Net Worth

Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money BY Nathaniel Popper. Harper. Hardcover, 416 pages. $27.

The torrent of money currently pouring into tech start-ups is commonly likened to a digital-age gold rush, so it’s more than a little ironic that the closest thing to actual gold on the Internet did not come from Silicon Valley. Instead, the digital currency known as Bitcoin came from a cabal of programmers spread across the world who were motivated not by catered lunches and future riches but by an ideological interest in how computer science could reinvent money.

Since its creation a scant six years ago, Bitcoin has ricocheted its way into a small but insurgent place in the world of finance. And if there’s some forensic disagreement over just what Bitcoin is—a functioning online currency or a virtual asset—that’s nothing compared to the confusion over what it’s for. Politicians think it’s a conduit for the drug trade, libertarians think it’s a prescription for government-free financial hegemony, and venture capitalists see it as an opportunity to get very rich—in one currency or another.

New York Times reporter Nathaniel Popper’s Digital Gold traces Bitcoin from its invention by the elusive libertarian computer geek Satoshi Nakamoto in 2009 through the spring of 2014, a narrative that tightly captures the currency’s rise from a dream of digital-privacy activists to a scene where Bill Gates, Mr. Establishment himself, admits that it “may have been a mistake” for his foundation to stay away from the project. Writing a print book about a fast-moving technology is always a gamble—or a recipe for many future editions—but Digital Gold follows a satisfying arc and finds a natural resting point in the ready-for-prime-time moment when the original digital-currency movement became a hotly coveted property for Silicon Valley venture capitalists.

Digital Gold will be the definitive popular account of Bitcoin’s first act. Popper interviewed more than three hundred people for the book, including virtually every major figure in the saga. The tale begins with the hardy cyberlibertarians who contributed to Nakamoto’s original code, which created an artificial scarcity of Bitcoins by requiring computers to solve arbitrary and increasingly difficult algorithms in order to “mine” new coins for their owners. And it ends with venture-capital savants, hedge-fund managers, and multibillionaires like Gates coming into the Bitcoin fold.

Fortunately for Popper’s readers, this first act is wildly entertaining. There are murder-for-hire plots gone hilariously wrong—no online drug dealers were harmed in the making of Bitcoin—plus a cast of mercurial investors–cum–antigovernment visionaries that includes the Winklevoss twins, those unlovable losers from The Social Network.

Popper’s impressive range of access to Bitcoin players large and small allows him to write with a keen reportorial omniscience. We learn, for instance, exactly what happened when Bitcoin entrepreneur Charlie Shrem ended up back at Cameron Winklevoss’s apartment with a girl after a night at the club (nothing), as well as what the Winklevoss twins did for Shrem, in whom they had invested huge sums, when he was arrested for money laundering a year and a half later (also nothing). Popper isn’t inclined to take sides. At most, one senses he is a little amused by the social ineptitude of a lot of the Bitcoin enthusiasts, such as when, in 2011, a man named Bruce Wagner said he would “be making a HUGE HUGE HUGE announcement” at the first major Bitcoin conference. It turned out to be for a planned Bitcoin-themed cruise. “The audience sat silent, with more than a few arched eyebrows, as if to ask—‘Was that really it?’” Popper writes. “But Wagner did not pick up on the skepticism.”

Getting the many shaggy-dog stories of Bitcoin’s ascent to hang together is no mean feat, and Digital Gold is as strong a narrative achievement as a reporting one. Popper has a facility for drawing the personalities out of people who communicate almost exclusively with their keyboards. It’s exceedingly difficult to dramatize a bunch of men sitting around at home writing C++ and responding to long threads written by other crypto-currency true believers. There are no dorm rooms or garages where the founders met to write equations on the window and battle over the ownership of world-changing ideas. There are only the endless e-mail exchanges preserved in the amber of Internet archives.

Bitcoin’s initial corps of enthusiasts was made up mostly of tech-savvy libertarians who saw two great virtues in the way it was designed. The first was that the public ledger containing all the Bitcoins and the identities of their owners consisted of a long series of codes, usually thirty-four characters long. The only thing a person needs to claim the coins associated with one of these “public keys” is a corresponding “private key”—a sixty-four-character string of letters that is mathematically linked to the public key but could never be reverse engineered from it. This means that transactions within the Bitcoin system are entirely anonymous unless a person chooses to associate her real-world identity with a public key.

