0:36 Intro. [Recording date: March 15, 2011.] I get a lot of emails to encourage me to talk to people, and I think I've gotten more email to talk to BitCoin than any other person. Good thing for BitCoin. I think there's a lot of interest in the project. What is BitCoin, and what are its prospects for the future? The short, geeky answer is BitCoin is the world's first distributed electronic currency. If you are not a geek, some of those words probably don't make any sense to you. The non-geeky short answer is that it is a new kind of money that we are using on the Internet. Are you a geek, Gavin? I am a geek. I'm a programming geek. So, I may have to translate from time to time if you don't translate yourself. So, the non-geeky--this is Internet money, money available on the Internet to use. Where does it come from? Well, that's the interesting thing about it. About the money we typically think of in dollars and euros and credit cards that have one central organization that creates it and controls it, this is distributed. So, it's people running coin software on their computer; and the people running the software are actually the people who generate the bitcoins. So, how does it work? Well, from a user's perspective, you either sign up with an online service that holds your bitcoins for you, or you download this software and run it on your computer. And the software keeps track of the coins that you own. It gives you an interface to send bitcoins to other people; and also it has an option to try to generate bitcoins. So, you can actually try to create money out of thin air. We'll go into much more technical detail later on why that actually works. So, one of the challenges of any new currency is trust. Why don't you talk about the role that trust plays in currency generally, and what role it's playing with BitCoin? If you really think about it, money is all about trust. We trust our central bankers not to create money willy-nilly and have runaway inflation like they had in Zimbabwe. We trust that money is hard to counterfeit so that when we get a dollar bill from a merchant we are not getting something we take to the bank and the bank says: No, that's not a real dollar bill, sorry. Trust is huge. That's really the biggest barrier for BitCoin--to get everyday people to start trusting it, as opposed to people like me who are geeks. Getting the geeks to trust it I think will be fairly easy: it's a currency and open-source project. I've actually been leading the open-source project for the last month or two, and because it's open source, because anybody can look at what it's doing, people can and have been looking at it in detail, figuring out exactly if it's possible for somebody to steal your bitcoins, what exactly are the different ways somebody could create bitcoins that don't follow the rules. All these other things are hashed out completely in the open. So, in the last six months or so a lot of geeks have looked at it and become excited about it, because so far nobody has been able to poke holes in it. It seems to be a solid system that is trustworthy. Let's stop on that trust issue for another minute. Let's say you are a guest on my show--we don't pay, but let's say we paid you $100. If I give you $100 in cash, I could send you 5 $20-bills in the mail, which is a little bit nerve-wracking because they might get lost. Or I could send you a check for $100, and that check would allow you to draw on my resources, my currency that I've deposited in some form in a bank. The irony is there a certain high level of trust with current money, of all different layers and levels. For example, George Mason U., or Liberty Fund, which runs this podcast--if they want to send me money, I never see any cash. We have a pretend, a little fantasy, magic game we play, where they tell me they are sending me something. It's all electronic, all 1s and 0s that go into my bank account. I never see the cash. We think of money and payments as green pieces of paper, but increasingly they are not. There is a fiction involved that we are creating this thing called U.S. dollars. When I take the dollars from a pay source, or if you were to take my dollars, you accept them because you think you are going to be able to spend them. That's the most minimal level of trust. If no one took dollars, you'd be a fool to accept them as payment. You'd have something more reliable or something you thought you could spend. As you point out, if the government, which runs the dollar show, makes too many of them, then what you could buy with those dollars could change. You could still use the dollars, but what it would be able to purchase--it might say $100, or 5 $20s, but what you can get for 5 $20s might not be so stable. So, that's another issue of trust. Now how do those two issues--can I spend it and is it stable--am I going to get $20-worth of stuff for my $20-bill--how do those operate under BitCoin? The first issue, can I spend it, is tricky right now because the number of people who accept bitcoins for products or services is fairly small. Growing every day as the system becomes more popular, but getting enough people to trust it--chicken and egg problem of merchants don't want to accept bitcoins till lots of people are using them and people don't want to use bitcoins until lots of merchants and other people are accepting them. I don't think we have a lot of examples of a start-up currency where you are trying to bootstrap. Especially one that's extra-national, meaning outside national governance.

