boisterous brogrammer, middle-aged men in polo shirts with their company's logo and of course the odd Euro hacker. There are one or two who appear to have traveled straight from their cabin in the woods, but for the most part, these were normal dudes, guys you would have no qualms with having a beer at one of the hosted parties following the show.

In the case of Bitcoin 2013, one of the events has an outdoor casino (actual make-believe money this time) and a live Top 40s DJ, serving top shelf booze and endless sliders in trendy San Pedro Square. If gambling and dancing isn't your thing, the second floor is equipped with classic arcade games and foosball tables, specially delivered by truck.

As one might suspect, there were few women at Bitcoin Con; the male-to-female ratio was realistically 50-to-1. That’s including booth babes, significant others, Motherboard producer Erin Carr, and the one woman I met launching a bitcoin exchange.

In fact, the running joke I heard was that everyone was starting their own exchange. Given the number of business cards shoved in my face over the course of the weekend, that might not have been much of a joke. Bitcoin's biggest (above-board) business is simply getting bitcoin into the hands of users in the first place.

“So 2011,” an insider, one of a few big fish in what is still a tiny pond, said of the new attempts at building exchanges. There’s no shortage of minnows taking the bait, however, eager to claim their share of a growing $1 billion pie. Beneath the cushy camaraderie I could smell an undercurrent of ruthless, sometimes desperate competition. As my colleague Derek Mead told me, “there’s blood in the water.”

In other words, there was lots of networking. The pervasive drone of chit-chat at times even drowned out the Winkelvosses' keynote, prompting the odd “shush.” For all of bitcoin’s purported benefits—the ability to easily send cash to anyone in the world; a self-regulated system of inflation (or deflation, rather); and the decentralized, semi-anonymous, cryptographic network—there’s really only one reason why this open source initiative continues to pick up steam where others have failed: money. Like, actual dollars.

It may not be a Ponzi scheme, as some like to claim, but the polarizing project has richly rewarded early adopters, minting an untold number overnight millionaires. Bitcoin continues to have the appearance of a get-rich-quick scheme that doesn't seem to be going away. It's unclear how long the party will last—until it gets shutdown, crashes, or, some believe, something better replaces it.

As a currency without a trace, one of bitcoin's under-recognized virtues is its ability to counter financial censorship. The refusal by PayPal and major credit cards to process payments to WikiLeaks is tantamount to an attack on freedom of speech, argued Rainey Reitman of the Electronic Freedom Foundation during a panel on regulation.

That's precisely the kind of attack that bitcoin has the potential to subvert, and not just for WikiLeaks. Dissidents could, for instance, use bitcoin to secretly transfer money inside regimes where transactions are carefully monitored. Days before the conference, the EFF announced that the organization would once again accept bitcoins as donations, although it was careful to say it doesn't endorse bitcoin itself.

It’s the bitcoin protocol’s tendency towards evasion and subversion that has made it a prized possession among anti-government ideologues and people who call themselves cypherpunks, a term coined in 1992 by Jude Milhon to describe a subculture of hackers who believed cryptography could drive social change.

The ever-present libertarian radio station, Free Talk Live, is broadcasting on location. On one end of the spectrum: rational libertarians who believe this algorithm-backed currency could someday become an alternative to government-backed fiat currency. On the other: a few of the rabid techno-anarchists who see bitcoin as the last financial bastion untouchable by the coming New World Order.

Then there’s Roger Ver, or as bitcoin scenesters adoringly call him, Bitcoin Jesus. As the community’s preeminent evangelist, Ver, with his infectious passion and magnetic charisma, easily lives up to his nickname. By the conclusion of our interview, he had already set up Motherboard's cameraman with a Blockchain wallet and his first coin—or at least a tiny fraction of one. I tried to daydream about the bitcoin utopia where killer drones and government-sponsored war don’t exist because no one pays taxes that Ver so colorfully described. Apple, for one, could lay off a few lawyers.

