Hi, we’re Paul Vigna and Michael Casey, Wall Street Journal reporters and authors of the new book “The Age of Cryptocurrency,” about how bitcoin and digital currencies are poised to overturn the world of finance. ( Buy with old money here Buy with bitcoin here!

In our day jobs, we cover the goings on in global markets and economics. But over the past year, on nights, weekends and holidays, we explored the rabbit hole that is cryptocurrencies, the tumultuous, sometimes confusing, but always surprising, wild world of bitcoin.

Some pre-reading: An essay on the digital currency revolution, published in last weekend’s Journal: http://www.wsj.com/articles/the-revolutionary-power-of-digital-currency-1422035061

Ask us anything!


Comments: 217 • Responses: 22  • Date: 

jokull21 karma

There is a lot of startups, investment and innovation in various cryptocurrency and blockchain technologies. What is the low hanging fruit and who’s playing the long game against regulatory institutions?

Mikejcasey23 karma

It seems that low-hanging fruit is in the wallet and exchange businesses, because these are the basis infrastructure of a functioning digital currency ecosystem. You need those tools to make it function. But Holy Grail for now seems to be in developing apps that make international remittances feasible. The savings for immigrants and their back-home families from digital currency transfers could be significant. Other cool things being built on the blockchain: copyright certification tools, database management, decentralized memory sharing, decentralized Uber-like ride-sharing, crypto stock exchanges... a long list. All these in some way are challenging the various institutions that sit in the middle of global commerce.

sisterbliss16 karma

What impact do you believe Bitcoin will have on economic growth?

I'm of the opinion that moving and settling money at a much quicker rate could be quite profound.

Mikejcasey30 karma

Huge potential. Starting point: $80 trillion global economy. If you just save 3% in fees on that, you start with $2.4 trillion in savings. That's about 16 times the total global development aid budget alone. But of course, the savings on remittances and the many hidden fees are even bigger. You do away with cash, you save on massive security costs. If you remove escrow agents, trustees, stock exchanges, lawyers and other intermediaries who simply play gatekeeper roles in global finance, you get even bigger savings. And what happens if we integrate 2.5 billion "unbanked" into the global economy? You think the integration of China into that economy was big. This could be even bigger. It could spur a whole new wave of decentralization in supply chains. And to your straightforward but vital point: speed is critical. As the old adage says, time is money. If we can clear and settle money without two-day time lags, that frees up trillions of dollars in capital that can be re-deployed. The global economic implications are indeed profound. Hence the subtitle to our book.

Mikejcasey10 karma

OK. That's it for now, folks. We have to get back to our day jobs. Thanks for all your carefully thought out questions. It was fun. Goodbye!

Hollywood50506 karma

What exactly give Bitcoins/Cryptocurrencies there value?

Mikejcasey24 karma

It's an understandably common question. I like to take a few steps backward on it. First to say that ALL currencies ultimately derive their value from a shared community view that the currency in question represents a token of value that all agree on and that it is widely accepted. Bitcoin has some ways to go in that regard. But it is no different from other currencies in that it has no intrinsic value -- the idea of a currency's intrinsic (or commodity) value, even for gold, is a myth in our mind. But the next point is what are the kinds of things that lead communities to come to such conclusions about a currency. And that comes down to trust. In the case of gold-back, it's that people trusted that the gold behind it would retain its value because that commodity happened to have some good qualities as a currency: durability, divisibility, fungibility, transportability, et. In the case of fiat money, the trust lay in the idea that the government would stand behind it. And while that's in itself a flimsy notion -- what can a government back a fiat currency with other than currency itself? - it is still a worthwhile basis for trust because a trusted functioning government is one that successfully collects taxes. And it can promise to honor taxes in its currency. So what about bitcoin? Here, the trust (and therefore the value) comes down to math. You trust that that mathematical algorithm behind it is irrefutable, more trustworthy than a human. And it's also secure: the bitcoin algroithm, decentralized and distributed as it is, can't be hacked, and there is so much money invested in the mining hardware that runs that system that's difficult anyone to take it over. (That's akin to the infrastructure that a government brings to the table, though much less.) Finally, there's the fact that bitcoin is simpy incredibly useful. Far more effectively than dollars and gold you can send it anywhere, cheaply, without a fee-taking middleman. It makes digital commerce so much more effective and efficient than non-digital currencies. All of that goes into the mix that gives bitcoin its value.

phiber_optic0n1 karma

it can't be hacked

What about a 51% attack? (Not trolling, just want to know your thoughts on this)

I think a 51% attack is a big risk in 2 scenarios:

1) The price of BTC goes stays below the cost (electricity, rent, etc) of mining BTC, this causing miners to start consolidating and eventually a cartel of miners has 51% of the mining power and thus controls the price of BTC

2) BTC becomes the preferred way to terrorists and anti-government activists to fund their activities/exchange money and the CIA (with it's unlimited fiat) drives the price of bitcoin down to bankrupt these organizations

Mikejcasey7 karma

Those are legitimate concerns. And I address acknowledged that risk in answer to another question. But I think there are very powerful incentives and barriers to entry that make it very hard for anyone to either a) launch a 51% attack or b) want to do so and destroy their own value holdings. But it's a concern and it's one reason why I think innovation needs to continue in developing a superior algorithm that discourages concentration of ownership in the mining network.

kirby2k076 karma

Will bitcoin take over the world?

