Bitcoin in the Headlines: The Chicken and Egg Debate

Bitcoin in the Headlines is our weekly look at bitcoin news, analysing media and its impact.

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It’s the classic philosopher’s dilemma, the chicken and egg. Which came first? And how do you make sense of being stuck in that unknowing middle?

For the media and the general public, debates in the bitcoin space are often muddled in the same confusion – ‘Can you have the blockchain without bitcoin?’ ‘Is the protocol safe even if bitcoin businesses are not?’ and ‘Who made this thing anyway and why can’t we ask him?’

Such is the struggle of making sense of a technology that seems to have emerged as a fully formed chicken in the financial barnyard.

But, while it’s natural that the media are out for their answers to these questions, this week’s reporting illustrates how the search for answers is often betrayed by life’s complexity.

Bitcoin or blockchain?

Perhaps bitcoin’s biggest chicken-and-egg debate was revived earlier this week following Nasdaq OMX’s announcement that it would begin trialing how bitcoin’s blockchain could be used to help transform the way shares are sold and traded.

Banks and other international corporations are increasingly willing to adopt ‘blockchain technology’, while openly dismissing bitcoin, perhaps failing to notice – or admit –  the digital currency’s co-dependency with its ledger.

In a Wired piece, titled “Bitcoin May Never Make It to Wall Street, But Its Tech Will”, author Cade Metz, began by citing James Angel, a professor of finance at Georgetown University, who compared bitcoin to MySpace, “the social network that paved the way for more influential services like Facebook or Twitter”, seemingly dismissing the currency’s potential.

The comparison to early, but failed, social networks is not new. But, it served to drive home the message that some pundits are not yet convinced that bitcoin is anything more than an inherently flawed first iteration of a distributed public ledger.

Unsurprisingly, this mixed message from Nasdaq was attacked by non-profit bitcoin advocacy group Coin Center, which noted that bitcoin’s ledger requires a healthy currency to operate.

Still, Angel spoke about the need for distributed ledger technology to perhaps provide increased privacy, illustrating why there continues to be a drive to discuss “blockchain technology” more generally.

The chief benefit of a blockchain, he noted, is that it tracks all the transactions on a ledger which is publicly available. The strongest and most widely used distributed ledger today happens to be bitcoin, but many investors, Angel noted, prefer to keep transactions private. As such, attributes might exist that necessitate the rise of other blockchains, or distributed ledgers, he argued.

For now, Angel believes that a stock system will need a way of keeping transactions public while hiding the identity of individual investors. Bitcoin’s supporters, in turn, will have to keep advancing the argument that its ledger is best-suited to become the most widely used.

A treacherous business

Liz Peek, a former Wall Street research analyst and the first woman to become a partner of a Wall Street firm, took a somewhat pessimistic stance on the technology this week. Detailing bitcoin’s flaws in a Fiscal Times piece, she arguably confused the bitcoin protocol’s safety with that of the businesses operating with the technology.

Peek is by no means alone in doing so.

Questioning Wall Street’s and the government’s desire to legitimise the digital currency in the eyes of consumers, Peek wrote:

“At at time when ‘cybersecurity’ has become an oxymoron, why is our government joining with Wall Street to greenlight bitcoin? The virtual currency, rocked by serial scandals and failures since its invention in 2008, has taken on new life as financial officials roll out regulations to govern the cyber cash and banks invest in its future.”

She continued: “By requiring bitcoin exchanges to register and granting them legal status, the government is signalling to users and backers what may prove an unrealistic promise of transparency and security. … At least, regulators need to affix flashing red warning lights to every bitcoin undertaking: consumers beware.”

Peek’s reference to regulation, it soon became clear, followed on from itBit’s announcement that it had received a trust company charter.

A timely news story, no doubt, but the misleading information just kept on coming, as Peek continued her crusade against bitcoin, citing a an MIT Technology Review article which said that academics had spotted flaws in Nakamoto’s math, enabling “cheats”, concluding:

“High risk isn’t a completely incorrect definition of bitcoin right now,” said Peek. “And yet, not only are regulators lending bitcoin legitimacy, Wall Street heavyweights have virtually guaranteed it.”

In search of Satoshi

Peek’s story also referenced the ongoing mystery surrounding Satoshi Nakamoto, the author of the bitcoin white paper, a subject that was further attacked by Nathaniel Popper this week.

Writing for the New York Times, Popper outlined evidence to suggest that Nick Szabo, the noted cryptographer, was quite possibly behind the digital currency’s creation.

“Mr. Szabo is nearly as much of a mystery as Satoshi. But in the course of my reporting I kept turning up new hints that drew me further into the chase”, he noted, adding:

“In the course of my reporting I kept turning up new hints that drew me further into the chase, and I even stumbled into a rare encounter with Mr. Szabo at a private gathering of top bitcoin programmers and entrepreneurs.”

The journalist also cited a study carried out by researchers at Aston University in England. The study compared the writing of several people who have been suspected to be Satoshi and found that none matched as well as Szabo’s, whose similarity, Jack Grieve, the lecture behind the study, told Popper, was “uncanny”.

Neither Peek nor Popper are the first to delve into bitcoin’s origin’s in an attempt to decipher the identity of its mysterious creator – or creators, or to point to the mystery as one of the technology’s shortcomings.

Though an intriguing narrative, however, such storytelling may get in the way of the more compelling reality. Propelled by big players like Nasdaq, bitcoin may be coming to an aisle near you.

This report was co-authored by Pete Rizzo.

Newspaper image via Shutterstock

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