Already bigger than some currencies, Bitcoin can get bigger, Gavin Andresen says

CoinDesk sat down with Gavin Andresen, chief scientist for the Bitcoin Foundation and lead developer for the Bitcoin open source project, to talk about the current state and future of the cryptocurrency he helped bring to the world.

CoinDesk: What is it about Bitcoin that compelled you to devote your whole professional life to it at this point?

Andresen: The idea of a decentralized money really appealed to me. I think it’s great that Bitcoin lets people take back control of their money and payments. From a purely technical point of view, it’s just fascinating to me that the technical problems were solved (to make Bitcoin happen). It’s a really interesting project from a technical view. It’s a potentially world-changing idea.

CoinDesk: Recently someone online claimed they had identified Satoshi Nakamoto (creator of the Bitcoin protocol). What do you think of that claim? Does that happen a lot?

Andresen: It happens every once in awhile. I had someone write me an email and claim to be Satoshi. It was pretty obvious that it was not Satoshi. Satoshi always signed his emails with his PGP key. I wrote back to the person saying, “Why didn’t you sign your emails like you used to?” and they went away.

Gavin Andresen, Bitcoin Foundation

CoinDesk: Have you heard from Satoshi lately? Do you think he, she or they are here at Bitcoin 2013?

Andresen: Not since 2011. I do wonder that. It would be interesting if Satoshi is here. I would have no way of knowing, of course. I would like to shake his or her or their hands. I’m guessing that he’s moved on. He’s working on some other big idea.

CoinDesk: Do you have a personal financial stake in Bitcoin, and if so how much?

Andresen: I tell people, I don’t have a huge stake in Bitcoin, but my salary is paid in bitcoin and I bought a few thousand bitcoins back when they were inexpensive so … there are lots of people who have more bitcoins than me.

CoinDesk: Do you have investments in any of the Bitcoin startups?

Andresen: No. My financial life is actually pretty conservative. Despite holding some bitcoin, most of my investments are in boring mutual funds. And my advice to people is always … don’t invest your life savings in bitcoin unless you’re wiling to lose your life savings, because it is highly volatile and risky.

CoinDesk: Past attempts to create digital currencies, like Beanz and Flooz, failed. Why should Bitcoin be different?

Andresen: The previous attempts at e-money or virtual currencies had some central point of failure. So if the company issuing the currency went out of business, the currency would be worthless. It turned out that the companies issuing the currencies did all go out of business. Smart people could see that potential and that prevented them from being successful. There was this single point of failure.
Bitcoin was the first system that got around that single point of failure.

There’s no central organization that will go out of business. Bitcoin is supported by everybody who’s using it. So unless everybody using Bitcoin decides to stop for some reason, Bitcoin will continue. There’s no way to shut it down.

CoinDesk: Couldn’t world governments force them to stop?

Andresen: It’s possible that every single government in the world decides to make it illegal to transact in Bitcoin … If Bitcoin could only be used illegally, there would be a much smaller market for Bitcoin. I don’t think even then it would completely go away. You might see criminals using it. But I have trouble imagining that every single government in the world will decide to try to make it illegal. It doesn’t seem likely to me. I can imagine some governments deciding they don’t like Bitcoin and trying to make it illegal, but i can (also) imagine some governments saying they really like Bitcoin.

CoinDesk: What do you think of the fact that CCTV in China recently ran a documentary about Bitcoin? That seems to imply government approval.

Andresen: I’m not expert on global politics, so I can only guess what governments might be thinking. But if I was the government of China and saw the dollar was the dominant world reserve currency, maybe something like Bitcoin wouldn’t really scare me.

CoinDesk: How likely is it that Bitcoin really takes off?

Andresen: There’s a small chance that Bitcoin will get really, really big. When I say a small chance, maybe there’s a one-in-20 chance that Bitcoin will replace the dollar as the world’s reserve currency in 50 years. I think there’s a much better chance that Bitcoin will be a widely used currency, not rivaling the euro or the dollar, but respectable in the list of worldwide currencies.

Last year, I gave a talk, and one of my talking points was going to be that Bitcoin is smaller than any world national currency. I decided to fact-check myself and I (found) that Bitcoin was actually larger than some national currencies … We’ve been moving up the list, if you look at the total value of all the bitcoins in circulation versus the total value of other currencies, we’re up to 20 or 40 national currencies that are smaller than Bitcoin. As Bitcoin gets bigger and we move up that list, we’re on the path to Bitcoin being a serious world currency.

CoinDesk: What would success for Bitcoin look like in your view?

Andresen: The goal for Bitcoin is being a stable, commonly used currency like any other currency you find in the world.

CoinDesk: Bitcoin has the reputation of being mainly for buying drugs and guns. Is that really a major portion of the transactions?

Andresen: The first markets for Bitcoin were black markets, gray markets, where there was no other choice — that was the only currency that would work. One of the big early markets for Bitcoin is online gambling. A lot of poker sites operate where online gambling is perfectly legal, but they can’t get US customers because there’s no way for US customers to transfer money, because the US government has told the credit-card companies that they may not transfer money to these companies. Bitcoin is the only solution for them if they want a worldwide audience, so those were early adopters.

The benefits of Bitcoin are now being seen by mainstream places. I bought cupcakes for bitcoins (at Cups and Cakes on 9th in San Francisco). They have an iPad that’s their cash register, they have a “buy with bitcoin button that they press … The whole process took 20 seconds.

We can’t tell what bitcoins are being used for. (So it’s impossible to know what percent of transactions are for black market goods.)

CoinDesk: Once all the bitcoins are mined, won’t the miners quit running the Bitcoin ledger system?

Andresen: The miners will still do the work, because you can attach a transaction fee to every transaction, and the transaction fee goes to the miner who validates the (block of) transactions. As mining fees go down, transactions fees are going up … Transaction fees are voluntary, but if you don’t include a transaction fee … you may have trouble finding a miner that will validate your transaction. (The current average is .001 of a Bitcoin.)

According to our calculations, as Bitcoin scales up, you’ll have such a high volume of transactions, the tiny fees will add up to a significant amount of money and it will still be worthwhile for people to do that work.

CoinDesk: How did you feel about the US government action against Mutum Sigillum? Did it surprise you?

Andresen: I wasn’t terribly surprised. The legal and regulatory situation with Bitcoin has been murky, and it’s getting more clear … In the grand scheme of things, anything that makes it more clear how Bitcoin businesses can abide by the rules is in the long term a good thing.

CoinDesk: Why didn’t the value of the bitcoin crash when it happened?

Andresen: It was one particular way of transferring money to Mt. Gox, which is a Japanese company. There are lots of other exchanges, and there are lots of other ways of transferring money to Mt. Gox. And, it only affected US customers, and a lot of Mt. Gox customers are not in the US. In the grand scheme, it was a small piece of the Bitcoin infrastructure. Once people realized that, you saw the price rebound almost immediately.

CoinDesk: Is there any role at all for government when it comes to regulating Bitcoin?

Andresen: I’m a little controversial in the Bitcoin world because I do think there’s a role for government: Consumer protection makes sense. I think where Bitcoins are exchanged for national currencies, it certainly makes sense that whoever controls those national currencies might want to regulate that. While over-regulation doesn’t make sense, there is a role for regulation.