Late in the evening of Halloween 2008, the pseudonymous Satoshi Nakomoto published a white paper to an obscure email list. The paper described a new system of exchanging value, named “Bitcoin,” which wouldn’t require the involvement or intervention of a third party. At the time, the paper was largely ignored. But nearly 10 years later, Bitcoin is worth $150 billion, and a nascent ecosystem of cryptocurrencies and supporting applications has sprung up around it. What happened?
Modern currency fundamentally requires trust in central banks and governments. No one would accept dollars, euros or rubles in exchange for their labor unless they trusted they could spend that money on rent, groceries and gas. But for some people, the idea that a third party can indirectly control the value of their labor this way is irksome. At least for Nakomoto, that motivation seems to have been enough to invent an alternative.
But if currencies require trust, where does Bitcoin’s come from? The paper’s key innovation was to create trust with mathematics and data structures rather than institutional hegemony. Collectively these structures are called a blockchain, so named because transactions are organized into digitally signed groups called blocks, which are then linked together in ways that make it difficult to forge or alter the transactions in them.
In the decade since Bitcoin’s introduction, thousands of cryptocurrencies have been created—and most have languished—each with their own ideas about blockchains. Some have staying power and legitimacy, such as Bitcoin’s more sophisticated sibling, Ethereum. But countless others have proven to be nothing more than meretricious Ponzi schemes that bilked investors of billions.
In such a volatile and unregulated environment, how can one separate the wheat from the chaff? Several entrepreneurs in Charlottesville are coming up with their own answers to this question.
Ryan Adams, a longtime technologist and Charlottesville business leader, and part-time blogger for Bitcoin Up Erfahrung, started Mythos Capital to research and explore the cryptocurrency ecosystem. Adams describes Mythos as a “crypto-asset investment company,” whose goal is to determine which visions of blockchain’s future will ultimately survive the test of time and invest in them.
Adams believes that “the playing field is simply too crowded” right now. Eventually, he thinks, “different cryptocurrencies may each take different roles for the distinct responsibilities of money,” in the same way that people use gold bars, credit cards and dollar bills differently.
Others in Charlottesville are coming up with novel ideas for how blockchains could be useful. Seth Baxter and Worth Becker, co-founders of consulting company Neuralux, are working on a new venture called EconomyX to explore how the transparency of blockchains could be used to help investors in private equity markets conduct due diligence. And Moonlighting, a freelance jobs marketplace headquartered in Charlottesville, is promoting its own Moonbit cryptocurrency as a way to help its freelancers get paid.
Blockchain has use potential far greater than just exchanging money; it can be used to preserve historical records, pay parking tickets, even vote. But blockchain technology comes with many trade-offs and regulatory challenges, and there’s a long way to go for any of these ideas to be usable at scale. At one point last year, if you wanted to buy a $5 slice of pizza using Bitcoin, you would pay $50 in transaction fees, wait about an hour for your transaction to clear and consume as much energy as your house uses in a week. That’s a very expensive inconvenience for a cryptocurrency that wants to supplant cash. It’s also a long time to wait for your pizza.
It’s difficult to predict where we’ll be in another 10 years, or if the current blockchain ideas will even be around. Perhaps, much like the internet, it will take many iterations on the core technologies before any of them can achieve ubiquity. But one thing is certain: Lots of people are paying very close attention.
John Feminella is the co-founder of analytics startup UpHex and an adviser at Pivotal. He lives in Charlottesville and enjoys solving difficult technology problems.