The Internet of Money

by Andreas M. Antonopoulos

Two days ago, we saw one of the largest transactions ever recorded on the bitcoin network, where someone transferred $150 million between two bitcoin accounts, in one second, for zero fees. Just that allows you to grasp how disruptive this technology is going to be in terms of international payment systems. But this is just the beginning.

Bitcoin is not a company. It is not an organization. It is a standard or a protocol just like TCP/IP, or the internet. It’s not owned by anyone.

Currency is just the first app—just the first application that you can build on a distributed consensus system. Other applications include distributed fair voting, stock ownership, asset registration, notarization, and many other applications we’ve never thought of before.

I’m here to tell you to ignore the price, to ignore bitcoin the money, and understand bitcoin the technology, the invention, and the network it creates. If we mess up the money, we’ll just reboot another currency. The invention of bitcoin, the technology that makes it possible, cannot be uninvented.

Approximately 1 billion people currently have access to banking, credit, and international finance capabilities—primarily the upper classes, the Western nations. Six and a half billion people on this planet have no connection to the world of money. They operate in cash-based societies with very little access to international resources. They don’t need banks. Two billion of these people are already on the internet. With a simple application download, they can immediately become participants in an international economy, using an international currency that can be transmitted anywhere with no fees and no government controls. They can connect to a world of international finance that is completely peer-to-peer. Bitcoin is the money of the people. At its center are simple mathematical rules that everyone agrees on and no one controls. The possibility of connecting these 6 1/2 billion people to the rest of the world is truly revolutionary.

It takes a hierarchical system of international finance and turns it on its head. Up to now, that hierarchical system has achieved security by limiting access, because that is the main method of trust in our payment systems—you can’t get in unless you’re vetted. Bitcoin creates a completely flat and decentralized network where every node is equal, where the protocol is neutral to the transactions, and it pushes innovations to the edge of the network, allowing exactly the same phenomenon we saw on the internet: innovation without permission. You don’t need to ask anyone if your application can be published on the internet. You don’t need to ask anyone to completely subvert a new industry with your information technology. On bitcoin, you don’t need to ask anyone to invent a new financial instrument, a new payment system, a new service. You can just do it. You can just write the code, and you are now part of an international financial network that can run that code and put you in contact with millions of consumers.

The vast majority of the world lives under repressive and corrupt regimes with central banks that impose hyper-inflation at 30 percent a month. It’s much more important to see how bitcoin can affect all of those people.

Cryptographic currencies are going to be a mainstay of our financial future.

We can invent money nonstop and create new forms of money and financial instruments.

We use money to communicate value to each other, to express to each other how much we value a product, a service, a gesture. We use it as the basis of social interaction because by communicating value to each other, we create social bonds. So, money is also a very important social construct. This is an ancient technology. Yet, ironically, it’s one of the technologies that is least studied from a historical and technological perspective. We look at bitcoin today and it represents an invention, a new form of money.

You think people are freaking out about bitcoin? Imagine how much they freaked out when you told them that now, instead of trading in gold, they would trade in pieces of paper. For a lot of people, this was unthinkable. I mean, after all, clearly this paper does not have any real value. It took about 400 years for paper, as money, to become accepted broadly. It was a big aberration.

So what is bitcoin? The fundamental issue in describing bitcoin is that if you use references to our existing experience, that experience is based on thousands of years of understanding what money is in a very physical form. Now, we’re trying to explain a form of money that is completely abstract. "It’s a token that represents acceptance in a network, a network-centric form of money.”

The interesting thing about the change between a platform and a protocol is, when you have a protocol there is no central appeal. TCP/IP doesn’t work in reference to a service provider. TCP/IP works without context everywhere in the world. You don’t have to sign up for an account to use TCP/IP; you just have to use the language. Once you move from a platform to a language, it opens up all of these possibilities. Bitcoin is the first network-centric, protocol-based form of money. That means it exists without reference to an institutional or platform context.

How many of you have money in a bank? None of you has money in a bank. Do you store physical money in a safe deposit box? If so, maybe then you could say you have money in a bank. The rest of you have loaned your money to a bank. For the privilege of loaning your money to a bank, you will be paid the amazing interest rate of 0.00001 percent per year. Your bank will take that money, turn around, and loan it to the people standing next to you for 24.99 percent APR. This is a client-server relationship. Because that money only exists as a form of debt in a ledger that you do not control. A ledger that is stored by a server, and you are simply a client. In fact, you have no control over it at all. You don’t even have basic interfaces to that money unless that interface is mediated by the server. That’s what a client-server architecture does.

