Freakonomics on Bitcoin

Freakonomics on Bitcoin

Earlier this year, the Freakonomics Radio Podcast provided its take on the virtual currency bitcoin, in a episode titled “Why Everybody Who Doesn’t Hate Bitcoin Loves It.”

Here is a description of the show from the Freakonomics website: 

After being bombarded by email requests for months, Freakonomics Radio has finally caved and made an episode about Bitcoin. . . . The gist: thinking of Bitcoin as just a digital currency is like thinking about the Internet as just e-mail. Its potential is much more exciting than that.

Bitcoin is often described as “virtual gold” — as well as everything from a “bubble” to a “Ponzi scheme” to “a haven for individuals to buy black market items.” But what excites some people, like Silicon Valley veteran Marc Andreessen, is Bitcoin’s potential as a new technology that could underlie any number of transactions, well beyond the simple swapping of currency.

Andreessen, a Web pioneer, is now on the board of companies like Facebook and eBay. He is not a disinterested observer in the Bitcoin debate: his venture-capital firm Andreessen Horowitzhas invested around $50 million in two Bitcoin-related companies, including Coinbase, and Andreessen says they plan to invest much more to enable Bitcoin to go mainstream.

Why such confidence? The reason, Andreessen tells Stephen Dubner, is that Bitcoin is “the solution to a fundamental problem in computer science”:

ANDREESSEN: One of the things … that’s been missing on the Internet for 20 years is kind of a native concept of money…The ability to very easily pay somebody online, the ability to very easily charge for a piece of content, the ability to very easily exchange a digital title, or a digital key, or a digital contract has just been missing because you have no mechanism for establishing trust. And so Bitcoin basically holds the promise of being the first solution to establishing trust over an untrusted network.

Susan Athey, an award-winning economist at Stanford with a background in computer science, is also a big believer in the technology behind Bitcoin; for what it’s worth, Athey advises the company behind Ripple, which is Bitcoin’s top competitor (by market cap):

ATHEY: The beauty of a new currency, which is part of a virtual currency protocol, is that what I’m moving from me to you is just an entry on a secure, public ledger. And that public ledger is maintained by a set of computers all talking to each other using a protocol. So I don’t have to worry about some bank giving me an IOU and then giving that IOU and handing it to another bank. Instead, if I make a transaction over the virtual currency, it’s just an entry in the ledger. So I don’t need a middleman.

New York Superintendent of Financial Services Benjamin Lawsky, who is leading the charge toregulate Bitcoin in the U.S., tells Dubner that he is concerned about the freedom Bitcoin affords to criminals:

LAWSKY: It’s very hard to transport $1 million in hard currency overseas. You can’t just put it in a backpack and get it on a plane very easily. But it is very easy to do that now digitally using Bitcoin.

That said, Lawsky is also excited about the possibilities of a technology like Bitcoin, which could bring down all sorts of transaction fees. This may be bad news for traditional banks, credit-card companies, and other fee-seeking middlemen. But, as Lawsky points out, a lot of other people stand to benefit:

LAWSKY: Right now, there are thousands and thousands of New Yorkers who work hard every day to send money back home to their families in whatever country they’re from…And right now they’re paying fees for those wire transactions each week at the end of the week, 7, 8, 9 percent. And that’s a lot of money for people who often can’t afford it.

A crowd of leading economists, including two Nobel laureates and former Fed chairman Alan Greenspan, have bashed Bitcoin. They’ve expressed alarm about the astronomical rise in the digital currency’s value. Marc Andreessen argues that they are missing the larger point:

ANDREESSEN: It’s a little bit like dogs watching TV. It’s like, it’s all very interesting, but like whatever until another dog shows up on screen and then the dog freaks out. Economists, like this stuff is all like, whatever, technology, geek, nerds whateverand then “currency” is the flag. And so the minute the word “currency” shows up, all the economists perk up because if there’s one thing economists are all experts on it’s currency… And they look at it and they say, “Oh my god, people are paying $600 for this thing, it’s just a piece of fake digital currency, people have just lost their minds.” I don’t think that they are looking at the underlying substance.

The episode also addresses a question many of you asked when Freakonomics Radio ran a fund-raising campaignwhy don’t you guys accept Bitcoin?

Bitcoin Bet: Niche, Novelty or Revolution

Bitcoin Bet: Niche, Novelty or Revolution

The most recent episode of the Planet Money podcast discussed a bet between high profile venture capitalist Ben Horowitz and Reuters financial reporter Felix Salmon over the future of the virtual currency Bitcoin.  

Here is a description of the podcast: 

Ben Horowitz is a big-time venture capitalist. His firm invested in Facebook and Twitter. More recently, the firm invested some $50 million in startups related to bitcoin, the virtual currency that works like online cash. Ben thinks bitcoin is going to change the way people buy and sell stuff on the Internet.

Felix Salmon, a high-profile finance blogger at Reuters, is a prominent bitcoin skeptic.

So when Felix recently published an essay calling bitcoin a bubble that was sure to burst, Benposted a comment challenging him to a bet over the future of bitcoin.

“I said, ‘Why don’t we just bet?'” Ben told us. “And I’ve read enough of Felix’s stuff to know that would be irresistible to him.”

“He’s right about that,” Felix said. “Being challenged by Ben Horowitz is kind of a high point of my career. So I immediately said yes.”

When we heard about the challenge, we invited Felix and Ben to come on Planet Money to hash out the details of the bet. Basically, we offered to be their bookie. Fortunately for us, they accepted.

For more about Bitcoin from the SLACE Archive see:  

Bitcoin and the Law (Jan. 15, 2014)

Bitcoin: The Virtual Currency Bubble? (April 13, 2013)

 

Bitcoin and the Law

Bitcoin and the Law

Recently, my professor for Commercial Transactions mentioned Bitcoin, a new online currency.  It is not money according to the Uniform Commercial Code, but it increasingly used as currency throughout the United States and around the world.  The latest edition of the Lawyer to Lawyer podcast discussed the legal issues surrounding Bitcoin. 

Here is a description of the podcast: 

If you had bought $1,000 worth of Bitcoins in 2010, you would have $2.4 million dollars today. The anonymous, Internet-based currency has seen an exponential rise in value and popularity since its inception in 2009. This raises legal questions regarding the legitimacy, the legalities, and what lawyers need to know about this new currency. In this edition of Lawyer2Lawyer hosts Bob Ambrogiand J. Craig Williams invite Bitcoin experts, attorney Lowell D. Ness and journalist Kashmir Hill, to provide some answers and a foretelling of the e-currency’s future.

Ness is a partner of the nationwide law firm Perkins Coie which has extensive experience in virtual currency. The firm’s Virtual Currency Report Blog, which Lowell regularly contributes to, provides a legal outlook on the state of bitcoin and the market. Lowell’s practice focuses on high-growth emerging companies and involves venture capital financings, mergers and acquisitions, public offerings, and private placements.

Senior Online Editor of Forbes, Hill is a privacy pragmatist with an interest in the intersection of law, technology, social media, and personal information. Former editor of Above the Law, she has been following the Bitcoin story from the start, and will be releasing an e-book documenting Bitcoin’s rise later this year.