Old vs. New and The Debate About Bitcoin

A few weeks ago a I wrote a post titled It’s Not Right vs. Left, It’s Old vs. New about the conflict between innovators and incumbents. As a society, we are just starting to wander into the real structural conflict around this and I don’t believe our government, either at the local, state, or federal level, really knows what to do about it, or how to effectively engage in it.

If you want a magnificent example of this, all you need to do is look at what’s going on with Bitcoin. Actually, you just need to read two relatively short “open letters” which appeared on the web this morning.

First, read U.S. Senator Joe Manchin (D-W.Va.) letter asking regulators to ban Bitcoin.

Now, read Fred Wilson from USV’s blog post A Letter To Senator Manchin where he explains how regulatory activity in the US is already inhibiting innovation around Bitcoin, rebuts Manchin’s perspective, and analogizes Bitcoin to the Internet.

It’s probably no surprise that I completely agree with Fred’s perspective.

For disclosure, I don’t have much of a financial stake in this game – I own slightly less than 20 Bitcoins (I’ve used fractions to buy some stuff), have no intention to be a Bitcoin trader (I don’t actively trade individual public company stocks or currencies either), and I don’t have a direct equity investment in any company around the Bitcoin ecosystem (although I have several investments in VC funds who do.) I originally bought the Bitcoins for the Coursera course Startup Engineering which I managed to get through the fourth week of before I couldn’t make enough time to keep up with it. I thought I’d bought 10 but was surprised to see a few months ago that I had 20.

While I don’t have a financial stake, I have a huge intellectual and emotional stake in this. Bitcoin is a fascinating innovation. It has the potential to transform a number of different things, where fiat currencies and payment mechanisms are merely two of them. As a computer science problem, Bitcoin is a fascinating one. And, as an innovation vector, it’s a great example of “new” in a world that is desperately trying to hold on to “old.”

We are going to have a very rocky road as a society over the next 40 years. As with every generational shift, there is a lot of disruption (the 1960’s immediately come to mind.) But the amount of change, pace of change, democratization of innovation and entrepreneurship, connectivity of communication around the world, and intellectual complexity of the new innovations being created will dwarf anything we’ve seen as a species since our first moments of sentience.

Bitcoin is just a visible 2014 example of this. As Fred says at the end of his post

“When something as new and as different as Bitcoin emerges, it is tempting to want to “put the Genie back into the bottle” and protect ourselves from it. But thankfully the US did not do that with the Internet. The impact of the commercial Internet on the US economy and our society as a whole has been massive and overwhelmingly positive over the past twenty years. We should approach Bitcoin in exactly the same way and if we do, I expect the benefits we will see will be equally important, impactful, and beneficial to our economy and our society.”

My message to all the incumbents out there is a simple one. The more you try to organize and control “the new”, the harder it is going to be on society. The new is going to route around things, just like the Internet routes around things. Rather than fight innovation, embrace it, encourage it, iterate on it, accept the mess of it, and play with it, rather than against it. It’s more fun and will serve us better in the long run.

  • We’ve seen this show play out time and again.
    Stakes are higher this time but still. Perhaps pragmatism will win this time round

    This truism still hold strong though – “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

  • I very much doubt the Senator has a meaningful opinion of his own wrt Bitcoin. He is more likely reflecting the wishes of his paymasters. Lobbyists for banks and other financial institutions who feel threatened by cryptocurrencies may be expected to step up their efforts and we shall doubtless see other puppets speak up for a ban. Pathetic!

    • Shocking news, just shocking!

  • josh

    the problem is that when the internet crashes you’re just inconveienced, the memory fades and you get back on and that’s it. but when your money crashes it’s a bit harder to forget.

    • True that. Lots of people still remember the financial crisis of 2008 well, or the Internet bubble of 2001…

  • It would be interesting to know who is really pushing this opposition to Bitcoin. If recent history is any indication, its not like the currently entrenched financial services companies aren’t going to figure out how to make money from it. Sure there are some business models that it might totally eliminate but financial services companies are still perceived as more than just commodity services.

    • StevenHB

      We’ve seen a number of governments oppose Bitcoin (e.g. China). Governments like that that use of cash has been declining in favor of the use of various *traceable* electronic alternatives (PayPal, credit cards, debit cards, etc.). Bitcoin’s anonymity threatens that.

      Do you remember what the US federal government did to Phil Zimmerman, inventor of PGP? If not, see http://en.wikipedia.org/wiki/Phil_Zimmermann

      • The “Bitcoin is untraceable” angle always be as a bit of a straw man argument. Bitcoin transactions might be anonymous but the Blockchain is completely public and the details of how Silk Road 1.0 was compromised should make it clear that a determined advisory could “connect the dots” using the Blockchain.