Mikejcasey19 karma

It depends on what you define as the world. I think bitcoin, or at least some decent cryptocurrency clone, will take over the world of financial payments and value exchanges. It will work in the background, just as the Internet does. Will it take over the dollar? That's more of an open question.

Texansfootball874 karma

For this to actually come to fruition, what would you guess the market cap would need to be, as I feel $3-4B capitulation is way too low

Mikejcasey4 karma

I really don't know. You're right in that the market cap needs to be much higher eventually. That will give it more security and guarantee its independence, but as for a precise number, it's hard to say. Also, though, it's chicken and egg --and circular. The wider the adoption of bitcoin, the more its overall value rises, the more secure and viable it becomes for further adoption.

Mikejcasey4 karma

I have to jump off for an interview with Irish radio right now, but Paul will stick with you and I'll jump back on later.

cdelargy3 karma

Bitcoin's achilles for consumers may be its price volatility. What decentralized technologies for addressing price volatility did you find in your research and which seem to have promise to improve on the technological innovations in bitcoin?

Mikejcasey6 karma

There are all sorts of ways to attack this problem. One is "simply" to build out more robust, better secured and regulated trading infrastructure, so that institutions and other investor enter the market and add liquidity. Exchanges, hedging instruments, ETFs, etc. All these are coming. A deeper, more stable market will allow the price to cool down. Then there are various asset tokens built on the blockchain that literally peg an IOU to the dollar or some other more stable asset such as gold. These are worthless unless the issuer is fully backed by a reserve of those assets. But some are offering that and the cool thing is the the public ledger technology behind the Blockchain allows people to audit those reserves in real time.

hoagiesaredelicious3 karma

Do you think that a major government will ever adopt their own forms of crypto-currency?

Mikejcasey4 karma

There already some looking into it. Definitely a possibility. Saves them money. Is easier to track. Superior economic structure.

Mikejcasey3 karma

I'm back!

saurabk12 karma

Mining bitcoin takes significant resources such as electricity to run the hardware that does the mining and to run the cooling systems required to keep the system running. Do you think this mining technique is scalable ? I get it that it is manageable at the $2 ish Billion market cap that BC is today but you are talking of a $80 trillion economy.

Mikejcasey7 karma

It's a very good question. Mining represents one the biggest innovation challenges for the cryptocurrency community. Many believe that it is too industrialized, too power-dependent, too concentrated and that the combination of mining pools and powerful mining farms might (hypothetically) pose the risk of what's known as a 51% attack. I do think this can be solved, however. They will need to adjust the algorithm behind it to disincentivize the competitive arms race that led to this buildup. The challenge is how do you get the miners, whose bread is buttered on the side of the existing system, to accept a change. And you simply need them to do so for a new version of the core protocol to be adopted. But some very, very smart people are working on solutions. One is to develop altcoin alternatives such as Ethereum from scratch with a different mining incentive system. Another is to develop this in testing environment -- which is what the Sidechains project could achieve -- and then shift the bitcoin mining system from that basis.

rstillwell2 karma

Do you view the potential outcomes for bitcoin as only binary; massive success or complete failure only?

paulvigna6 karma

No! We've actually spent a lot of time talking about this ourselves, and we've gone back and forth about the future.

I do think eventually we will have a world of multiple digital currencies. I think governments and individuals will adopt the technology and adapt it to suit their needs. There's zero chance that the U.S. government would let bitcoin take over the world when they could just digitize the dollar themselves. So I think we end up in a world where digital currencies go mainstream.

So, it's not bitcoin or the dollar. The dollar will continue to exist, and so will bitcoin, and both will find their own groups of users. What I think is most interesting is that digital currencies differ from fiat in that they easily jump national borders. What this does to the entire concept of sovereignty is going to be fascinating.

Mikejcasey5 karma

Of course, I agree with Paul on this notion of bitcoin joining other digital currencies in a multi-crypto world. But on the broader question of success or failure, that world itself could indeed be defined in binary terms. The integration of blockchain technology, whatever form it takes in terms of currnency arrangements, is kind of all or nothing. It's why bitcoin lead developer Gavin Andresen himself describes bitcoin as a "grand experiment" whose outcome hasn't yet been decided. And it's one reason why the price is so volatile -- the range of potential outcomes between blinding, take-over-the-world success and outright failure is so wide that's hard for investors to figure out what your risk-adjusted cash flow assumptions should be.

vik_1232 karma

All I hear about is how XYZ had millions of dollars worth bitcoins stolen from them. Are bitcoins safe?

paulvigna7 karma

Bitcoin services are as vulnerable to hackers as regular businesses, the Home Depot, Targets, and JP Morgans of the world. In the early days, an exchange like Mt. Gox had extremely poor security. So hacks were more common and more successful.