The second thing the antigovernment crowd liked was that, because the ledger could be made public without compromising privacy, it could live anywhere and be modified without the permission of any central authority. To prevent people from forging transactions, Nakamoto designed a clever system in which a majority of the computers on the network had to agree that a transaction was valid before it was added to the public ledger, known as the “blockchain.”

Enthusiasm is not a crime, but it can be a crutch. In the early days, the quasi-religious zeal of the Bitcoin pioneers was the only thing sustaining the project. But as it grew, and more and more people imagined mainstream applications for the digital currency—helping immigrants send money home cheaply, speeding up bank-to-bank transactions—some of Bitcoin’s advocates worried that the weapons-grade earnestness of the true believers would alienate potential converts. Jed McCaleb, the founder of the Bitcoin exchange known as Mt. Gox, “openly chastised fellow Bitcoiners for their emphasis on the ‘libertarian, going to replace all other currencies, take over the world stuff,’” Popper writes. All anyone really needed to know, McCaleb said, was that Bitcoin was “better than what people use now for online payments.” The rest “just turns people off.”

That challenge is the core of the Bitcoin story. It was inevitable that someone would use the currency to set up an online drug bazaar like Silk Road, which was shut down by federal authorities in 2013. But it was anything but inevitable for the CEO of JPMorgan Chase to start publicly talking about the technology, even if only to predict its demise. The most vibrant characters in Digital Gold are men—and they are all men—like the start-up king Wences Casares, whose dogged support for Bitcoin eventually won over a huge number of the Silicon Valley elite. As a native of Argentina, where runaway inflation has been known to cause the price of food to rise several times a day, Casares had a much more visceral feel than most for the promise of a currency beyond state control.

Bitcoin may be largely impervious to government meddling, but Popper also stresses that it’s no longer a digital pirate ship running on autopilot. The code that powers Bitcoin is open source and easy to find, which means that anyone can propose changes. (As of this writing, 3,954 changes have been submitted, and another 117 are pending.) But while anyone can comment on the virtues of an improvement or fix, only a small number of core developers can approve one. The health of the entire system relies on the quality of this code and the good stewardship of these men. Hostile authorities or nervous investors might be able to bring Bitcoin to its knees, but a flaw in the system’s security has the potential to wipe it out altogether.

So far, these developers have been up to the challenge. But while several of them are significant characters in Digital Gold, Popper generally leaves them behind in favor of the more colorful players who were launching exchanges and online wallets to facilitate transactions. This was a logical omission; no one wants to read about software geeks arguing over support for an “unauthenticated HTTP REST interface,” which is actually one of the more interesting threads in the code base. Given that so much of the debate over Bitcoin focuses on whether it can ever really function without someone being in charge, however, this is an awfully important group to leave aside. The half-dozen paragraphs devoted to the developers in the last chapter feel like an afterthought, or even a pity mention.

The other reason the developers go unattended to is that they contribute very little in the way of chaos to a system that is overflowing with near disasters. Until the summer of 2013, a tremendous amount of Bitcoin trading was still occurring on Mt. Gox, which by that time had passed from McCaleb to a man named Mark Karpelès, a grossly incompetent French expat living in Toyko. (“Despite having a Japanese wife and now a young son,” Popper notes, “he rarely talked about them with others and seemed much more interested in his cat Tibanne, about whom he posted loving items on Twitter and YouTube.”) That Bitcoin’s price emerged relatively unscathed from the crash of Mt. Gox was a small miracle and a testament to the project’s stability after four years spent largely on the fringe of the financial ecosystem.

Whether Bitcoin’s unlikely half-life is a sign of technology’s triumph or a diversion doomed to irrelevance is left for others to decide. The most Popper offers by way of a verdict—no spoiler, this—is the “possibility that the whole thing wasn’t, at least, entirely crazy.” On a different subject, this would be an unforgivably tepid conclusion. But few technologies have been as hyped, maligned, misrepresented, and reimagined as Bitcoin. As books on the subject flood the market, this one will stand as just the dispassionate account we needed to understand how, for once, a high-minded bunch of programmers made good on their pledge to change the world—if only, for now, at the margins.

Chris Wilson is an editor and computer programmer at Time magazine.