Both Sides of Bitcoin

The many facets of an emerging digital currency

When PayPal announced in late 2014 that it would start accepting bitcoins, or BTC, as a form of currency, the news sparked yet another wave of speculation about the digital currency’s future. Phillip Inman, the Guardian’s economics correspondent, reported the Bank of England’s fear that bitcoin threatens the UK’s financial stability while Marc Andreessen, an entrepreneur and software engineer, wrote in the New York Times that bitcoin will allow us to reinvent how the financial system can and should work alongside the Internet.

While misconceptions about bitcoin abound, the Bitcoin Foundation, a trade association headquartered in Washington, DC, works to correct those assumptions and standardize and promote the currency’s use. Patrick Murck, a founding member and the group’s general counsel, works internationally on bitcoin’s public policy to expand its use and presence. “No one is asking, ‘Why would someone build this?’” Murck says. “Illicit activity and misuse of the system is what caught the media’s attention. We’re creating a public policy framework that can grow and change the public’s perception so bitcoin becomes something they can believe in.”

Illicit activity and misuse of the system is what caught the media’s attention. We’re creating a public policy framework that can grow and change the public’s perception so bitcoin becomes something they can believe in.

Founded in July 2012, the Bitcoin Foundation tackled the currency’s most visible problems with a controversial initial strategy. Some have described bitcoin as libertarian in its desire to avoid taxation, state regulation, and third party oversight, but starting in 2012, Murck and others at the foundation went directly to law enforcement officers to discuss the inaccurate perceptions about bitcoin’s uses and benefits. “I was told, by several people, that I was walking into a trap,” Murck says. “By talking to law enforcement and admitting that the illicit use of bitcoin is a shared problem, some people thought I was endorsing a negative view of it.” Murck and the group’s other founders disagreed. “The law enforcement community I worked with wanted to be educated about the technology and understand the benefits. They were no longer just swayed by negative press.” Working with groups such as the Department of the Treasury’s financial crimes enforcement network and organizations such as the International Center for Missing and Exploited Children was part of the foundation’s strategy to prove that bitcoin was not designed to conduct illicit transactions.

Murck is far from naïve about the scandals that have whirled around the cryptocurrency. “Bitcoin thrives on drama, that’s for sure,” he says. Originally touted for its inability to be hacked into or stolen, since 2009, bitcoin has come under attack from thieves around the world, and the press jumped on these cautionary and unsettling stories. Bitcoin as a unit or program has never been hacked, but services utilizing its network have. Murck took on one such case pro bono, outside of his work at the foundation, in 2012. A hacker attacked a popular bitcoin exchange to steal at least 46,703 BTC (bitcoin units), which was worth about $228,000 at the time. Almost all of those bitcoins belonged to Bitcoinica, a bitcoin trading platform developed and managed by 17-year-old Zhou Tong. Shortly thereafter, Bitcoinica was in the midst of a sale during a second successful hack, and the thief emptied out Bitcoinica’s remaining funds. Because the company was in transition from Tong to another company, it became unclear who was responsible for security. Murck negotiated with the hacker for the return of about $200,000 in cash and 20,000 in bitcoins after the second attack, and he advised the creditors involved to move Bitcoinica into liquidation. Cases like Bitcoinica’s painted an ugly picture of the technology. But Murck, who has a well-rounded and realistic view of the currency, promises that the currency can have real positive benefits, if the policies regarding it can be standardized and adopted.

The theft of bitcoins had a beneficial secondary effect, however damaging the crime itself was—many people began to seriously consider their security and who they trusted with their holdings. Although a person can choose to keep his/her bitcoins with a third party, there is no need to do so. “You can store it on a piece of paper,” he says. “You can store it on your hard drive. You don’t have to trust someone to store it for you, but people do.” Even informed tech bankers were lured by the idea of trusting a third party with their funds, because it seems somewhat foreign to not have a bank holding your wealth. “What happened with Bitcoinica,” Murck says, “is an example of choosing to trust people who didn’t warrant that trust.” It’s a learning curve, he adds, for people to figure out who should be trusted with such data in the age of digitization and the Internet of Things, and bitcoin is at the forefront of that curve.

The greatest benefits of bitcoin may not be apparent in the Western world for a long time, Murck says. When an individual in the West goes to a Starbucks, he has multiple ways to pay: a credit card, cash, a mobile app. That person doesn’t worry about the value of the US dollar dropping by half in 24 hours. But a consumer in Buenos Aires does fear that the Argentinian peso could plummet in worth in mere hours. “There’s a lot of talk about the volatility of bitcoin, but it’s less volatile than some local currencies,” Murck says. He believes the consumer uptake outside of stable economies could drive its use—and, in doing so, the stability of bitcoin. Once that happens, functionality, reputation, and adoption will follow. It’s already happening. It’s hard to say how long it will take, but people are already seeing BTC listed as an available currency on PayPal. Maybe soon, they’ll see it in Starbucks, as well.