Bitcoin: Behind The Cryptocurrency Curtain
Fans of bitcoin tout the digital currency as secure, anonymous and efficient. But wildly fluctuating exchange rates and charges recently in an alleged bitcoin Ponzi scheme in North Texas have put a spotlight on bitcoin’s risks.
Tyler Moore is an assistant professor of computer science and engineering at Southern Methodist University and he joins KERA's Justin Martin for a conversation on bitcoin.
Interview Highlights: Tyler Moore ...
... On bitcoin and cryptocurrency:
"Bitcoin is a currency just like dollars or euros or pounds, but it’s completely digital so there’s no paper equivalent. To do that, you need to have some rules in place so that people can’t willy-nilly copy the bits and steal each other’s bitcoins – so that’s where the crypto comes in – you have some cryptography to protect against double spending and sort of enforce the rules of the system."
... On how to acquire bitcoin:
"So there’s two main ways - the more esoteric way is to mine bitcoins, but if you’re new to bitcoin the most common way is to go to a currency exchange, just like you would when you enter a new country, go the airport, go to the exchange, and provide your dollars and get whatever currency you’d like. You can get to an online currency exchange and pay your dollars and whatever the current market rate is they’ll give you the equivalent in bitcoin."
... On bitcoin's value:
"It’s like any other digital commodity in that it finds its value in the people who use it. Which is one reason we see these huge fluctuations in that there can be wildly differing demands for the currency at a given time."
... On the McKinney Ponzi scheme:
"The way the scheme worked was like any Ponzi scheme. And what he did was what any Ponzi scheme operator does – and that he takes the incoming investments from new customers and pays it out to existing customers. And so he’s able for a while, just like Bernie Madoff, to always pay out these nice interest rates to the early adopters and then those early adopters tell all their friends how great it is – and so more people keep investing money – and this keeps going until the bottom falls out, as it inevitably does."
... On bitcoin being called a Ponzi scheme:
"I think people can argue that many things are Ponzi schemes because on a fundamental level you do require some confidence in an institution. Bitcoin’s ultimate value depends on the confidence of its continued operation. But it’s not a Ponzi scheme in the sense that you’re not following the classic markers of a Ponzi scheme where you have new investments that come in that you then pay out to the existing investors."
... On Texas being a hotbed for digital currency:
"Well, I think Texans embrace new technologies is one - I think the other side in ways seem more general interest among the business community in bitcoin – is they see an opportunity for more efficient payments. Credit card payments right now take 2 percent to 3 percent of every transaction. And remittances, money transfers, are also quite considerable. So there’s a real opportunity for a virtual currency to come in and offer a more competitive rate."