Today, if you go to an ATM machine and you put in your card, the bank may decide to give you your money. One day—as the people of Cyprus, Greece, Venezuela, Argentina, Bolivia, Brazil, and a list of hundreds of countries over the last several decades and even centuries have discovered—one day, you go to the bank and the bank does not want to give you the money, because they don’t have to. That’s the essence of a master-slave relationship.

Bitcoin is fundamentally different because in bitcoin, you don’t owe anyone anything and no one owes you anything. It’s not a system based on debt. It’s a system based on ownership of this abstract token. Absolute ownership.

The architecture of systems is what ultimately produces the outcomes.

most of the problems with traditional concentration of power in money has nothing to do with the people being evil. It has to do with the fact that these institutions — through their shape, through their architecture — produce outcomes that are not good.

Imagine a world where every person has the ability not only to execute transactions but also to create complex financial systems and instruments without asking for anyone’s permission. Simply by connecting to the network, anyone can start a new application.

When you look at the internet, the fundamental misunderstanding is that people think that the power of the internet comes from the ability to transmit information fast. But the real power of the internet comes from net neutrality. Net neutrality is the concept that the internet does not discriminate based on source, destination or content. Bitcoin is the first financial network that exhibits neutrality. In a bitcoin transaction, the network doesn’t care about the source, the destination, the amount or what type of financial application it’s supporting.

privacy is the right of billions of individuals to not be surveilled.

Secrecy is the power of the very few to escape accountability, to have no transparency.

We live in a world where every individual transaction you do through the financial system is cataloged, analyzed, and transmitted to intelligence services all around the world that collaborate, and yet we have no idea what our governments do with money. The financial systems of the powerful are completely opaque. Our transactions are completely...

Privacy is a human right and secrecy is a privilege of power, and we need to be in a world where we have complete, ultimate, stron...

Sometimes people ask me, “Do you think governments will ban bitcoin? Do you think they will try to regulate it out of existence? Do you think they will attack it with denial-of-service attacks?" The answer is really simple because in network-centric systems—systems that are dynamic and adaptable, systems that exhibit antifragility — attacks cause the system to adapt and evolve and become resistant.

That is instructive because this happens again and again in technology. When electricity was first domesticated and people started electrifying their homes, do you think the media announced, "This is brilliant! Edison’s a genius! This is going to change the world!”? No. What they said was that this was dangerous technology that would burn down people’s homes. They ran story after story after story about people getting electrocuted, about homes burning down.

Bitcoin is simply a technology. As a technology, often the first use it finds is in the hands of criminals. The first cars were used as getaway vehicles. The first telephones were used to plot conspiracy. The first telegrams were used to run long-distance mail-fraud schemes and Ponzi schemes. The first forms of electricity were used to run medical hoaxes and scam people. These things always happen with a new technology, and they happen with bitcoin, too.

Bitcoin is different because there are plenty of crooks in bitcoin — the network gets attacked all the time — but it doesn’t depend on access control to remain secure. It depends on a simple mathematical formula of incentives and rewards. In order to participate in the bitcoin network and secure the network as a miner, which is a special function in bitcoin, you have to use a lot of computing power and spend a lot of electricity. If you win that competition, you get bitcoin as a reward. That simple equation creates a system of incentives where it’s far better to play with the rules than against the rules. It’s game theory. It’s like a giant game of Sudoku. If you look at that as a computer scientist, or even more as a banker, you say, "That can’t possibly work. What do you mean it’s a giant game of Sudoku and everybody is competing against each other? That’s not the basis of a security system. That would bring chaos." It’s kind of like "What do you mean it’s an encyclopedia that anyone can edit? That would bring chaos” — said the Encyclopedia Britannica.

Bitcoin isn’t currency. That’s a really important thing to realize. Currency is an app that runs on the bitcoin network. Bitcoin is the internet of money, and currency is just the first application.

Overall in the world, $550 billion is transmitted every year as remittances from first-world countries. Much of that money is sent to five major destinations: Mexico, India, the Philippines, Indonesia, and China. In some of these places, remittances represent up to 40 percent of the local economy. Sitting on top of that flow of $550 billion are companies like Western Union, and they take, on average, a cut of 9 percent of every single one of these transactions out of the pockets of the poorest people of the world.

People ask me, "Well, what happens if Goldman Sachs builds GoldmanSachsCoin?” I say, let them build it. If it’s really open and decentralized, they just proved the whole point of this and we can all go home declaring victory. If it’s closed and doesn’t allow open innovation, it will become stagnant in just a few months while we continue accelerating ahead with more and more innovation feeding off each other’s invention.

