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Summary:

Bitcoin is being treated as a serious currency by investors, entrepreneurs and the government. GigaOM convened experts to hear what they say about what will happen next — here’s three highlights.

Bitcoin screenshot

Bitcoin is a cyber-currency of growing interest to speculators, the media and — most recently — the U.S. government. Many stories about Bitcoin, which is mined by computers and circulates without a central bank, contain sinister or science-fiction elements that make it hard to tell if the currency is for real or just an overblown gimmick.

On Thursday evening, GigaOM hosted a meetup in San Jose where six Bitcoin authorities, including investors and engineers, shared their views on how the currency is evolving and who is using it. Here are three of the larger ideas to emerge from the discussion (if you want to catch up on the basics of Bitcoin, see “Yes, you should care about Bitcoin and here’s why“):

Bitcoin can help ordinary people

Wences Casares, a venture capitalist and CEO of Lemon Wallet, grew up in Argentina, where he experienced first hand what happens when a government mismanages its currency: inflation, capital controls and the destruction of family savings. Today, the same thing is happening all over again as desperate Argentines try to convert their pesos into a store of value that the government can’t seize or destroy.

One option is Bitcoin. Casares explained how some people in his country are using “old Android phones” to acquire and exchange Bitcoins at a time when the government is clamping down on the trade in U.S. dollars. More remarkably, Casares noted, is that many of the people using Bitcoin don’t know much about technology — but they do know, through hard experience, about currencies and can recognize alternate sources of money.

Other speakers and audience members also described the potential of cyber-currencies like Bitcoin to ameliorate the broken or compromised Bitcoin meetupbanking infrastructure in places like Latin America and Asia.

In the larger picture, Bitcoin could be just one part of an impending revolution in the world’s money transfer networks. Specifically, new currencies and transfer platforms may provide a way for people, including those who rely on remittances, to escape the high transfer fees imposed by credit card and wire companies — and simply exchange money directly with one another around the world at almost no cost.

Bitcoin is complicated — and is going to stay that way for a while

Mike Hearn is a young engineer from Google who uses his 20 percent time to work on developing Bitcoin software. At the meetup, he chatted about infrastructure and security with Bennett Hoffman, a former Microsoft employee who is building a new Bitcoin exchange called Buttercoin.

The two engineers agreed that the system that creates Bitcoins is secure and stable, even if parts of the surrounding ecosystem (exchanges, wallets and so on) are not. Hearn said Bitcoin is not ready for “your grandma” just yet — and that is, in part, a choice by those who are building and fine-tuning the Bitcoin open source code bequeathed by the currency’s pseudonymous creator, Satoshi Nakaomot.

Hearn’s point is that he and others are focused now on improving the processing and ledger system that facilitates Bitcoin transactions; they are ensuring that it can scale in the same way that the Visa payment network is able to handle sales spikes. This focus on “the guts” of Bitcoin means that, for now, the software will remain complicated and will be a challenge to those who aspire to build consumer-facing interfaces on top of it.

This won’t, however, prevent Bitcoin from gaining traction in the real world. David Barrett, CEO of Expensify, explained earlier in the evening that his firm now allows companies to reimburse their employees’ expense reports in Bitcoin. According to Barrett, the Bitcoin option is not a gimmick but rather a cheap and practical solution for companies to pay employees across borders.

Bitcoin will be regulated — and that’s a good thing

Bitcoin watchers gasped this weekend when the Department of Homeland Security executed a seizure warrant against the owner of Mt. Gox, the Japanese exchange where many people trade the currency. The law enforcement action, which comes after U.S. securities regulators said they are looking at Bitcoin, posed a new liquidity threat to the currency and also reinforced its outlaw reputation.

Surprisingly, the Bitcoin backers at the event appeared to welcome the government’s growing involvement. According to Micky Malka of Ribbit Capital, which is investing in Bitcoin ventures, regulation is not just inevitable — but desirable.

“I’m already regulated by eight central banks,” said Malka, explaining that regulation is simply part of any mature financial system and that, in the case of Bitcoin, it is likely to introduce a new level of stability. Malka and others, including the Bitcoin Foundation, said they are less interested in libertarian fantasies than they are in establishing a rational and informed regulatory structure around the currency. Malka added that his biggest fear for Bitcoin is not the U.S. government but shenanigans by speculators.

The bottom line

The San Jose event felt at times like a cross between an investor seminar and a church revival, with the packed room sometimes applauding wildly at the blue skies of Bitcoin. But that doesn’t mean there’s not something very real going on here — a lot of very smart and credible people are putting a lot of time and money on the line in an effort to redefine the world’s financial infrastructure.

According to Wences Caseres, the moment feels like 1992, when the world was on the cusp of discovering the world wide web but hadn’t yet found the right user interface. He might be right.

