I share Cory Doctorow’s ambivalence towards to increasingly popular digital currency, Bitcoin. I like the abstract idea since I first encountered rough forms of it in fiction. Reading up on Bitcoin, I have failed to find anything that convinces me that it either will ultimately replace a large chunk of traditional currency or it will implode, perhaps dangerously so, due to some fatal design or implementation flaw. I am a bit mystified at why it has succeeded where so many other schemes, ones arguably better designed, haven’t managed to go anywhere.
I appreciate that Cory is drawing attention to some of the better considered and researched discussions of Bitcoin, like this post by Edward Z. Yang. In it he works through how the hardwiring of SHA-256 will at some point force a transition to a successor currency and how a decentralized scheme for doing so will falter compared to a centrally managed one.
At this point, we’ll take a short detour into the mooncake black market, a fascinating “currency” in China that has many similar properties to an obsolescing Bitcoin. The premise behind this market is that, while giving cash bribes are illegal, giving moon cake vouchers are not. Thus, someone looking to bribe someone can simply “gift” them a moon cake voucher, which is then sold on the black market to be converted back into cash.
The problem with mooncake vouchers, which must be converted into actual cakes at the Autumn Festival, is the same as the method for a decentralized transition from Bitcoin to a notional successor. At some point, the bottom falls out of the market as fewer and fewer buyers remain willing to purchase the quickly obsolescing cash.
Yang admits this all assumes Bitcoin has the staying power to make it to the point where SHA-256 is broken and needs replacing. Given how quickly MD5 was thoroughly defeated and practical attacks were demonstrated against SHA-1, it isn’t an unreasonable question to ponder even if the currency has a short lifespan.