When I use the term bitcoin here, I’m speaking broadly. What I’m talking about is decentralized network-centric platforms. These platforms can be used for currencies, payments, and other trust applications. The platform could be bitcoin, or something else.

Today, we have to use exchanges tied to traditional bank accounts, or use IBAN transfers, or credit cards. Today, we’re riding the automobile along the muddy roads of banking. The bitcoin supercar, the Formula One of finance, is riding along on the muddy roads of 1970s mainframe-based banking, and it’s a bumpy road.

Enabling the future on your legacy system is very difficult. While you’re trying to do that, everyone is pointing at the future and saying, "Look. It doesn’t work." Once you flip the infrastructure, simulating the past on the network of the future becomes extremely easy. What we’re part of now is the very early stages as we look at the future of money, and the first stages of the greatest infrastructure inversion the world has ever seen.

money, at the very root of it, is a language. It’s a language we use to express value to each other. When I give you a dollar bill, I am saying that I want to hand you the equivalent value. I’m communicating my desire to exchange value with you, because I appreciate something you can do or something you can give to me. I’m using money as a token of language.

We shifted from a world in which authority and opinion came from the issuer, from the authority of the publisher by proxy, into a world where we had to look at opinion on its own merits, on the content of that opinion. We arrived at a world where The New York Times prints bullshit that sends an entire nation into war, and an Egyptian blogger on the front lines of a revolution prints the truth that nobody wants to hear. Suddenly, the world is upside down. Authority is no longer the person who owns the printing press. Now the person who has the content is what matters. We just did this to currency.

Do you worry that Twitter will destroy email? Do you worry that Facebook will destroy instant messaging? Do you worry that the value of email is eroded somehow by the existence of Twitter? We don’t worry about these things because we understand that each one serves a different purpose.

A keychain is a far better metaphor.

Here’s a little secret: there are no coins in bitcoin. When miners mine, they don’t create coins; they create ledger entries.

There is no “balance.” You have no “account” in bitcoin.

Bitcoin is a radical break from the past, so understanding the way traditional money works doesn’t help you understand bitcoin. If anything, it hinders your understanding of bitcoin. The people who understand bitcoin the least are monetary economists. They cannot wrap their heads around it. They will write long theses on how bitcoin is not money, despite the fact that I’ve been living on it for years.

Another vision of the future is a digital autonomous charity. Imagine a system that takes donations from people, and using those donations it monitors social media like Twitter and Facebook. When a certain threshold is reached and it sees 100,000 people talking about a natural disaster, like a typhoon in the Philippines, it can marshal the donations and automatically fund aid in that area, without a board of directors, without shareholders. One hundred percent of donations goes directly to charitable causes. Anyone can see the rules by which that autonomous altruistic charity works. We are beginning to approach things we have never seen before. This is not just a currency.

So, how do you appeal to a completely new demographic? Part of the trick is not trying to be a bank. Do not try to do anything related to traditional banking.

Bitcoin desperately needs design. It has been created by engineers and it is absolutely inscrutable.

A lot of people think that a bitcoin transaction has to be transmitted on the bitcoin network. That’s not true. A bitcoin transaction has to reach the miners and be included in a block, but it doesn’t need to be transmitted over the bitcoin network.

One of the magic things about bitcoin is that the transaction doesn’t incorporate security mechanisms itself. The security is in the proof of work provided by the miners, and the digital signature on the transaction is put there by end users with keys that they store.

There are really two types of companies out there: those that have failed to take the necessary action to secure the credit cards that you entrusted them with; and those that will soon fail to take the necessary security action to protect the credit cards you’ve entrusted them with. You’ve either been hacked or you will be hacked—those are the two categories.

No one can invent a way to protect millions of secure access tokens from motivated attackers. It’s impossible to do. We don’t know how to do it. There is no information security trick that can protect for all possible types of attacks. Credit cards are broken by design because the token itself is the secret key. If you transmit that token, you expose your entire account to risk.

Now, they mock Twitter as trivial because they don’t understand the distinction between message and medium. TV was once mocked as a trivial pastime because it obscured the art of cinematography. Cinematography was a trivial pastime because it cheapened and vulgarized the art of the theater. The theater was a vulgar and cheap pastime of Victorians because it trivialized the great dramatic plays of the Romans and the Ancient Greeks. You keep going down this path and you’ll eventually arrive at Aristotle saying that philosophy is dead because nowadays the kids all want to watch dramatic presentations instead of reading their philosophy books. He probably complained about their long hair, too.

Every generation mistakes the medium for value and considers the next iteration of the medium—that widens access, that opens availability, that broadens the range of expression—they consider that medium trivial, vulgar, cheapening the message.