8:00 How many people right now do you estimate accept BitCoin? Right now probably about 100 or 200 different merchants that are accepting BitCoin for various products and services. That's growing. That's taken off in the last 6 months or so. I should back up and say that BitCoin has been going for about 2 years, but it's only been the last 6 months or so that the software has matured far enough that you can build web services on top of it and people have started to do that and accept bitcoins in their online shops. So, let's say I'm having trouble with my computer--which I always am, of course, and I ask a geeky guy or woman to fix my computer, and I say: Oh, and by the way, I want to pay you in BitCoin. And they are happy to accept that, because let's say they have a merchant who accepts BitCoin and that merchant has something they actually want to buy these days. So, how would I do that? Could I do that transaction now? Yes. The person you are paying will have a BitCoin address. Let's make it you, Gavin. I would send you one of my BitCoin receiving addresses. You would plug that in--you would copy and paste that--well, if your computer is broken you probably wouldn't use that computer; you'd use somebody else's to log on to one of these online wallet services. You would put my BitCoin receiving addresses, the amount you want to pay me, and press the Send button; and then the bitcoins would be transferred from your account to my account. And all of that is done magically behind the scenes. Almost instantaneously. At the speed of an email. You see it right away. There are actually some technical details in that it's not completely firmed up and confirmed for anywhere from 10 minutes to an hour. That's just because of the nature of the peer-to-peer network that's handling the transaction. So, you tell me you'll be happy to fix my computer for 50 bitcoins--is that the name of it, by the way? Yes, bitcoins. So, we agree on the price. But I don't have any. So, what do I do? Do I have to find another geek who has an urge to learn some economics and I'd give him a lecture and he'd pay me 50 bitcoins? That would work. There are bitcoin exchanges, which will exchange dollars for bitcoins, or bitcoins for dollars. So I can buy them. Yes, you can buy them using another currency. What's the exchange rate is about one bitcoin costs 90 cents; that's been varying a fair bit. I think a week or two ago it was actually up to a dollar. Those are two ways: I can earn them if somebody pays me in bitcoins, same way I get dollars; or I can swap them, the same way I get dollars if I'm French. Is there a third way? There is. You can generate them, or try to generate them. We haven't talked about how bitcoins are generated. The way the BitCoin system is designed, 50 bitcoins are created approximately every ten minutes. There is an algorithm that everybody is running on their computers who has the software, trying to generate bitcoins. Essentially you are in a race to try to be the first one to solve a cryptographic problem to generate new bitcoins, and if you happen to be lucky enough to win that race, then you announce to the network: I have created 50 new bitcoins. And all of the rest of the network checks to make sure you actually did solve the problem correctly. If you did, your new bitcoins will be accepted into the system and you'll have 50 brand new, shiny bitcoins to spend. So, the classic metaphor for increasing the money supply by the central bank is a helicopter drop, which isn't what they actually do. What they actually do is buy assets and put money into the economy that way. But this is the equivalent: you are adding bitcoins in a very specific, steady way into the system. The algorithm is actually very clever, and it's designed to be incredibly stable. Right now the rule is 50 bitcoins approximately every ten minutes. And the entire network of computers adjusts the difficulty of this problem that's being solved such that across the entire network, no matter how many people are trying to create bitcoins, only 50 are generated every 10 minutes. As more people join, more computers are working hard on this race, the finish line gets farther away, so on average it still takes 10 minutes for somebody across the network to solve the problem and generate the 50 bitcoins. You said there's 100-200 merchants who accept them--how many people have the software on their computers to hold bitcoins, to use them? It's a little bit hard to tell. Roughly 5,000-10,000 people last time I checked, a month ago. That's the number of people actively connected to the BitCoin network. I should say you don't have to actively be connected to the BitCoin network to use bitcoins. You can use one of these online wallet services and they'll connect to it for you. So, it's hard to tell how many people are using those online wallet services--I don't have numbers on that. Somewhere in that 5-10,000, maybe as many as 15,000 range.

