Bitcoin Foundation's Chief Scientist Speaks at Isenberg

Bitcoin, the planet's first successful electronic cash system, owes its resilience to several characteristics. It is global, public, secure, and employs a transparent, easily accessible ledger where anyone can view any and all transactions, remarked Bitcoin Foundation's chief scientist, Gavin Andresen. Anderson was one of four speakers at "Financial Innovations, Sustainable Investments, & Social Entrepreneurship,"* a conference on October 31 coordinated by Isenberg's Center for International Securities & Derivative Markets (CISDM).

Bitcoin, noted Andresen, is currently the world's 102^nd largest currency (with a $4.5 billion market cap), ranked between the currencies of Mozambique and Lebanon. Its payment network is the planet's 10^th largest.

An Asset's Assets

Andresen explained that his virtual currency will always retain its scarcity thanks to an algorithm that will eventually (in 2140) cap its units at 21 million. Bitcoin floats in a self-sustaining, decentralized system with prices set by 80 independent currency exchanges across the internet. There's no centralized profit motive, no central body that could go out of business.

Bitcoin, said Andresen, is above all useful, but that utility is restricted to its role in transactions within its expanding payment network. Andresen earns his $150,000 annual paycheck in--you guessed it--bitcoins. He uses a service that links his bitcoin "wallet" to his bank account. And he patronizes retailers that accept bitcoins directly in exchange for goods and services. "I can buy air fare with bit coins at Cheapair.com," he remarked.  Dell, Expedia, and Overstock.com, he noted, are among the growing number of retailers that accept the currency.

The virtual currency, Andresen observed, is built on an open-source, decentralized core system that has proved trustworthy since its inception in 2008. "If you're a geek, you can look at the code, figure it out, and trust it," said Andresen. "I'm a geek."

The system does, Andresen confessed, face issues with volatility.  In the past year, the price of a single bitcoin has fluctuated from over $1,000 to $343 today. That volatility will decrease with the currency's growing popularity, he insisted. Andresen noted another inconvenience: "The IRS currently views bitcoin as a commodity for tax purposes. I have to report every purchase to the IRS."

Bitcoins in Our Future

Andresen predicted that Bitcoin's growing popularity would ultimately simplify banking by reducing middlemen and other intermediaries. And he applauded the medium's role in the spread of decentralized securities trading systems. 

Coinprism, an online wallet that runs on top of Bitcoin, he continued, lets owners create and adapt bitcoins to represent stocks, bonds, commodities, and other units of value. You can even use it to create a virtual IPO.  A second virtual tool, Orisi, allows for distributed bitcoin contracts based on futures, options, and other financial instruments. And the platform Counterparty allows individuals and entrepreneurs to issue, leverage, and trade their own currencies and assets--all backed by Bitcoin.

The SEC, Andresen told the gathering, has sent letters to hundreds of Bitcoin companies that have released unregistered securities on Counterparty. "I have no idea where it's going to end up," he said. "But it's going to be interesting."

_______________________________________________________________

*The conference's other presentations were "Real Assets: An Institutional Perspective," by George Martin of Wood Creek Management; "Entrepreneurship & Community Development," by Chris Sikes and Michael Abbate '95 of Common Capital; and "Socially Responsible Investing," by Terry Mollner of Trusts for All Children.

The Michael & Cheryl Philipp Chair in Finance and Moody's provided support for the event.