The history of money goes back a long way – at least to 2000 BC– and one way of studying the evolution of human societies (and indeed of entire empires) is to follow the money that they used. Coins evolved into banknotes which evolved into cheques which evolved into credit and debit cards, which is more or less where we are now. The big question is what happens next.
In one sense the answer is obvious: money has to all intents and purposes metamorphosed into digital bits. When you wave your new contactless debit card (or, soon, your iPhone 6) over a retailer’s card-reader, what you’re really doing is instructing a computer to reduce a number stored in a ledger on your bank’s hard drive and increase a number stored on the retailer’s bank’s ledger by a corresponding amount. No physical cash has changed hands: all that’s happened is a transfer of digital information.
It’s a long way from cowrie shells and the gold standard, but actually it’s only half a revolution. For one thing, even if money has metamorphosed into bits, governments and central banks still control it as if it were a physical thing – and they manipulate it when it suits their political purposes. (What, after all, is “quantitative easing” but a euphemism for printing money?)
But what is even more absurd is that although money has gone digital, it is still hard to move it around the world – unless you’re a bank. The internet enables an individual instantly to send an email – just a stream of bits – to someone on the other side of the world, but sending them money – also just a stream of bits – is a different kettle of fish. You have to go through established channels (banks or other licensed intermediaries), pay substantial fees and commissions, and sometimes endure unconscionable delays.
The discrepancy between technological potential and real-world actuality is a red rag to geeks, and so it’s not surprising that from the early days of the net, groups of cypherpunks experimented with ideas of “digital cash” – currencies that were purely digital, global and outside the control of governments. For years, all of these experiments failed, and then, in October 2008, a mysterious, unknown geek calling himself Satoshi Nakamoto invented a new kind of digital currency – bitcoin – and changed the game.
Since then, bitcoin has been on a rollercoaster ride in multiple dimensions. It has attracted the attention not just of a sceptical mass media, but also of cryptography geeks, scammers, computer scientists, investors (or gamblers, depending on your point of view), entrepreneurs, venture capitalists, criminals, hackers, security services and law-enforcement agencies. To date, most of the drama about bitcoin has been played out in public. But what has been relatively obscure is the story of how the technology evolved and the identity of the individuals who have played significant roles in it.
This is the story that Nathaniel Popper set out to tell. He’s a New York Times reporter, and it shows: he has apparently limitless stamina, an eye for detail, a compulsive need to provide glib pen portraits (a key player is “a slender man with dark movie-star looks, a sophisticated accent, and clothes that signalled elegance and ease” – that kind of thing), and so on. His book has a huge cast of characters, often referred to just by their first names, so that one sometimes has the feeling of having stumbled into a family saga. And it’s structured like a tech thriller – chronological, with short chapters each concluding on the nearest thing Popper can find to a cliffhanger at that point in his narrative.
But it is also a highly readable and informative account of the early years of a technology – cryptocurrency – that may one day turn out to be almost as significant as the internet itself. Although the web has already had an enormous economic impact, its real potential remains largely untapped because of the high transaction costs imposed by traditional methods of payment represented by “old money” – credit cards and their equivalents. The economic friction imposed by card transactions (plus the associated costs of fraud and fraud-prevention) mean that the sheer scale of the internet cannot yet be harnessed. But cryptocurrencies on the bitcoin model could change that, because they would enable billions of transactions, each of which might involve only a tiny cash payment, but which in aggregate could be enormous.
Two things stand out from Mr Popper’s narrative. The first is confirmation of how long and tortuous is the road from a technological breakthrough to real-world acceptance. Anybody who thinks that bringing a technology to market is easy has never done it. The other is the colossal damage done to the prospects of bitcoin (and indeed of cryptocurrencies generally) by the Silk Road online black market, a platform known for selling illegal drugs that used bitcoins as its means of exchange, which was eventually shut down by the US authorities. Given that a currency – analogue or digital – is only as good as the trust that people place in it, the Silk Road fiasco gave governments and the media the spin that they needed – that cryptocurrencies are really only for bad people. Which is a shame, because it may be that they are just what a networked world needs.
Digital Gold is published by Allen Lane (£20). Click here to buy it for £16.
