Bitcoin: Our experience

There is a lot of hype around Bitcoin and cryptocurrency these days. But there are horror stories you should know about before diving in head first.




I first came across Bitcoin in 2010, I was having a conversation with Chris Brown, a very capable engineer who used to work for us back then. We were on the way back from an install and he was telling me about a currency based on cryptography. The coinage was "mined" and had an inherent scarcity, thus creating the value. This money was entirely digital, the storage distributed, and was not managed or owned by anyone. We joked that we should start accepting it as payment at Dental IT, or start offering to pay our staff with it. Oh that we had... Having lived and worked through the "dotcom bubble" that saw investments in some Internet tech lose a fortune less than a decade before, I had a degree of scepticism. The company I used to work for in the 90s, GX Networks, was hit hard by the "dotcom crash", when its parent company XO Communications went into administration in the US. In any event, I am not a gambler or a speculative investor by nature.

Apart from some obscure sites online accepting bitcoin as a form of payment, I didn't come across it again until a few years later and the launch, and subsequent demise a few years later, of the Silk Road marketplace - an almost entirely criminal shopping arcade located in the hidden "dark web" where you could purchase anything from drugs to weapons to assassinations and child porn. And the currency for these transactions? Bitcoin of course; untraceable, unregulated, anonymous and digital only.

Some years later, one of our largest customers suffered a ransomware attack - these were rife in 2017. Unfortunately this particular network had not taken our advice with respect to remote access to a "sales" account, and had wanted remote access from anywhere, rather than limited to particular users or networks by implementation of a VPN. Worse, the user account in question had an easy password - Letmein1 or something like this. Eventually someone brute force attacked the RDS (remote desktop) server, and once onto the network, could work on gaining access to more useful accounts - administrative accounts, and the NAS (backup device) in particular. Once they had encrypted the live server data and the NAS device, the hacker was in a position to demand their ransom, which was 15 bitcoins. 15 I thought, well that sounds reasonable, given that the last time I had heard about this currency one single bitcoin was worth far less than 100 pounds. But now, it was around £1000. Getting their data back cost over £15000 of real money, and that money is entirely untraceable.

It seems to me, that, even before we have achieved the cashless society - with all the benefits to society that this could entail - Bitcoin and crypto currencies have created a digital equivalent to cash already. So all the benefits of cash that already apply to criminals and tax avoiders and scammers and thieves can now be exploited in the digital realm. You can't pay for your weekly shop at Tesco with Bitcoin, or pay for the kids' music lessons, or for your Netflix subscription, or your passport application - so the real world usage for most of us does not exist. The people who have benefited are the speculators and the criminals.

And there is an even bigger cost to Bitcoin, and that's to the planet. The computer power needed for the "mining" of Bitcoin that is being carried out by companies and individuals across the world, uses the power equivalent of a small country.

The "myth" of Bitcoin promoted by enthusiasts is that it could democratise and decentralise currency, and take it out of the hands of governments and banks. A similar argument is used by diehard libertarian Internet free speech advocates. The principle is sound, the reality is content and messages able to be encrypted and hidden by terrorists, paedophiles, criminals and scammers, outside of the reach of authorities and democratically elected governments.

Bitcoin's only real value is in its scarcity, the fact that it was first to market, and therefore the demand for it. Other blockchains can now emulate this scarcity and technology, so its only ongoing value is trust, in the minds of the investors, that this particular "system" will prevail and stand the test of time. Gold, by contrast, has had value for over 3000 years, and shows no sign of slowing. The pound has been around for over 500 years - and unlike gold or Bitcoin can be printed endlessly by banks. Quantitative easing proved that even scarcity can be compromised without risking inflation in a recession, and you can buy your bread with it.

I might, of course, be wrong - but unless and until wider society, governments, banks, employers and shops start accepting and trading Bitcoin, it has no real future. And given how damaging and disreputable its existence has been in its first 10 years, I can only hope that remains the case.



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© Elliot Cheeseman, Tenacity, June 2021