Keri Phillips: This is Rear Vision, I'm Keri Phillips, stepping in at the last minute to introduce this week's program by Ros Bluett.

Journalist [archival]: Bitcoins are digital coins you can send through the internet.

Keri Phillips: Today, the brief history and meteoric rise of the crypto currency Bitcoin.

Man: All currencies in some way are virtual.

Man: Click on it actions, QR code, and I get this QR code, and then descend to the Bitcoins there, and I just hold up my phone to the screen and I can scan it and send my Bitcoins from my account to this account, and the transaction is instant.

Man: It's not backed by any particular government. It has defied expectations and is still around and has increased in value.

Keri Phillips: This week, the value of the crypto currency market and associated technologies hit the $150 billion mark, but Bitcoin itself, the first and still most popular crypto currency, didn't have an easy gestation. Nor was it an immediate success. It all began in San Francisco in the early 1990s. Around this time, an antiestablishment radical group of computer programmers calling themselves the Cypherpunks were hatching ideas. New York Times writer Nathanial Popper has followed their story.

Nathaniel Popper: You had this group called the Cypherpunks. These were the folks who were really worried about what technology did to personal privacy. That Cypherpunk movement was a really California Bay Area movement. It was this strange cross between hippies and libertarians, people who thought technology was going to set them free, but who were very concerned about the way that technology could essentially compromise your privacy.

When you start capturing your life in digital messages and digital information, it's hard to erase that information and it's easy for various sorts of authorities to track you and get that information and know where you've been and what you're doing. These people who are worried about privacy very quickly came to realise that one of the most compromising digital trails we leave is our financial data. Once we move away from using cash, which is very anonymous, you know, you can give cash to somebody without anyone knowing that the transfer happened, once you start using credit cards and bank accounts, there's this record of everywhere you spent money and who you gave the money to.

Dominic Frisby: My name is Dominic Frisby and I'm a financial writer from London. Among the cohorts of the Cypherpunks, by the way, was Julian Assange who went on to found WikiLeaks. The dream of the Cypherpunks was to have this system of money that was decentralised. In other words, there was no central body overseeing all the transactions. If I send you an email or a picture or a video or any kind of digital code, you can copy and paste that code and send it to one or 10 or a million different people. And if you can do that with money…because all a Bitcoin is is a bit of digital code, but if you can just copy and paste it and send it to a million different people, pretty soon the money loses its value. And there was no way of solving this problem without having a centralised body monitor all the transactions in this currency. And in the end the dream was almost given up upon. And this would have been in the late '90s. And so much so that it was all but forgotten. And then suddenly Satoshi Nakamoto came along in 2008/2009 with his white paper and he found a way of solving this problem of double spending. So it was a huge breakthrough for all the techies and the computer nerds, and all these people were incredibly excited about it.

Nathaniel Popper: In 2008, when Satoshi Nakamoto released the paper for Bitcoin, these ideas got revived again.

Andreas M Antonopoulos: My name is Andreas M Antonopoulos. I am a computer scientist, a technologist who focuses on digital currencies and specifically Bitcoin. I remember following a link and reading the white paper written by Bitcoin's creator Satoshi Nakamoto, and that's a spectacularly well written scientific paper, it's a nine-page paper and simply put it blew my mind. It triggered all of these thoughts about distributed systems and some big challenges in distributed systems that scientists have been trying to solve for decades, and suddenly it all coalesced and I'm like, oh wow, this is not just a money, and it's certainly not just money for gambling, this is a very foundational technology in computer science and distributed systems, and this is going to have far reaching implications, and I just dropped everything I was doing and focused my career on Bitcoin. That was five years ago, and I haven't really looked back since.

Nathaniel Popper: Most people did not pay very much attention to this. This idea was released on a peripheral message board for cryptographers. But there were a handful of people who thought maybe there is something that's just different enough about this new idea, this new Bitcoin software that can make it work.

Dominic Frisby: It was the blockchain that solved this problem of double spending. What the blockchain is basically is an enormous database that records every transaction that takes place automatically, and when it records a transaction it basically approves the transaction. But the difference is the blockchain is not held on one single computer but on multiple computers around the world, and he's created a system that is almost impossible to defraud.

Nathaniel Popper: Day one of Bitcoin there were zero Bitcoins in the world. There is no central repository of Bitcoins where Bitcoins are distributed. On day one there were zero, and the software was set so that every approximately 10 minutes a new block of 50 Bitcoins would be released to somebody who was supporting the network. By 'released' that doesn't mean that somebody had them and then gave them to somebody else, every 10 minutes everybody on the network would kind of agree, okay, this guy over here got this latest batch, we are all going to write on our ledger that that person at that address has 50 Bitcoins. And that's how Bitcoins were created.

