Three ways Bitcoin could be brought down, co-opted, or made irrelevant.
Option one: Government takeover
This hypothetical technology—a central-bank-issued digital currency built with a tweaked version of the Bitcoin blockchain—was described by David Andolfatto, a researcher at the Federal Reserve Bank of St. Louis, and later refined by Sahil Gupta, who as an undergraduate at Yale wrote a study on how a currency like Fedcoin would work. With some colleagues, he wrote code to test a simulation.
In their system, a blockchain records transactions, just the way it happens with Bitcoin. Instead of being updated by a network of unaffiliated peers, however, the Fedcoin ledger is managed by institutions certified by the Federal Reserve. “These authorized nodes could be things like Bank of America, JP Morgan—basically, trusted institutions,” Gupta told me.
Each bank is responsible for a chunk of addresses on the blockchain. When new transactions come through, the bank validates them in a new block and sends it to the Fed. The Fed then acts as the final arbiter, checking the entries and unifying the blocks into a master version of the blockchain that it makes public.
To use fedcoins, people must first show proof of identity and set up a wallet with the Federal Reserve or an affiliate bank, at which point they can buy the new currency with US dollars at a one-to-one ratio. A scheme like this, says Gupta, might gain popularity and ultimately result in the slow disappearance of physical cash.
Option two: Facebook sneak attack
So Facebook, like Telegram, could issue its own native currency. Or it could take the more insidious route: adopt Bitcoin itself and take it over.
If Facebook could persuade a large enough fraction of Bitcoin users and miners to run its own proprietary version of the Bitcoin software, the company would thereafter control the rules. It could then refashion Bitcoin as a corporate version of the Fedcoin described above.
But there’s an even better way that doesn’t involve converting a bunch of true believers: Facebook could pull off a takeover before most people even realized what it had done. If you’re reading this, Mark, here’s how to do it.
First, spend a month building a user-friendly, secure, Facebook-hosted Bitcoin wallet. A Bitcoin wallet is exactly what it sounds like—a container for your digital currency. There are many different kinds—some in hardware, some in software—varying in their level of security and ease of use. Facebook, with its vast engineering resources and expertise in user experience design, would have no trouble making its wallet slick as hell.
Then, overnight, integrate it into every single Facebook account—all 2.2 billion of them. The next morning, Facebook users wake up to find a new goodie tucked into their profiles: a little button that says “Send Bitcoin.” The wallet eliminates all the wonky quirks that make other Bitcoin wallets confusing. The address of every Facebook user is presented as a real name rather than a meaningless alphanumeric string.
For those who already use Bitcoin, the experience is so vastly superior to what they’ve previously experienced that they immediately migrate their funds to their Facebook wallet. Those who don’t yet own any bitcoins, or have never heard of them, could be given the option of earning some on the site, either by watching advertisements or by writing Facebook posts for others to see.
For those tired of watching ads, you mix in another fun feature. In exchange for a clean, ad-free experience, users can choose to let Facebook mine bitcoins with their computer’s unused processing power. (Other media outlets, like Salon, are already experimenting with this.) On the side, and with very little fanfare, you build a data center and begin mining bitcoins on your own.
Option three: Go forth and multiply
There’s another way to make Bitcoin irrelevant, one that simply follows the natural progression of what’s already unfolding today. In this near future, goods and services are increasingly represented by tokens, which can be exchanged with anyone. You’re in the checkout line at the grocery store. Inside your phone’s digital wallet you find not only Fedcoin and FacebookCoin but also AppleCash, ToyotaCash, and a coin specific to the store you’re standing in. There’s also a coin redeemable for babysitting services, and another that gets you rides on your local subway system. You decide to pay with a fraction of a share of Apple stock, which you send as a coin to the grocer’s wallet.
This “future” is already happening. The trend among blockchain startups is to build services that function only with the use of a native cryptocurrency, one specifically designed for the application. Even companies that predate the blockchain are catching on. In January, Kodak announced a new coin that people could use to license the rights to their photography.
These tokens are not unlike the points systems and gift cards that companies have used to hem in their customers for decades. What changes when you record these assets on a blockchain is that they become easily and securely transferable.
“Think of this as an incredibly efficient barter system,” says Harvey. “Barter is generally inefficient, but if you have a network and you tokenize the goods and services and enable it with a blockchain, it can become very efficient.”
Eulogy made by Morgen Peck