Analysis, Cool Stuff

Metal, Paper, and Software: BitCoin and Digital Currencies

Bitcoin image for blog post

I’ve been fascinated with the nature of money, since 1993, when I read a history book which mentioned that prior to the US Civil War, there were thousands of private institutions that were issuing paper money notes… and people used them effectively.  I realized then that money is simply a collective belief that “something” can be exchanged for value in the future.  Confidence.  Belief.  Self-fulfilling group trance.

In 2004, thinking that creating a global digital currency was a good idea, I bought the URL, which I have to this day.  The logic was that US money is green, so maybe the global currency should be named after the dominant color of our planet.

In 2005 I joined the board of SecondLife, a company with an internal economy in virtual Linden Dollars and a free floating exchange rate between Linden Dollars and US dollars. The magnitude of that internal economy eventually reached the equivalent of US$750 million.  Very real virtual dollars.

In 2009, Philip Rosedale — the CEO of SecondLife and a true visionary — Bill Tai, Stan Chudnovsky, Mitch Kapor and I spend several brainstorming sessions trying to come up with a plan to create a world digital currency, either by spinning out Linden Dollars or by creating something new, and calling it Blue.  Our plan came down to a BitTorrent-like system for an encrypted currency, open sourced software, currency units to be programmable, a floating exchange rate with all other currencies, and it even included a disappearing founder.  In other words, it was very close to what BitCoin actually pulled off while we were just talking about it.  There were two main differences: we hadn’t come up with mining as a mechanism to compensate the operators of the distributed network, and we never really believed we could keep our identities secret and thus “disappear” — something we knew was critical to building confidence in the currency.  So we never did anything.

In 2009, that same year, at David Hornik’s tech gathering The Lobby in Hawaii, Philip Rosedale and I led a group discussion called “One Currency to Rule Them All” where we discussed the potential for the creation of a digital currency that would live outside a virtual world like SecondLife in our real world.

So in 2011, when I first heard about BitCoin late, I immediately recognized it for what it is.  Since then, Stan and I have been playing with it and following it.  This lead to me running the BitCoin discussion at The Lobby in 2013, and the BitCoin panel at LeWeb in December 2013.   Here’s the video.  It is probably best viewed as a BitCoin 101 for your friends who want to understand the fascination with Digital Currencies and BitCoin.   Obviously, the next forty years will be interesting for money in general, and BitCoin is clearly the first shot, not the last.

As I put it to my Dad over the holidays: When humans had metal technology, we made money out of metal.  When we had printing technology, we made money out of paper.  Now we have software technology, we’re going to make money out of it, and BitCoin is the first potentially viable instance of that natural evolution.


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