And so 10 minutes in, the first block was created, and then thereafter other computers on the network, other people would join their computers into the networks, won the blocks. They were also in a sort of computational race, and the winner of the race, the person who is keeping track of the records, essentially the fastest, wins each new block of Bitcoins. So there's an element of chance in it but a lot of it is just computational power. And so now you need incredibly powerful computers to win that race. And so people have dedicated real resources to that.

Keri Phillips: People creating new Bitcoin are called miners, and in these early days these electronic blocks were fairly easy to produce. But Adrian Przelozny, who now runs a Sydney Bitcoin exchange, says the goalposts have moved markedly in the last eight years.

Adrian Przelozny: Initially when Bitcoin was created in 2009 it was the territory of computer geeks and it was a very niche thing, not many people knew about it. Early on people were just mining Bitcoin on their laptops, but now people have whole data centres of specialised hardware for mining Bitcoin. So it is I guess becoming quite difficult for just the normal individual to mine Bitcoin at home. They can still do it if they like but it's very unlikely that they will be able to actually mine any Bitcoin because they will be competing with these people with warehouses full of computer servers that are specifically designed for the purpose of just mining Bitcoin.

They are made all over the world but I guess right now most Bitcoin mining happens in China, and that's largely because the electricity there is a little bit cheaper than everywhere else. The process of mining which the Bitcoin network needs is a very expensive process because of the hardware that you need to have, the electricity to run their hardware, the electricity to run the air conditioners to make sure the hardware works and all that kind of stuff. So it's an expensive thing to do. So in order to provide people an incentive to actually do it, every 10 minutes on average a miner mines a block, and as a reward for mining the block they get awarded 12.5 Bitcoin. And this award reduces over time, to ensure that there will never be more than 21 million Bitcoin in existence.

Nathaniel Popper: Every 10 minutes, new Bitcoins are released and that will continue happening until 21 million Bitcoin are in the world. And then there will be no more new Bitcoins created. So far it's only 16 million have been created, so there's 5 million left.

Keri Phillips: It's big business now, but Bitcoin had its teething problems. The year was 2011, two years after Satoshi Nakamoto's seminal White Paper, and still it wasn't quite grabbing the attention it deserved. Nathanial Popper:

Nathaniel Popper: There were a lot of early people who were interested in Bitcoin and trying to get it to take off. And the reality is it didn't really take off for something like two and a half years after it was released. You could join in, get some Bitcoins, but you couldn't do anything with them. Nobody wanted them, nobody would give you any money for them, they were useless. Nobody was willing to take Bitcoin for anything. So for two years people were trying to think how do we find a market where people might want to use this kind of money and make it worth something? People tried a bunch of different things.

These early guys, they would collect their Bitcoins and spend them, they'd say, will somebody send me a pizza for Bitcoins, or will somebody rent me some server space for Bitcoins? And the people who agreed to do this, they didn't have anything more to do with the Bitcoins when they got them than the original person, but they kind of wanted to experiment with it and so they would do it.

Dominic Frisby: It caught the imagination of the techies and the computer coders and the programmers first. But because of everything that was going on in the world in 2008/2009—the reaction to the financial crisis, quantitative easing, suppressing interest rates, the unelected central bankers suddenly becoming all-powerful gods—there was a big reaction against this because a lot of people could see that what was going on was wrong.

Bitcoin was a kind of reaction against that, and in fact in the very first transaction there was actually a title from the Times about the bailouts embedded in the code. So it was very political. So it caught the imagination of coders because, like I say, it had solved this problem of double spending. But it also caught the imagination of economists and libertarians and various other politically minded anarchists, various other politically minded people, because here suddenly was an alternative system of money which worked and had nothing to do with central banks or governments. And it's an incredibly liberating force.

You know, one of the reasons that governments are so big and governments are so strong in the world in which we live today is that they control money. As soon as you take away that power, suddenly what a government is able to do is suddenly a lot more limited. Money is power, and here was an alternative, free, open source system of money.

In addition to that, embedded in the design, it was an inherently deflationary system of money. So with pounds or dollars or any euros, whatever currency you'd like to name, there is no limit on the amount of money that can be created. And so they are inherently inflationary. However, with Bitcoin there is a fixed amount. So in that regard it was very similar to gold, when gold was used as money, because you can't print gold. Gold is hard to find, it's hard to mine, it's expensive to mine. So there's a limit on how much money can be created. And so gold was a deflationary system of money in the sense that things got cheaper every year. If you think now things always seem to get more expensive, that's because we have an inflationary system of money, whereas gold, things got cheaper with gold.