14:34 Why do you want to increase the number? Tell us the origins of BitCoin and why the decision was made to have that steady increase; and is it perpetual? The origin is interesting. It was actually created by this mysterious person who calls himself Satoshi Nakamoto. I have never met him or spoken to him over the telephone; I have only communicated with him electronically. I'm pretty sure he is actually a student and that is not his real name. But he's a mysterious, very talented computer programmer who figured out how to make it work and then did all of the work of actually implementing BitCoin before he announced it onto a cryptography mailing list and then launched it as an open source project. Tell us what open source means. Open source means that the source code, the computer programming language code, is available for anybody to look at; in this case it's available for anybody to take and modify, do whatever you like with it. Completely free and open. What stops somebody from altering the rate of growth from 50 to 75 bitcoins in 10 minutes? If somebody tried to do that, then everybody else would check their bitcoins and see that the rate that they are creating them wouldn't match what everybody else agrees should be the rate, and everybody else would just reject their bitcoins. They wouldn't be accepted. Nothing stops you from taking the BitCoin software and creating your own version of the system that has different rules. That's very easy technically. The hard part is to get anybody else to actually use your new currency. Why would they want to use your currency if no merchant has an infrastructure built up around it. So, when you say it's open source, it is not open source to alter the current system of BitCoin. That's stuck in place. Yes. We do alter it; we do fix bugs; we do talk about changing kind of on the margins the way the system works, to prevent security breaches or other things. You ask why 50 bitcoins, why was it designed that way. Those kinds of core rules are pretty set in stone. It would require a majority of people running the software to agree: Yeah, we think 50 is not the right amount; let's generate 100 every time, every four minutes, or whatever. You'd have to convince the majority of people that that was a good idea and then give the software to download and run a new version of BitCoin. So, when you say you do alter it, worry about security breaches, check for bugs, improve it--who is "we"? BitCoin is actually a pretty loosely organized open source project, so anybody who is interested in working on it--and this is how I got involved; I actually found out about BitCoin last May, started looking into it, got convinced it would work; started writing code into patches for it. Six months later I'm kind of the de factor leader of the technical project. There is no official BitCoin organization. It is just an open source project with a website, BitCoin.org, and anybody interested can come in and work on it. The better your code, the more likely it is to get accepted by all the people running the BitCoin software and the more likely it is, those of us who have access to the official version of the software, to approve your changes and allow you in.

19:12 For those of us who aren't geeks, help us understand how that open source approval works. For example, let's suppose one of the users sees a way to make the system work faster, and they propose a change in the code; but they sneak in a little thing that funnels bitcoins to themselves. You're laughing--maybe a stupid question? Or maybe a great idea? Oh, no, it's not a stupid question. What stops that from happening. The process is: On the BitCoin.org website there are forums where we talk about potential changes; there's a source code repository where all the source code lives. Any time any change is made to the source code, everybody sees it. You can easily see what the changes were. In your case, if there was some funky code checked into the source tree that made bitcoins go someplace else, there are going to be at least 10-15 people looking at every change and wondering: What is this line of code about right here? So, there actually is quite a lot of scrutiny that goes into every change that goes into BitCoin. It's community consensus as to which changes are accepted and which aren't. When you say consensus, is it a literal vote? Sometimes there are literal votes. Right now we are talking about whether we should enable universal plug-and-play, which is a way of opening up ports in your firewall. There is actually a thread in the message forums with a vote on whether it should be opened up or not, with lots of discussion and argument both ways. Looks like we are not going to, because that's the consensus. What other ways are there for making decisions about what to add or not to the code? If there are kind of critical high-risk security things, on those kinds of things Satoshi and I might just unilaterally decide this is an important enough fix that we just need to do it. No discussion. So, we will be benevolent dictators. What's the check on your benevolence? Everybody can see the code that changed; people could simply refuse to download the new version of the software. If not everybody downloads and uses the new software then the change doesn't happen because what people are actually running defines the rules. For those out there listening thinking maybe this is just some weird, goofy thing--what if he says that it's checked and a group of 10 people get together--there's all sorts of things people worry about, those unfamiliar with open source projects, right? Correct. For the people who are used to it, they'd say: Well, that's silly; we don't have to worry about that. But for those of us on the outside, it's like: I'm going to put my salary in there? But of course, we do this all the time with our regular bank. We assume they are not going to run away with the money--there's laws, a whole set of implicit things, some explicit but a lot of them are explicit, that keep us comfortable. One of the things the government does to us with their currency is they can inflate it the amount and deflate the value. Here you are saying it can't really happen; it would be extremely unlikely. And your assurance, to a normal person, is not that assuring; it's somewhat assuring. We are not really familiar with this. We'd probably have to go for a while, have friends who use it. Is that what you think will happen. Yes. The other thing that will happen is what's happening now, which is we will get multiple compatible implementations. So you don't have to trust that Satoshi and I are not going to let anything evil into the version of BitCoin that you download. There will also be a version--actually just recently an employee at Google has created a compatible implementation of BitCoin that he's been working on and that Google has approved. And it's also being released as open source. I think you also see branded versions, to get some of that trust. Wacky little open source project, but maybe if it has the Google brand name on it, that might help a lot of people trust it. I think it would. Not sure it should. We know they don't do evil.