Newer services make security a big deal. When BitStamp got hacked earlier this month, it was notable that the accounts hacked were smaller, online accounts for day-to-day business. The real customer money was being held in offline accounts. Coinbase has the same kind of "vault," and you're going to see more and more security features.

Bitcoin itself, the software, the protocol, has proven incredibly resistant to hacking. A guy named Dan Kaminsky, a very well known hacker (I'm sure some of you out there know him) made it his pet project in 2011 to hack bitcoin - to prove it could be done. He gave up after four months.

So, the issue of hacking bitcoins is no different than the issue of hacking Home Depot; hackers are attacking services. And if you fall for a phishing scam (like somebody <ahem!> I know did), well, that's on you (or me, as the case may be).

Mikejcasey4 karma

Erik Holm, a colleague and insightful editor/journalist, offered a useful real-world comparison to understand the difference between Mt. Gox's problems and those of bitcoin itself. He said, "to blame bitcoin for Mt. Gox's collapse is akin to blaming gold for a robbery at Fort Knox." Call it the Knox/Gox analogy.

dkpl2 karma


Mikejcasey2 karma

Who knows? It needs to me more than just another merchant accepting it -- we already have Microsoft accepting it -- but in having some institution actually use it for their own financial management: a big U.S. bank, for example. Not something on the immediate horizon. But if and when that happens... it will matter.

mrbonner2 karma

Why is bitcoin fluctuating a lot? Is it pure speculation?

Mikejcasey4 karma

Yes, there's a lot of speculation, and not all of it is healthy. We still have very underdeveloped, underregulated exchanges. And the advent of speculative trading tools and margin trading has allowed big players, particularly in China, to manipulate the price and take advantage of arbitrage opportunities across the world. More stable, robust, regulated and institutional investor-friendly exchanges and investment vehicles will go some way to resolving this problem.

wotton1 karma

Would you say you're transhumanists?

paulvigna2 karma

I don't know if I'm a transhumanist, but I am a Trekkie.

Mikejcasey3 karma

I need to jump here and also highlight Paul's other line of business. He is WSJ's chief chronicler of the Walking Dead. So, just so you know: he's into zombies too.

Mikejcasey2 karma

I've never been one to want to label myself -- a classic journalist's trait. But I do think technology has always been a driver of progress and that the human condition itself has improved as a result of it. Through history, technology has led to better and more sophisticated societies -- money itself is one of those great innovations to achieve this. Those democratized, integrated societies have resulted in less violence, longer life expectancy, healthier people, greater prosperity. Decentralized technologies like cryptocurrencies have the capacity to continue that. Does that make me a transhumanist? I have no idea.

Mikeydoes1 karma

Are Bitcoins a good short term/long term investment?

Is there any digital currencies that are or will give Bitcoin a run for their money?

Mikejcasey1 karma

At this stage, bitcoin is far and away the biggest, most widely held and most valuable cryptocurrency. But relative to the dollar, euro or yen it is tiny (when measured in transactions). So one could imagine, perhaps, a big, monied interest creating an alternative - a government, perhaps, or a consortium of banks - to compete with it. Would such an offering win people's trust, however? Who knows. The other question, though, is whether the blockchain technology of a different "altcoin" could challenge bitcoin in building all the payment infrastructure and non-currency applications for transferring value that many investors foresee. There are projects such as Ethereum that are interesting in that regard. And, of course, Ripple Labs' payment system -- which is effectively a cryptocurrency system for banks and other institutions to use to move money and value around the world among themselves -- is making good headway in signing on partners. In that sense, Ripple is a decent competitor to bitcoin for that internal payment infrastructure role.

Curios19801 karma

Is Kraken behind in the US and what are its plans and prospects?

paulvigna2 karma

I haven't talked to Jesse Powell in a while, not since their price quotes got put up on Bloomberg terminals. I'm not really sure what they're up to these days.

Mikejcasey3 karma

I have. Kraken is actively involved in resolving the Mt. Gox problem and investing in developing its exchange for euros.

LogicalParadox_1 karma

Hey! Thanks for doing this, i'm very much interested in a career in economics, how would you recommend starting in the field, and how do you think the rise of cryptocurencies will affect those starting out?

Mikejcasey1 karma

Go to school. Study economics. ... Oh, and read The Wall Street Journal! As for cryptocurrencies, all I'll say is that there's a huge opportunity for a field of crypto-economics to develop. Intrigued economist should love this stuff, with its ready-made trove of data to collate and study.

bigcoinme1 karma

Why did you decided to not sell the e-book version of your book on Overstock, but only on Amazon ?

Mikejcasey5 karma

Sorry. That's a question for Overstock and for the publishers. But the short answer, I imagine, is that Overstock -- unlike Amazon's Kindle or Barnes and Noble's Nook format -- doesn't (yet?) have an e-book platform. A pity.. (We need to get Amazon to accept bitcoin, of course. That's the real solution.)