And so there was a limit embedded in the program of Bitcoin, there was a limit on how much money could be created. And so not only was it an alternative system of money, its design was completely different to pounds and dollars. And what actually happened is because there's a limit on how many can be created, it created a sort of speculative frenzy, a speculative bubble, because it meant that the purchasing power of that money would grow and grow, and that's why you see these incredible price rises in Bitcoin because it's a finite asset. Immediately it gave rise to online black markets because here was a way that illegal goods could trade hands without anyone else knowing about it.

Keri Phillips: London financial writer Dominic Frisby.

This is Rear Vision and the history of Bitcoin on RN.

From Satoshi Nakamoto's seminal White Paper in 2008, Bitcoin enthusiasts kept the ball rolling. But it was the illegal drug site Silk Road that eventually propelled it into the limelight in late 2011. It was a website set up by a kid in Texas to sell drugs.

Nathaniel Popper: His name was Ross Ulbricht. He had dropped out of graduate school and was kind of looking for his life's work, and he discovered Bitcoin and he saw some of the conversation going on around Bitcoin about how are we going to find a place where people actually want to use Bitcoin? What's the audience for this? Who would want to use digital cash? And from very early on there was a recognition that the first people who are going to want to use this are people who want to do anonymous transactions, to obvious audiences there, people buying porn online and people buying drugs online. So there was actually a long thread about, you know, we should set up a heroin store where you can buy heroin for Bitcoin. And it was actually in the middle of that messaging thread that Ross Ulbricht, who did not give his real name there, said, 'I am setting up a heroin store, essentially, that's going to be called Silk Road and where you can buy drugs for Bitcoin.'

And this was an obvious use for Bitcoin because if you are buying drugs, you don't want to do that with your Visa card or PayPal because the police will just subpoena Visa or PayPal and say, 'Tell us who sent this money, tell us who did this transaction,' and Visa will hand over all of your personal information. And I think Ross Ulbricht realised with Bitcoin there's no authority, there's nobody in the middle who can hand over your personal information, who even has your personal information. So you can send coins around the world from your address, which is just a bunch of letters and numbers, and nobody will know the person who is attached to that address.

And initially the Silk Road was really just Ross selling a bunch of psychedelic mushrooms that he had grown himself. But within a few months people started putting other drugs that they had onto his site and offering them for Bitcoin. And suddenly you could do something with Bitcoin and they were worth something and people started being willing to buy them and the price started to go up, and the world started to take notice.

Dominic Frisby: Black markets historically are usually the first to make a new tech work on a practical day-to-day basis. Pornography was one of the first industries that turned the internet to profit in the 1990s. It was a long time before others found a way of making money out of it. The fact that people were able to transact and buy and sell goods illegally using Bitcoin suddenly created a whole new marketplace. But it also demonstrated that the technology worked. It was a very good advert, in a funny kind of way, for the technology. Here was a way that illegal goods could trade hands without anyone else knowing about it. And so as well as capturing the imagination of economists and libertarians and computer coders, it also caught the imagination of crooks and money launderers and drug dealers and anyone who wants to transact in illegal goods.

Nathaniel Popper: The story of the Bitcoin has been a long series of incidents in which evidence has accumulated that Bitcoin could do what it set out to do. A certain technology elite, you know, folks in Silicon Valley, began to realise this thing is doing something new here, it's working. Right now it is mostly being used for illegal purposes, but maybe we could use it for other types of financial transactions where a bank charges a lot to move money around. Here's this new system where money can move pretty quickly and pretty cheaply anywhere in the world. So people started trying to think of other ways that they could use this technology as it kept working.

Andreas M Antonopoulos: Generally speaking, Bitcoin is most useful in the areas where traditional money is most difficult to use. Cross-border transactions. Anyone who has tried to send money across borders has discovered that it is slow, tremendously expensive, and very difficult to do, very bureaucratic, very constrained. And that's in the best case when you are sending between developed countries. If you tried to send money to a developing country, a Third World country, things get really difficult and really expensive, which impacts immigrants who send $550 billion to their home countries to support their families. That's one area.

Import-export businesses, generally any type of business that deals in multiple currencies and borders. The other applications we are seeing have to do with failures of traditional currencies. So we are seeing in places where countries have economic crises, like Venezuela for example. We also saw examples of use of Bitcoin in Cyprus, in Greece, in Brazil, in Argentina, with lesser crises than Venezuela but certainly also in financial distress.

Nathaniel Popper: A lot of people had a lot of different visions for what this technology could do and what it could be useful for. One of the most successful evangelists for Bitcoin was an Argentinian entrepreneur named Wences Casares who had grown up in this country, Argentina, where there was hyperinflation and where people basically didn't want to keep their money in the local currency. People started buying them and the price started shooting up. The first legitimate names started coming forward and saying this is really interesting.