24:27 We got sidetracked. Why 50 every ten minutes? And, is that forever? That's a good question. Is that a decision we'll make? The rules as they are currently designed, as I imagine they will remain, are 50 every 10 minutes for the first 4 years; and then the amount generated is cut in half every 10 minutes every subsequent 4 years. So, you'll get 25 bitcoins every 10 minutes. And after another 4 years it will be 12.5 bitcoins every 10 minutes. It was designed that way because it's designed to mimic natural resources. Designed to mimic digging gold out of the ground--you find a lot in the beginning, but then you work harder and harder, and go farther and farther, less and less to find. Presumably the exchange rate between bitcoins and dollars would have some relationship to that pace versus dollar creation. It's not clear. I'm not an economist--so maybe I should talk to one. The value is supply and demand. The supply is fixed by this generation rate; so I suppose if the generation rate is cut in half and growth in demand remains constant, then you are going to get price increases. No, I think it would go the other way. I'll just speculate for a minute; thinking off the top of my head. I think what's happening is there is a growth rate of bitcoins right now and it's going to slow over time. I saw a video presentation you did on this which we'll put a link up to. So basically it's rising at a decreasing rate, and eventually it's going to level off at some amount. That means that way into the future--8, 12, 16 years from now--the amount will be relatively stable, which means that if the dollars are not--if the Fed is behaving such that the money supply is growing rapidly, and the prices of things measured in dollars is going up at a steady, fast, maybe increasing rate, that bitcoins would get increasingly valuable. How many dollars you'd have to give up to get a bitcoin would go up because there's going to be what's called an arbitrage condition. Basically, if you can buy stuff with bitcoins in a world where both bitcoins and dollars are both used easily, bitcoins and dollars have to buy roughly the same amount of stuff. That's purchasing power parity. If it weren't true, you'd swap one for the other and change the rate. What it suggests is because the rate of bitcoin creating is going to be slowing over time, that in theory the prices of goods denominated in bitcoins would start to fall. I think that's right. BitCoin is kind of designed to become more valuable, if you think of them in terms of dollars--they will buy more dollars over time.

