the
people
running
the
companies. The losses this
time happened to customers
of MyBitcoin. The site, which
had been around for over a
year, provided a simple
online wallet and held the
private keys for all of its
customers, so the customers
didn’t have to worry about
losing keys.
In late July coins started
mysteriously
disappearing
from MyBitcoin wallets. The
founder of the site, a man
who called himself Tom
Williams, was unresponsive
and soon enough all the
wallets
were
frozen.
Customers realized that they
had no idea who Tom
Williams actually was. On the
forums, a group of users
formed a vigilante online
posse to try to hunt down
Williams, but after making
initial progress they lost the
trail. It quickly became clear
that Tom Williams, whoever
he was, had now disappeared
with everyone’s Bitcoins and
there was nothing anyone
could do to get them back. In
the
days
after
his
disappearance, the price of a
Bitcoin fell to $6.
THE SCANDALS AND steadily
declining price of Bitcoin
over the summer of 2011
drove away most of the
crowds that had been drawn
in when the price was
shooting up a few months
earlier. The future for Bitcoin,
a technology that relied on
maintaining the trust of its
users, seemed about as bleak
as it had ever been.
But
the
disappearing
crowds were a bit like a
receding tide. They exposed
what had been left behind and
it was not an altogether
disheartening
scene.
Yes,
there were fewer people, but
most
of
the
serious
programmers who had gotten
involved in Bitcoin earlier on
had stuck around.
For people like Gavin
Andresen and Jeff Garzik, the
problems at Mt. Gox and
MyBitcoin were evidence for
why a decentralized financial
network like Bitcoin was
needed. Both Mt. Gox and
MyBitcoin were centralized
companies and they failed
because of the amount of
power and money that had
been placed in the hands of
their operators. With Mt.
Gox, the hacker had needed
to get only one password to
access the entire system. And
because Mark kept tight
control over all the code for
Mt. Gox, his customers
couldn’t review the software
and chip in with suggestions
and improvements of the sort
that could have helped avoid
the
hack.
The
Bitcoin
protocol, on the other hand,
had been slowly improved
over time by all the people
looking at it, and had
continued
working
as
intended
throughout
the
various crises.
As the summer went on, it
was evident that Bitcoin had
not just kept its hold on the
experienced programmers—
all the excitement in June had
actually drawn the attention
of many new programmers,
who
understood
the
distinction
between
the
Bitcoin protocol and the
current
crop
of
Bitcoin
companies.
Mike Hearn, the British
engineer working in Google’s
Swiss offices, had created an
list
for
employees
interested
in
Bitcoin, and through the
summer of 2011 it had grown
to over a hundred people. On
the list, Google employees
conversed about the new
ideas and potential that were
contained within the Bitcoin
protocol.
One Google engineer in
the
company’s
Mountain
View headquarters, Charlie
Lee, sent Hearn a check for
$3,000 in exchange for a
batch of coins. At the same
time, Lee wrote to his family
with twelve bullet points with
reasons for giving it a look,
including:
• The whole system is
distributed and
decentralized. It’s a
peer to peer system. No
government can shut it
down even if Bitcoins
were outlawed.
• The system is self
sustaining. The miners
(i.e. p2p nodes) have
incentives to keep
mining, which helps
secure the whole
system. The more the
system is secure, the
more the users will trust
in Bitcoins and use
them. And the more
people use them, there’s
more incentives for the
miners.
• Everything is defined
by its source code and
it’s opened source.
Five or six other Google
employees began developing
new Bitcoin software to make
the network easier to access.
Mike and the other Googlers
were taking advantage of the
company’s policy of allowing
its employees to spend 20
percent of their working time
on non-Google experiments.
Mike used this time to
develop BitcoinJ, a codebase
that made it possible to work
Bitcoin into websites. This
was a significant step for the
virtual currency. Before this,
everyone who wanted to use
the system had to download
the Bitcoin software and a
copy of the entire blockchain.
That was, by now, a large
file, and its size made it all
but impossible to use Bitcoin
on a phone or anywhere other
than a home computer. Mike
was making it possible for
people to use Bitcoin without
actively participating in the
network,
something
that
would open it up to new
audiences with less technical
expertise.
The work caused some
disquiet
among
Mike’s
superiors at Google, who
feared that his work could
earn
unwanted
scrutiny if the government
decided it didn’t like Bitcoin.
But he fought to keep
working on it, and won. And
not all the higher-ups were so
cold to the idea.
The head of Google’s
payments division, Osama
Abedier, called Mike in to get
a tutorial on the technology.
Mike knew that Google had
long struggled with how to
build
its
own
digital
payments
system.
The
program that Abedier was
working on, known as Google
Wallet, was not creating a
new
payment
system—
instead it was looking to
provide a new means of using
existing credit cards and bank
accounts online. All the fees
and restrictions with credit
cards and bank accounts still
applied to Google Wallet.
Mike gave Abedier a
lesson on the basics of a
virtual currency that had no
central
authority
and
essentially
no
transaction
fees. When Mike finished his
presentation, Abedier told
him, “I would never admit it
outside this room, but this is
how
payments
probably
should work.”