Coinbase's Fred Ehrsam says you're thinking about Bitcoin all wrong
AUSTIN—Bitcoin is definitely a big topic of conversation here at South by Southwest, especially after Newsweek’s cover story on the identity of the mysterious Bitcoin inventor Satoshi Nakamoto. In fact, at Coinbase cofounder Fred Ehrsam’s Monday discussion at SXSW, the first question interviewer Rolfe Winkler of the Wall Street Journal asked was “Is Dorian Nakamoto really Satoshi Nakamoto?”
Ehrsam doesn’t know, but he kind of doubts it. But then when Winkler asked if it even matters, the answer was an emphatic no. And that, says Ehrsam, is the beauty of open source.
That little matter out of the way, it was time to demystify Bitcoin for the masses—or at least try. Bitcoin, Ehrsam explained, is more than just currency: “One of the common missteps taken by the media is talking about it as a currency instead of a technology.” Instead, Ehrsam says, think of Bitcoin as an open network that lets you make transfers (money being the obvious first use case) without the need for a third party.
Looking at Bitcoin as a network, you can make analogies to the early days of the Internet. Once the Web came along, it was a way for people to disseminate information on an open network without needing snail mail, the telephone, or a printing press—but it took a while to get from early webpages to something like eBay and eventually Airbnb. Companies that are crashing and burning like Mt. Gox are the first-generation companies that are sloppy and suck at security, Ehrsam explained. And obviously he wants you to think of Coinbase, a Bitcoin payment processor, as a smarter second-gen company—for example they are are audited. “If there’s a hole in our balance sheet, it’s pretty obvious.”
It’s also not accurate, Ehrsam continued, to speak of Bitcoin transactions as anonymous. Winkler asked him about Bitcoin’s popularity amongst libertarians, for example, because they think it protects them from government oversight—like, say, hoarding gold bars that you can actually spend. And Ehrsam seemed eager to distance Bitcoin from that: “It’s disappointing that people think it’s anonymous when it’s really the most transparent network that’s ever existed.”
“What if cash was invented today?” Ehrsam continued. “Law enforcement would be up in arms. ‘Oh, you can just withdraw this stuff and it can go anywhere!’” That said, Ehrsam thinks Bitcoin needs more regulation and oversight to drive adoption by the masses—money-laundering rules are already in place, for example, and Ehrsam himself reported capital gains on some Bitcoin he sold on his income taxes.
Ehrsam also claimed that Bitcoin is “fundamentally safer than any other payment network that’s ever existed,” which smells fishy to me. Ehrsam argues that credit cards, besides being cumbersome, are unsafe from a security standpoint, because all the information attached to an online credit card transaction can be used to make subsequent transactions, should it fall into the wrong hands. But if my credit card number is stolen by hackers, aside from it being a pain in the butt, I’m not out any actual money because of the protections in place. If my Bitcoin private keys are stolen, I’m kind of screwed.
So what about the notion that it’s dumb to spend Bitcoin on, say, a toaster from Overstock, if you think it’ll eventually go up in value? Because it’s far more economically efficient, Ehrsam says, even if you make a purchase with Bitcoin and then immediately buy that Bitcoin right back—an ability he says Coinbase is working on right now. But later on, Ehrsam explained that consumers don’t understand how high the cost of traditional payment networks really is, because it’s generally merchants who are stuck with the fees.
Ehrsam thinks 2014 will see a critical mass of merchants wanting to get into Bitcoin to save themselves those fees, so now it’s just a matter of time before regular people get on board with the early adopters, miners, libertarians, and geeks. Coinbase is working to make it more accessible to regular people, as easy as online banking. ”Today, most people still don’t understand how the Internet works,” Ehrsam said. “But they know how to use a web browser.”