You, Me, and BTC Your Liberty & Bitcoin Podcast
Patrick Byrne, the CEO of Overstock.com, is greatly respected by many in the Bitcoin community. His company started accepting Bitcoin relatively early (January 2014) and was the largest to do so at the time. Byrne is also well known for exposing a great deal of Wall Street corruption. This WIRED article calls him Bitcoin Messiah and the Scourge of Wall Street in the same headline.
Not everyone agrees, of course, but many Bitcoiners share Byrne’s mindset. A strong dissatisfaction with traditional financial institutions is what leads many people to Bitcoin in the first place. This creates issues when it comes to news like this. Within just two days, two Bitcoin companies gained some form of support from Wall Street. First, Tera Group announced their employment of a former New York Stock Exchange CEO. Then Noble Markets partnered with Nasdaq to gain access to special trading technology.
As a Bitcoin enthusiast myself, it’s interesting to consider how others might react to this news. On one hand, some people could easily become upset. They might say that we don’t need any help from Wall Street and we don’t want to risk having any corruption spill into Bitcoin. Of course, I agree that we don’t want corruption, but I don’t think this news really means that we have to have it.
One of the coolest things about Bitcoin is that it makes it a lot harder for external forces to control our money. According to Byrne, Wall Street exchanges regularly oversell assets, which leads to buyers believing they own things that they really don’t. None of that is possible with the natural form of Bitcoin.
With Bitcoin, every single unit of currency and every transaction is visible to the public. All of that information is stored by thousands of nodes around the world in a chunk of data called the blockchain. Anyone can download or explore that data at any time. In addition, the blockchain’s information is verified 24/7 by nearly 400 petahashes per second (and counting) of computer power.
The only way that a company could sidestep that gigantic level of security and start ripping people off would be to build a Bitcoin service outside of the blockchain - and that’s been done before.
MtGox was a Bitcoin exchange that accepted real Bitcoin transactions from the outside world, but then performed off-chain transactions within their own system. When people saw Bitcoins in their MtGox accounts, they just saw numbers that the company kept in a database. They were never shown exactly where on the blockchain that money was stored.
In the end, it turned out that MtGox did not really hold all of the bitcoins that they were telling their users they had. There is still some debate about what really happened to that money. It could have been stolen by the management, stolen by hackers, or just plain lost, but it’s clear that something went seriously wrong.
That problem is very similar to the problems that Byrne points out on Wall Street. And yes, the problem occurred in the Bitcoin space, but here’s the thing: No one was ever forced to trust MtGox. We all had the ability to decide for ourselves whether we thought MtGox was trustworthy or not. Many people, myself included, even pulled money out of the MtGox system in the months before the collapse, as issues started to become apparent. Those people wisely made a voluntary decision not to trust the failing exchange.
More: In his latest Bitcoin and the Arts podcast, John Stuart makes a similar point and explains why artists ought to have the same ability to optionally trust the companies they work with.
In our legacy system, it is very difficult to transfer wealth without trusting third parties like banks, credit card companies, or stock exchanges. Even if we did take the drastic steps to begin living on cash alone, our money would still be heavily manipulated by inflation. With Bitcoin however, peer-to-peer transactions are extremely easy. A third party is always optional.
That’s why I think we have little to fear from Wall Street’s cooperation with Bitcoin companies. As long as we continue to operate on the blockchain, they cannot manipulate our money. And if they decide to build their services off the blockchain, we must always remember that we can opt out. Bitcoin is far from perfect, but compared to our current system, it offers a fantastic amount of freedom and security.
I originally posted this article on Amagi Metals and edited it slightly for You, Me, and BTC.