28:46 Now let's talk about some of the problems with bitcoins. The first issue that comes to my mind is taxes. Let's say I'm a freelancer; I spend half my time consulting for a bunch of different firms; and my other client I spend the other half of my time on. Let's say it's Google. And I tell Google: I don't want to be paid in dollars any more. I want to be paid in bitcoins. I'll accept the rate you've been paying me in the past, translated into bitcoins at the current bitcoin/dollar exchange rate. I'm willing to do that because I know there are enough merchants who sell stuff I want for at least half of the purchases I make right now. Now, if I do that, what are the tax consequences of that? I think it would be no different from earning any other foreign currency. So, if you earned money in euros, or if you did a barter transaction--I'm not an accountant or tax attorney, but I imagine the tax consequences would be the same. I think that's right for Google, because Google is really eager to comply with the laws of the United States. They have a lot at stake. So, I can't barter with Google. I can't say to Google: I want to work halftime here and instead of just giving me access to the free drinks and snacks that you have, I'd like one of the bikes you have on campus--I'd like to take one home; in fact, I'd like the car, but don't tell anybody. Google's not going to do that. That's all going to be taxable. But if I'm a freelance consultant with some friends, people in the tech community, I could see BitCoin as an attractive way to avoid taxes. Sure--it's just like cash that way. Or barter, which is taxable in theory; but just easy to avoid taxes if you take cash or barter. I wonder if that's a legal problem--not a problem; actually a feature, not a bug. But eventually the government may want to say something about that. There has been a lot of speculation in the BitCoin community about what will government reaction be to BitCoin; will it try to do something about it and can it do something about it? Those are interesting problems to have. The taxes are the least interesting, actually. Let's talk about the bigger issue, which is: one of the reasons that dollars are so valuable is that they are the only way you can pay taxes in the United States. And as a result, you are stuck using the government's system up to some point, or you go to jail. You can hide. You can try to evade the system, but if want to play within the system, you have to use dollars. In some sense that gives the dollar its ultimate reliability, because I can use the dollar to pay my taxes and stay out of jail. If everybody started using BitCoin, and the government solved this particular tax problem--evasion of taxes--but no one used dollars for anything else except just to convert bitcoins to dollars and pay your taxes--interesting issue as to what the government's ability to monitor the bitcoin system is. What I'm really asking is: What are the prospects for BitCoin replacing the dollar, or any national currency, and breaking the monopoly power of the Federal Reserve? I don't see any kind of theoretical barrier to that happening, although there are all sorts of practical barriers, the biggest of which is just trust. It's hard to imagine that happening. I could imagine that happening in maybe a smaller country that has decided to peg their currency to the dollar--maybe they decide to peg to the bitcoin or decide to use bitcoins as their national currency. I could see that happening before dollars gets replaced. But the biggest problem in those cases is they don't keep their promises. So, they promise to peg it to the bitcoin but then they break their promise. The reason the promise has so much appeal--besides that it's cool--it's very cool. Wouldn't it be great if we could just run our lives this way? If I knew that over the next four years bitcoins were going to be created 50 at a time every ten minutes, and I came to trust that, and then knew down the road it would be 25 and then 12.5 until the stock was basically fixed, I'd rather play in that sand pile rather than the one where I have to trust Ben Bernanke. Ben Bernanke will tell me we can't have that world because we need monetary policy to do x, y, and z; and I would say, yeah, I'll take my chances. I think that is the argument for really getting excited about this project for the non-geek community. It is; that's part of what really interested me, besides all that geeky cryptography and all that other cool stuff in there: the notion of taking back control of our money. Not trusting central bankers or some small, elite group of people to control it. What Milton Friedman said: let a computer control it. Predictable solid base on which all kinds of things can be built. Is anybody studying it? I haven't seen any economists studying it. I would really like to see that. I think one of the interesting things about BitCoin is all of the transactions are public. They are all announced across this peer-to-peer network and all stored for all time, so there's a wealth of data on what the money flows are. You could actually compute the velocity of money and all these other kind of abstract economic concepts that are hard to measure in the real world are a lot easier to measure in the BitCoin world because everything is controlled by this computer in this network. I hope some of my colleagues will find this of interest. Obviously you need a staff--you need a research department, a bunch of studies done; but for now you're not doing that. Sounds like there's not a lot of infrastructure there. Are you it? Well, me and everybody else who is interested in the project and creating tools around it. There's a cool website called BitCoinMonitor.com where you can go and actually see transactions going across the BitCoin network as they happen. You don't know who is paying whom, but you can see patterns of transactions; you can see the blocks being created. There are people who try to monitor the BitCoin network for people who cheat. All of that infrastructure is in the process of getting created. In addition to all the infrastructure of people creating shopping cart interfaces for websites and people accepting bitcoin on their websites and people thinking about bitcoin stock markets and bitcoin futures markets. Another big part of the reason I'm really excited about bitcoin is there is such a low barrier to innovation. It's open source. Get it, compile it, write some code around it; start creating transactions. Very little barrier to entry. I'm confident that we are going to see lots of interesting things happening really quickly.