        Its not like the “bad guys” have a hard time laundering money anyway – http://www.bloomberg.com/news/2013-07-02/hsbc-judge-approves-1-9b-drug-money-laundering-accord.html

        I was always under the impression that the Chinese government’s opposition to Bitcoin was more centered around controlling monetary policy and restricting how much wealth freely moves out of China.

        • StevenHB

          Your argument, that governmental concern about Bitcoin is based upon lack of control, seems like a reasonable alternative. Regardless. my take is that governments fear it (and other virtual currencies) more than anyone else.

    • I don’t think it’s financial institutions. I think it is government. Stuff like Bitcoin is terrifying to government since it takes government out of the equation around the valuation of currency.

      • I am not sure it does, since Bitcoin’s value will probably be calculated relative to all the spreads between fiat currency. Eventually, you will have to convert it to something else. Governments don’t actually control the value of their own currency anyway-the market does. Their fiscal and monetary policies guide future expectations which are internalized into a currency value.

        • I’m not going to pretend to know enough about the inner working of the Fed and all the other international monetary control points. I guess sometimes you just need a guy like Paul Kedrosky watching your back.

          • Bitcoin is cool because it is all inter related. Currency, protocol and transparent blockchain. But, the value will not be independent of other currencies because of the opportunity costs. It’s early days, and the easiest concept to get heads around is the currency. But if I read stuff correctly, the other two components could be bigger than any payment mechanism.

          • I think this is indeed a very important point. The key advance is not a better coin but the substitution of algorithmically guaranteed distributed trust in a network. Of course this can be used for a coin but it can support a good deal more. Second generation products, inspired by bitcoin, are emerging and offering significantly different functionality. Etherium, for example, is an intriguing project.

  • brgardner

    Lets innovate, improve and progress. But lets please not go overboard throwing everything out just because it is old. And, some experiments are not worth trying with a little foresight, wisdom and knowledge. Isn’t that why we have mentors?

    • I’m not suggesting we through everything out. I’m trying to suggest we NOT resist the new.

    • I don’t understand. Are you suggesting that with a little foresight we can recognise bitcoin to be an unworthy experiment?

      • brgardner

        Not at all.

        • OK. Sorry. So what did you mean?

          • brgardner

            My comments were aimed towards the general principles of Old Vs. New. Not necessarily bitcoin, which I won’t pretent to completely understand. I am by no means apposed to new things, but a good healthy debate on topic should be made. That was my point. I think we see that playing out with bitcoin, which is a good thing. We shouldn’t just out right accept it just because it is new. That was more of my point.

          • Thanks for the clarification.

  • This is interesting. Yellen on bitcoin.


  • programmerontheleft

    I don’t think the senator is against Bitcoin, per se, but he rightfully believes that this type of innovation is gray and susceptible to the unscrupulous. As already mentioned, a currency crash could be much more serious than an internet crash. I believe in government regulation, and especially in cases like this it will help to protect and educate the uniformed (which, like it or not, contribute to a great percentage of the GDP). Proper regulation can also help to legitimize and stabilize the currency. I understand how hard it is for the old guard to understand and appreciate new stuff, but that’s the problem we should be addressing, not whether we the people should seek to work together to promote transparency and provide consistent and enforceable guidelines. I honestly don’t think that government is “terrified” because it takes them out of the loop. We are government.

  • Totally agreed. Every new thing requires a ramp-up in education and understanding before acceptance.

    Bitcoin has many layers of architecture, and similarly has many layers for understanding it. I bet most people didn’t know about the Bitcoin malleability weakness, nor the meaning of cold storage, until Mt. Gox got goxed.

    Chaos often precedes order.

  • Fred Wilson and the Future of Bitcoin – An Analysis of the Bitcoin Investment Landscape http://www.quora.com/Alex-Hammer/Posts/Fred-Wilson-and-the-Future-of-Bitcoin-An-Analysis-of-the-Bitcoin-Investment-Landscape

  • It would appear members of the government don’t understand the full implications of the Bitcoin platform and its first app, the currency, in addition to feeling seriously disrupted by it.

    I regret that once again I couldn’t get on the “first wagon of the train of the newest significant innovation” and jump in right at the onset, but witnessing deep thinkers such as Marc Andreessen, Fred Wilson and Chis Dixon being such fervent advocates of cryptographic currency has certainly been an eye opener for me personally, and also for many others, I’ll speculate. Reading this post further reinforces my recently adopted views about this, thank you.

  • Chris J Snook

    Great post Brad and the best book for context on whats going on above all of this incumbent vs innovator stuff I suggest The Fourth Turning by Neil Howe and William Strauss (1997orig printing but will feel like it was written yesterday). http://Www.thefourthturning.com

    • Chris – thx for the suggestion. I just grabbed it.

      • I read that book a long time ago and don’t know what to think about it. Part of me feels like it’s sort of amateur history, with no real deep analysis. Straw men. But, cycles do seem to repeat themselves-although they have similarities are never the same.