  1. Very interesting to read these thoughts, I first heard of bitcoins a few months ago but lately the news about them has really been ramping up. It is a very fascinating concept but I am not really sure how to feel about them yet.. I do hope they can become better regulated. Everyone’s different input really makes me think they might be here for the long haul

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    1. I hope they won’t ever be regulated. In fact, I hope they’re made illegal.

      Entrepreneur capitalists such as myself are sick of government currencies, and the regulations on such currencies.

      Government currencies and regulations make it harder and harder to invest in new businesses, especially across borders. Inflation pushes the value of money downward every day, which makes it harder to know if we’re actually making a profit, or if we’re just earning more money that is worth less than before.

      I’ll take the black market, the grey market, any day over the so-called “regulated” white market.

      Bitcoin isn’t for grandma? Good. She’s part of the past generation who got us into this financial muckery, and I’ll be happy when I can transact with other freedom lovers, and ignore those who hope for and demand more regulations.

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    2. Obviously a one-sided article from bitcoin bulls who are trying to promote it as being a legitimate currency. It is the world’s largest Ponzi scheme! The bitcoin site CLAIMS “1 – you have to mine them”, “2 – there can only ever be so many produced”, “3 – they are safe because other computers watch them”, and many other claims. It is so hilarious that just because the site makes these claims, these silly people actually believe it! Bernie Madoff claimed he was investing billions and making money for people too.
      This whole sham was created by a hacker (or more likely a group of hackers.) Don’t you realize they have several highly encrypted codes in this virtual software that will allow them to wipe them out, or steal them, create billions more, or totally delete them all from the internet? In a few years or months you will be amazed at the headline how the whole scam totally blew up. But I won’t be amazed. I WILL be amazed if an invisible thing known as a bitcoin is worth more than two cents five years from now. What a great scam.
      Maybe it is true that “They can’t put anything on the internet that isn’t true.” LMFAO

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      1. What has math done to you that you hate it’s logic so much?

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      2. Clearly you don’t actually know how Bitcoin works.

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  2. chrishuntblog Friday, May 17, 2013

    For me, how Bitcoin can help ordinary people is the most important factor.

    Giving everyone the tools to financially communicate is akin to the democracy of free speech which the web enables.

    Financial institutions have taken advantage of people enough, and now there’s a response. And the response (Bitcoin) includes their disintermediation.

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  3. > Bitcoin will be regulated — and that’s a good thing

    I don’t understand how or why. If bitcoin is regulated by the government, it becomes no different from the regular currency. It loses the main reason for its existence. Why not just use regular currency in that case?

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    1. Beacuase ‘they’ cannot decide to print more bitcoins and devalue the ones you own!

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  4. All proponents of Bitcoin “regulation” should stick to their fiat and leave Bitcoin to people who do not want government paws all over it. Enough financial TSA thuggery at every checkpoint already!

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  5. I think its impossible to regulate btc, but businesses with btc will have to be regulated otherwise they’l be busted.

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  6. You got to be real stupid or evil to want government control on something. To be honest i think its inexcusable behavior given all the information available about government intervention and its catastrophic failures. Of course thats why the notion wasnt explored at all in this article, because they know its complete baloney. When government gets involved it creates more problems than it attempts solve

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    1. In fact, it was deregulation – not regulation – that led to the most recent collapse of the US banks. Bitcoin is like a currency backed by iGold. It still requires regulation to protect Joe Citizen.

      Oh, and don’t forget – the tax man cometh too.

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  7. There is no need to regulate bitcoin. The issue lies with companies like Bitinstant whose competency in engineering transactional systems can be considered amateur at best.

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  8. Bitcoin backers who say they welcome government regulation want governments to try to regulate it for not quite the reason most people think. The bitcoin paradigm precludes such regulation, and attempts at regulation will test its viability:

    Let’s say DHS decides that bitcoin is illegal (whatever that means). If it still thrives globally, it has proven its viability.

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  9. The FDIC will not get involved in an unregulated entity, so if there is a collapse of bitcoin, people will lose everything they have in it. This needs to be understood by the masses.

    Another point to consider is that the IRS WILL begin scrutinizing bitcoin at some point. To the IRS, bitcoin will likely be regarded as a foreign currency, or possibly as barter. In any case, the IRS (and state governments) have existing tax law to cover it and will come after bitcoin users, and the resulting tax bills for Americans will be in US dollars.

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    1. The fdic contract was only conjured up so people will have confidence in the currency. But what’s 250,000 of worthless crap. Now they r taking back “entitlements” we’ve already invested in.

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  10. JimboToronto Sunday, May 19, 2013

    Bitcoin is already regulated.

    It’s regulated by Satoshi’s algorithms. Governments, banks and other corporations have nothing to do with it.

    Even if some government wanted to try to regulate it, they have no authority.

    Authority is shared equally between every node on the peer-to-peer network.

    Of course, some government can always oppress its own citizens by imposing draconian laws and seizing assets within its own borders, but that wouldn’t affect Bitcoin worldwide. It would only serve to disenfranchise their own people from this brilliant new technology.

    The rest of the world yawns.

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