38:03 Is there infrastructure that has to exist or is it all just sitting on everybody's systems? Just sitting on everybody's systems. You don't have a server in your home town or Satoshi's home town where this is all being stored? No, it's completely distributed at the moment. That will begin to change as we scale up. I don't want to oversell BitCoin. As we scale up there will be bumps along the way. I'm confident of it. Why? For example, as the volume of transactions come up--right now, I can run BitCoin on my personal computer and communicate over my DSL line; and I get every single transaction that's happening everywhere in the world. As we scale up, that won't be possible any more. If there are millions of bitcoin transactions happening every second, that will be a great problem for BitCoin to have--means it is very popular, very trusted--but obviously I won't be able to run it on my own personal computer. It will take dedicated fleets of computers with high-speed network interfaces, and that kind of big iron to actually do all that transaction processing. I'm confident that will happen and that will evolve. But right now all the people trying to generate bitcoins on their own computers and who like the fact that they can be a self-contained unit, I think they may not be so happy if BitCoin gets really big and they can no longer do that. Have to start to trust someone running these bigger data computers. One of the interesting parts about it, as an innovative project, is that there is the residual claimant, which is a fancy phrase in economics talk for the person who gets to make the money, gets to keep the profit. The residual claimant in a startup business is usually the owner, owners; and we know that opportunity to keep the profit and the risk of losing it keeps the owner alert to keep the product high quality. It can induce fraud and bad things too. But competition, alongside residual claimants' own interests are usually what forces businesses to serve their customers. But, in an open source project, Satoshi has pride in the project, but he doesn't make any money, right? He gets some glory. He might end up making some money, because of the fact that he was the first person who started generating bitcoins. It's as if he's the very first gold miner. He's got a good stash to start with. It's assumed that he has a fair number of those bitcoins that were generated in the first year after he quietly announced it and started it running. That's good. Right--he worked incredibly hard and had a brilliant idea for how to solve the last piece of the puzzle that allowed the whole thing to work. He has an incentive to keep its value high and not degrade it. He does. What is your stake? If you can talk about it. There is no stock; there are no bonuses. I try to spend half of my time working on the actual open source project itself, and the other half of my time creating a BitCoin-related startup. I'm hoping that my BitCoin-related startup will be successful. Working on the open source project because there's no chance that my BitCoin-related project will be successful if BitCoin fails. Do you receive a salary? No. I've done software startups in the past and my wife's a professor at the university, so I can afford to take a couple of years and try really risky things. So, in one dimension it's a labor of love--because it's cool and fun--and the other dimension is that it could lead to something profitable for you through these other ventures. I'm hoping so. How many are there like that? Is it 5 people or 50? 500? I would guess it's somewhere between 5 and 50 right now, though there are probably quite a few projects that I don't know about. They are keeping quiet. There are at least 10 or 15 that I know about, which range all the way from 20-year-olds who know how to program and have some extra time outside of their college to people who are very serious about finding angel capital to build businesses around BitCoin. Definitely runs the gamut. Lots of innovation.

43:55 Is there ever the potential for the infrastructure of BitCoin to be a paying pursuit? So, down the road when it's a thousand times bigger, could BitCoin have a Chair of the BitCoin Reserve Bank? Board of Governors? I've been thinking quite a lot about do we need a more formal BitCoin organization to kind of set standards and to try to ensure that all the products are interoperable with each other. Get more formal, maybe get some salary for those whose job it is to monitor the BitCoin network, maybe make recommendations on how to change software so that it works better or faster. I'm not sure it's necessary yet, although it might be necessary soon. My first thought is: Don't. That's probably your first thought. Second thought is maybe. Obviously, boards and committees and advisory groups can make lots of trouble. They can. I was involved in the International Standards organization standardization process for 3-D graphics technology back when I was working in Silicon Valley, and that project never really went anywhere. We spent a lot of time talking about what the standard should be and going through a whole rigorous process, making sure all our "i"s were dotted and "t"s were crossed. The end result was something that turned out that people didn't really want. That's a lesson for me, that you don't do too much up-front planning; let things evolve organically and it might turn out all right. And you'll avoid some of those problems people have when they get control of something. Well, that's the first thought--agree with you. Second thought is maybe you need something. Third thought is of course you are going to need something, because the code's going to get really big and it will take people a really long time to go through it. After a while it's not a labor of love, but just labor, and you've got to pay people, etc. As the scale grows, is that a natural process? Does the complexity of the code have to get bigger and bigger; do other things have to be added that might avoid that? It doesn't have to. There's actually a lot of pressure to keep the core system as simple as possible and allow non-core process to grow up around it that build on top of the core features. I don't think it's inevitable that the core system will get big and crusty and unwieldy, especially because we are already seeing alternative implementations of the core system. So, there won't be just one. There will be many implementations to choose from, maybe some of which will be optimized for very high volume, high traffic websites and some of which will be optimized for trying to generate bitcoins as efficiently as possible, and others might be optimized for running on your computer at home so that you have a really clean user interface.

