The Guru of Cyber-Cryptography - Page 3 of 5

guru-of-cyber-crypto_body2 — Christina Garman (left) with Matt Green

The pioneering digital currency known as Bitcoin made plenty of news last winter, nearly all of it for the wrong reasons. It was invented in 2009 by a coder named “Satoshi Nakamoto,” whose authorship was widely assumed to be pseudonymous until Nakamoto himself was outed in March by Newsweek as a 50-something California programmer who had worked for military contractors. (Nakamoto subsequently sued the magazine, averring that they had corralled the wrong Nakamoto.)

So What Is Bitcoin?

Since it first was encoded by the mysterious “Satoshi Nakamoto” and released online in 2009, Bitcoin has become the most widely accepted—and the most controversial—of the so-called “digital currencies” that have come into existence over the past decade.

Unlike “fiat money”—notes and bonds issued by governments for the payment of public and private debts—and unlike credit-card accounts, bank drafts, and precious metals, bitcoins are virtual tokens that exist only as long strings of letters and numbers stored in “digital wallets” on a network of collaborating users’ computers.

These “block chains” are, in theory at least, unique, unrepeatable, and secure. But a series of hacks and thefts by the nefarious Bonnies and Clydes of our cyber-century—and the alleged exploitation of Bitcoin’s anonymity by drug traffickers and hired killers—have dimmed the currency’s already-nonmetallic luster.

In essence, bitcoins are a form of email that both the sender and recipient agree possess value as payment for goods and services. (The same could be said of diamonds, which are no more than sparkly chunks of carbon.) Bitcoins are accepted by a growing number of businesses in the United States and many other countries—though they have been banned or restricted in Thailand, South Korea, China, and Russia—and they are convertible into “real” money at numerous online exchanges.

Bitcoins can be acquired in three ways: by purchasing them through an exchange, for cash at one of the new Bitcoin ATM machines that recently were installed in several major cities in Canada and elsewhere, or by “mining” them—installing specialized software and using it to perform laborious mathematical computations that produce, after several days of cyber-brainstorming, 64-digit solutions and a bitcoin or two as a reward.

Making a purchase with bitcoins is as easy as paying by credit or debit card. The buyer scans a QR code with his or her smartphone and types in the sum to be transferred. In March, one bitcoin was trading at $666, down from an all-time peak of $1,250 but considerably higher than its November 2010 value of 36 cents.

—Allen Abel

Over the ensuing half-decade, Bitcoin has been embraced by a motley community of libertarians, hipsters, drug lords, anarchists, small-business owners, and billionaire capitalists willing to bet a roll of real green Franklins that cyber-money will be the Next Big Thing.

A string of lootings, hackings, bankruptcies, drug stings, market crashes, jail terms, congressional investigations, and national prohibitions (China, Russia, Thailand, South Korea) have shaken, but not shattered, the market’s confidence in Bitcoin (in particular) and cyber-wampum (in general) as a future facilitator of the instantaneous, unregulated, untraceable, untaxed transfer of wealth. By mid-March, one bitcoin was trading as the QR-code equivalent of 666 U.S. dollars, down from a brief flirtation with the thousand-dollar level but considerably more precious than the day when, as Green recalls, “you could trade 10,000 bitcoins for a pizza.”

Two schools of opinion about Bitcoin emerged during its infamous travails: Either it is not transparent enough (and therefore especially useful to villains eager to cash their chips on the Dark Side), or it is too transparent (because the “block chains” that are published for each transaction can be studied for patterns of behavior that might be used to identify the people at each end).

“The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me wary of its use,” wrote Senator Joe Manchin (Democrat of West Virginia) to the Treasury Department and Federal Reserve in March. “I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.”

“Our goal is to make it much less transparent,” counters Matt Green. “‘Transparency’ sounds like a good thing. On the other hand, you wouldn’t want to live in a completely transparent house with no curtains, so it’s not always. What we want to do is make Bitcoin much more ‘private.’ That is, we want to make transacting funds a private activity, not something you share with your neighbors and the entire planet.”

To do this, Green and PhD candidates Ian Miers ’10 and Christina Garman set to work first to add layers of opacity to the existing, open-source Bitcoin software and then, seeing an opportunity to separate themselves from Bitcoin’s very public troubles, they invented an entirely new proto-crypto-currency that they call Zerocoin. Their aim is zero scandals, zero controversy, and zero chance that Edward Snowden or anyone else will be able to spy on how and where we spend our digital dough.