Silk Road was still going strong and by this point had thousands of vendors who were selling drugs on there for Bitcoin. But there were enough people drawn to it by this time, and the US government regulators starting looking at this and weighing in and saying maybe there's something useful here that's not just for black markets, it's not just for criminals. You started having the first conferences in Washington DC where regulators took an interest in this. And it was late in 2013 that the law enforcement dragnet that had been searching for Ross Ulbricht finally found him. He had been operating under the pseudonym Dread Pirate Roberts running the Silk Road, and in 2013 police arrested him at a public library in San Francisco with his computer open, and managed to take down the entire Silk Road and take down tens of millions of dollars worth of Bitcoin.

Journalist [archival]: Silk Road has emerged as the most sophisticated and extensive criminal marketplace on the internet today. The site has sought to make conducting illegal transactions as frictionless as mainstream e-commerce.

Journalist [archival]: It took the FBI almost three years of investigation to break down Silk Road and catch its mysterious founder, who taunted authorities using the alias the Dread Pirate Roberts. The FBI alleges the mastermind's real name is Ross William Ulbricht…

Nathaniel Popper: When Ross got arrested there was some relief in the Bitcoin world because there was a sense that maybe we can finally detach ourselves from these black markets and advertise Bitcoin as useful for something more than just buying drugs. Silk Road played this important role in the rise of Bitcoin but I think a lot of people who got into Bitcoin were happy when the Silk Road got taken down because they wanted to see it become something more than just a drug currency.

Adrian Przelozny: So basically anyone can participate in Bitcoin by installing a Bitcoin wallet, and you can install that on your phone, on your computer, on your laptop, and all of a sudden you are in the Bitcoin network. And this allows you to send and receive Bitcoins.

In your wallet is actually what is known as a private key, and this private key provides you the ability to unlock your Bitcoin and send that Bitcoin to another person. And the Bitcoin themselves are actually stored on the blockchain, and what the blockchain is, it's basically a decentralised ledger of every transaction that has ever occurred on the Bitcoin network, right from 2009 when basically everything began.

Dominic Frisby: This blockchain technology, this idea of a distributed ledger, a distributed database, a database which records every transaction permanently and cannot be changed, it's like an unhackable system of permanent memory that grows organically as new information is added. A myriad of different uses have been found for blockchain technology beyond an alternative system of cash. In recordkeeping it can be used to prove ownership, it can be used to…we will eventually see stocks and shares and financial goods traded using blockchain technology. We will see property, cars, tickets, the ownership of all these things recorded on the blockchain and then the ownership of these things traded using blockchain technology. Actually another really interesting use that it has is in voting apps.

Andreas M Antonopoulos: Yes, I think we've barely seen the beginning of this. It is truly a really revolutionary technology. It is extremely disruptive because it changes, it forces change, and some of the most well-established but weak and corrupt institutions we have, even in modern democracies, banking and finance is as corrupt as hell and it's facing competition for the first time in decades, which is a very good thing for consumers. It's offering new forms of applications, it's going to disrupt many different industries, we've barely seen the beginning. And it's going to have a resounding impact across the world and across many different industries.

Nathaniel Popper: It's sort of amazing how far this idea has spread because it began as a sort of anti-government, anti-corporate movement, people who didn't like the banks and people who didn't like governments. And now it's really governments and banks who are some of the most excited when it comes to this technology, trying to make use of it.

Dominic Frisby: Nobody can have possibly foreseen how big this thing has become and how much bigger it's going to get. But it's not money for the real world, it's money for the digital world, it's money for the internet. It's basically gold for the under-30s.

Andreas M Antonopoulos: It may take five years, it may take 10 years, it may take 15, and it may not be Bitcoin, it may be something that is named something else, but the basic idea of an open, decentralised currency based on network technologies, collaboration on the internet and competition on the internet, based on cryptography that provides people with an open form of money that they can participate in without any controls or restrictions as to who can participate, that is blind to gender, race, ethnicity and borders, that idea has arrived, and there's no putting that cat back in the bag.

Keri Phillips: Andreas M Antonopoulos, technologist, author and teaching fellow with the University of Nicosia, ending the program. And before that: Dominic Frisby, London financial writer; New York Times' Nathanial Popper; and co-founder of Sydney's Independent Reserve digital currency exchange, Adrian Przelozny. Today's sound engineer was Simon Branthwaite, I'm Keri Phillips, standing in for the flu-struck producer of this Rear Vision, Ros Bluett. Thanks for listening, bye for now