But if the conference is any indication, much of the activity in bitcoin land leans towards the apolitical, as evidenced by a busy trade show where a range of companies paid big bucks to set up shop. The bigger names, like Coinbase, BitInstant and BitPay—the first two more or less exchanges, the third a platform for businesses to accept bitcoins—are looking to make fundamental features more user friendly so that bitcoin can one day pass the grandma test.

Someday, it is hoped, even technophobes will be able to use it, perhaps without realizing they're even using bitcoin at all. Along with the first US-based bitcoin hedge fund, two working ATM prototypes were on display.

But even if bitcoin is coming of age, after a couple of quick laps through the trade show, it was clear to Motherboard that the ecosystem still had a lot of growing up to do before parents were going to start paying out allowances in the stuff.

Between the numerous exchanges and booths hawking bitcoin paraphernalia, compelling services for ordinary people were conspicuously absent. Sure, it’s never been easier to acquire and use bitcoins, though it's still far from seamless, but what, I wondered, am I going to do with my stash down the line? Regulatory red tape is an ongoing concern, but so is the need for a killer app, or at least one that isn't the Silk Road, SatoshiDICE, or simply mining bitcoins. For most folks, it’s a nifty bit of future in search of a purpose.

That's not for lack of ideas. There were four speaker and panel tracks spread over two days, like “Bitcoin's Benefit for Merchants,” "Bitcoin in the Future," and “Youtube is Broken: Rethinking Content Monetization with Bitcoin." But the most popular session would be a thirty minute talk on the last day of the conference by Yifu Guo.

Guo is the founder of Avalon, which builds the Avalon ASIC miner, the world’s first computer integrated with a specially-designed superchip for mining bitcoin. His machine, which resembles a desktop computer circa 1995, was on display at the BitInstant booth, where it was often surrounded by fans. It's not hard to draw a crowd when you can essentially print money.

This has helped make Guo, who was born in China and recently dropped out of an engineering program at NYU, one of the movement’s leading personalities. Sporting his trademark leather jacket, his favorite t-shirt, and a punkish braid of hair that extends down his entire backside, he is articulate about engineering, networks and most importantly, execution, and talks sincerely about using bitcoin to make the world a better, more prosperous place. During his presentation, spontaneous applause erupted at least three times.

For his admirers, Guo's miners are an elegant embodiment of digital freedom, using math to produce value, unshackle humans from the system, and let them do however as they please with their money. After his speech, a swarm of badgeholders gathered outside the conference room to pepper Guo with questions and listen to him muse on manufacturing in China, quitting school and the potential for government interference for half-an-hour, as he licked an ice cream bar.

Across the hall, a booth operator diligently prints Yifu t-shirts with the word ‘LIBERATE‘ emblazoned beneath his face. They sell for 0.15 BTC a pop, or roughly $20.

For many, however, it may already be too late. One sign: the pair of establishment Harvard bros some have chosen to ignore. As bitcoin enters a new stage in its life cycle, the outsiders have officially arrived, and with them deep pockets. No longer just the extracurricular activity of libertarian quants or digital n'er'dowells, the burgeoning ecosystem is starting to attract the Silicon Valley elite.

And as bitcoin grows in stature, so too does the price of admission. The presence of the twins, in fact, belies an ominous narrative, a quiet warning of just how quickly fortunes can change in the tech game and a subtle reminder of what’s really at stake. Some people are going to get richer. A lot more can happen to.

A couple of hours after the crowd around Guo has dispersed, the conference ends, sending weary bitcoiners back to the Valley or to the airport, to New York, Berlin, Panama, Seoul, and all the corners of the world this unlikely digital currency has reached—a global network that sometimes makes government regulation look more old-fashioned and parochial than ever.

On that network, they will patiently wait. Wait for the next block to be added to the blockchain, releasing another twenty five bitcoins into the wild. Wait for their backordered Avalon to finally arrive. Wait for the price of bitcoins to rise and then fall all over again. Wait for precocious Silicon Valley gamblers to build a better product. Wait for the mainstream adoption that some believe is inevitable. A bitcoin wallet on every laptop, that B sticker in every storefront. They may wait a long time, but with luck they'll be waiting with a stiff drink in hand, the kind you don't have to pay for.

@sfnuop