the avanti group
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off the
ground, but his keynote address at the first World Wide Web conference had a
major impact on
Bitcoin itself is largely based on hashcash, a ‘proof of
work’ scheme proposed by Adam Back in the
1990′s as a way to stop spam. The idea behind hashcash was
to increase the cost of sending email to
the point that spam became uneconomic by requiring each sender
to perform a quantity of
computational make-work.
Before the rise of Bitcoin in 2009, the most successful
scheme of this kind was E-Gold, which operated
from 1996 until it was shut down by the Secret Service in
2007. E-Gold tapped into the libertarian
ideology of anonymous cash, but their technology fell far
short of the rhetoric. E-Gold wasn’t really
anonymous, and wasn’t even located outside US jurisdiction.
The company was registered in St. Nevis
and Kitts, the datacenter was located in Florida. The idea
that E-Gold somehow operated outside the
scope of US regulation was a spectacular example of
self-delusion by their management.
E-Gold wasn’t an anonymous currency as such, it was an
exchange that allowed customers to transfer
ownership of gold between them. Which was sufficient to
allow its use as a means of avoiding
government controls on money transfers. When the system was
shut down, some of the largest
complaints came from Iran, where citizens had been using it
to evade US sanctions, and were left
unable to access the money in their accounts.
The E-Gold episode had two curious aspects. One is that the
exchange was permitted to operate for so
long, when it was obvious that it was operating illegally.
In my work stopping Internet frauds, I would
meet Secret Service, FBI and Postal Inspectorate officers on
a regular basis, and the conversation would
almost always turn to the ongoing mystery of why the scheme
was allowed to keep running.,,The
authorities did not act until their hand was forced by the
collapse of ‘Solid Investment,’ a Ponzi scheme
that had made extensive use of E-Gold to conceal money
movements.
As far as the use of Bitcoin as an exchange medium is
concerned, the nominal price of the coin does
not matter except to the extent that the current price of
about $125 makes it impossible to use BitCoins
to buy a hamburger. But not to worry, the Bitcoiners insist,
we can make change! What they don’t
mention is that once change is added into the system, the
cryptographic proofs of anonymity that the
system purports to offer become faith based.
The Avanti Group
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