Bitcoin, Prism, Future Web
The two biggest internet stories of 2013 have been the arrival of Bitcoin…
Part 1 – Bitcoin
The two biggest internet stories of 2013 have been the arrival of Bitcoin into the mainstream and the exposure of Prism and other mass surveillance programmes by security agencies. Perhaps, though, we should read this as a single, massive story – a story that tells how the entire current model of the Web is collapsing under its own contradictions, and hints at what may emerge over the next few years.
Bitcoin and Prism are prophetic, a Sign of the Times. In parts 1 and 2, we are going to look at each separately, then draw the threads together in Part 3.
In traditional online payments, there has to be a third party (in reality, of course, it can be a whole swarm of interacting third parties) who:
- charges you for setting up the transaction
- records who you are paying and moves the money accordingly
For the most part, payments go through account-to-account systems. Sometimes there is an intermediary step where you buy some kind of e-cash tokens and then transact using those tokens. But at the broadest level, these do all form one family of payment systems: between buyer and seller there is an honest broker who manages the transaction, takes a cut, and makes sure that there is no cheating.
Bitcoin is an extremely elegant alternative. At a stroke, the third party is removed; there is no need for an honest broker because there is nothing to hide. Every computer on the network has a record of every single transaction that has ever been made, and that complete transparency is what validates each new transaction. At the same time, the process of validating new transactions is itself the mechanism whereby new currency gets issued. Since there is no issuing authority who can print money at will, but merely an issuing algorithm that is viewable by all but controllable by none, there is no possibility of inflation. So you have a payment system that is inflation free, free to use, and entirely anonymous.
Who uses it?
In theory (aka the “News”), it could be used by international terrorists, wholesale drug dealers, weapons traders, and who knows what other shadowy beings.
A glance at Silk Road is enough to show that Bitcoin really is used for illegal drug purchases, though only retail-level ones. But it isn’t easy to use securely. And common sense suggests that only a handful of small-time users would dream of buying drugs or guns by mail order.
To look into the question of who is actually using it, we
- did a brief scan of bitcointalk.org, where bitcoiners discuss all matter of things
- asked around
- had a look at the list of Bitcoin-accepting merchants at https://www.spendbitcoins.com/places/
Not very scientific, but still it seems slightly more methodical than most of the sensationalist media coverage.
The unremarkable truth is that Bitcoin is mainly used by geeks who want to buy things anonymously. So where are those mysterious BTC going? Here is our tentative estimate:
Porn – 5% It may come as a surprise, but actually not all porn is free. Especially at the more interactive end, payment is still required. But surely only a small fragment of the bitcoiner community has such specialist tastes as to need to pay by BTC. About 5% of the spendbitcoins list are porn sites.
Geek-friendly products – 10% Backpacks, personalised T-shirts, New Age knick-knacks, organic food, Eco nappies, gazebos, everything a Vancouver-based cycling coder could want. In here we would also include the retail-level illegal drugs purchases that have played such a prominent part in media coverage.
Silver and gold – 20% Silver is dearer to the bitcoiners’ hearts than gold. Presumably that’s because these are hobbyists with an interest in alternative stores of value, and silver is that bit more alternative than gold. At all events, precious metals are enthusiastically traded via Bitcoin.
Virtual Private Server hosting – 60% This is by far the biggest category in the spendbitcoins list. Similarly, our anecdotal research and our analysis of the “Bitcoin Forum > Economy > Marketplace” section of bitcointalk.org strongly suggest that this is where most of the actual Bitcoin payments are going.
Well, why? There are two reasons for someone to want secure, anonymously-purchased server space. It’s either to run programs from (password-cracking, spamming) or to store stolen digital content (movies, music, whatever).
The storage demands for running an illegal program are pretty small, even if you are cracking or spamming on a huge scale. Also, the number of full-on internet criminals is obviously tiny compared to the number of illegal downloaders – on a very conservative estimate, the ratio can’t be higher than 1:1000.
So practically all of that Bitcoin-bought VPS hosting is used to store illegal downloads.