47:51 Let's talk about fraud for a minute. If I want to buy something on the Internet now, there are a bunch of ways to do it. There's Paypal, which is a virtual wallet. There's credit card. The problem with the credit card is that somebody's got to pay a fee to use it, and the reason have to pay a fee is that some people don't pay their credit card bills; big infrastructure of cost around the process of verifying transactions, preventing fraud. Would BitCoin save some of those resources? It should theoretically. BitCoin transactions are non-refundable, so once I send bitcoins to you, there is no credit card company to call back and say: Somebody stole my BitCoin account and made this transaction; please reverse it. All transactions are final. There is still a place for companies like Paypal which give you some protection against maybe your BitCoin account getting stolen. It will be interesting to see how that infrastructure builds up. I think we are building on top of a potentially much more efficient basic infrastructure. I could imagine Paypal allowing you to store bitcoins in your Paypal wallet, like today you can store dollars and euros in your Paypal wallet and it will keep track of them separately. No reason you couldn't have a bitcoin section in your wallet. And then Paypal takes care of keeping them safe; if you have a fraudulent Paypal bitcoin transaction they'll refund your money; and they charge you a fee for doing all those kinds of service. Can you, Gavin, give me 10 bitcoins if you feel like it? Sure. You just need to send me your bitcoin receiving address. So, you say they can't be reversed--they just can't be reversed by you, the initial decision-maker. So, if you give me the 10 bitcoins and then say you were just kidding, you can't reclaim them. I would have to beg you to give them back to me. And I've give them back in a second; don't worry. The same thing would be true of merchants. So, if a merchant said I had a 14 day trial with the goods and I didn't like the product and wanted my money back, they can choose to give me bitcoins. If they don't, it's fraud--they violate the terms of their description. I can take them to court. Of course, the cost of doing that is very high for any one transaction. So, what Paypal is doing, I guess, is eating those losses so that as any one buyer I can transact fearlessly. Is that correct? Yes; they essentially spread those losses over all of their merchants and all their customers. Then they have the law department that pursues cheaters, which I don't want to have. So, what threatens the future of BitCoin? Isn't really a question of trust and usability, which I'm pretty confident at this point that it will find a niche. I am not confident that it will replace the dollar. I am pretty confident that it turns out there are several niches were BitCoin is a really useful Internet payment mechanism. I'm not sure what those niches are going to be. I think that really holds it back from replacing the dollar or Paypal or these other payment mechanisms we have is those other payment mechanisms have a huge head start; already pretty well trusted; a lot of infrastructure already built up around the existing payment systems and currencies. Remains to be seen whether BitCoin has a hard time overcoming those barriers. Could have some real advantages, though--that rate of growth. Some of the incentives built into the system are certainly helping in this bootstrapping phase. For example, BitCoin appeals to crypto-hackers; it appeals to the hard core geek crowd. A lot of the hardcore geek crowd want to see it succeed. So, we are not seeing a lot of attacks on BitCoin. There are a lot of people who might see an attack on BitCoin and will let us know. A lot of incentive for early adopters to help make the system stronger. Could the government take my bitcoins without my consent? If they can take your computer, physically take your computer that holds your bitcoin wallet, and you haven't bothered to encrypt it with a password that only you know, they can do it that way. But short of that, as far as cryptographers know, there's kind of no way for them to get your bitcoins. That's the coolest thing about this, to me--really tests your feeling about the word "virtual." It's as real a virtual currency as you can imagine.