A new documentary on Bitcoin hits theaters in New York, Los Angeles, and Cleveland today.
The Rise and Rise of Bitcoin debuted at the Tribeca film festival and has generated a decent amount of buzz. A lot of that has to do with being in the right place at the right time.
The documentary follows Daniel Mross, a self proclaimed libertarian and computer programmer in Pittsburgh. Mross got involved with Bitcoin in 2011, a few years after the crypto-currency got started, and quickly built his own Bitcoin mining tools, garnering him a bounty of Bitcoin. After his initial investment, Bitcoin started to quickly take off. Mross’s brother suggested they document the phenomenon as it was happening.
What is so compelling about the film is that it’s the first comprehensive look at Bitcoin’s short history. Starting with a little backstory on Bitcoin’s 2008 emergence via the mysterious Satoshi Nakamoto, Mross introduces us to early Bitcoin celebrities, walks us through the crash of several Bitcoin exchanges (along with the crash of the currency itself), and then delivers us to the birth of new, more financially responsible, crypto-currency based companies.
Mross starts by explaining Bitcoin’s mission to eliminate the third party in financial transactions and empower purely peer-to-peer money sharing. The idea was that such a system would facilitate faster, cheaper money exchanges and sales.
As a quick explainer: You “mine” Bitcoin by solving complex mathematical transactions in a process. As more Bitcoin are released into circulation by these mathematical efforts, they become more difficult to mine — and there’s a finite number of possible Bitcoin.
“Now the incentive for Bitcoin miners is to earn Bitcoin, so the Bitcoin have to have a value,” Nicholas Mross told me in an interview. This is why Bitcoin is both a currency and a payment method.
To make fluid, bankless transactions, Nakamoto — the inventor of Bitcoin — developed a public ledger to prevent “double payment,” blocking people from using the same piece of currency simultaneously for two different transactions. Traditionally, banks keep client records private as a security measure. In contrast, the Bitcoin ledger transactions are inherently public. To achieve privacy, Nakamoto created anonymized Bitcoin address codes, so the identity and location of the transactor are not immediately known.
Because of this anonymity component, the currency has developed something of a bad reputation for facilitating illegal transactions for everything from hitmen to illicit drugs on Instagram.
One of the main Internet hubs for this kind of activity is the Silk Road. The average person may not be familiar with the Silk Road, though it has gotten a lot of press in the last year, thanks to the arrest of Silk Road creator “Dread Pirate Roberts,” also known as Ross William Ulbricht.
To illustrate and demystify the dark web, Mross hands his audience over to a shadowy Silk Road drug dealer (you can’t see any identifying features). The dealer walks the audience through the process of launching TOR (an anonymous browsing tool) and introduces us to the Silk Road interface and its cache of weed varieties.
Throughout the film we meet many of the early Bitcoin players, like Gavin Andreesen, chief scientist at the Bitcoin Foundation; Yifu Guo, who developed the first ASIC Bitcoin mining operation; and Charlie Shrem, founder of Bitcoin transfer service Bitinstant. They all talk about the promise of the Bitcoin ecosystem, both as an alternative to traditional banking and as a currency with an exciting amount of value.
Mross then takes us through Bitcoin’s epic crash.
In October 2013, the FBI shut down Silk Road. In February of 2014, Mt Gox, the largest Bitcoin exchange, stopped trading. Days later, the company filed for bankruptcy after losing $473 million worth of Bitcoin ($116 million of which were recovered later). Bitcoin’s value started to plummet.
Following the Mt. Gox disaster, Shrem was indicted on charges of aiding in a Silk Road money laundering scheme (Shrem pled guilty to lesser charges in September). Even Mross felt the effects. Suddenly his Bitcoin weren’t worth anything, the mining equipment he’d ordered wouldn’t come through, and his opportunity seemed lost.
“To the mainstream consumer, it meant Bitcoin is insecure, Bitcoin is over,” said Jeremy Bonney, VP of Product at CoinDesk, a Bitcoin news and analysis hub, who I interviewed for this story.
But Bitcoin came back. Mross shows us the beginning of a whole new Bitcoin ecosystem. The movie ends with an optimistic look into the future of Bitcoin.
It’s true that Bitcoin is looking up. Recently, companies ranging from Dell to Overstock have started to accept the currency. In April, venture capitalists had invested $72 million in Bitcoin companies, according to CoinDesk. Then in July, Bitcoin vault Xapo landed another $20 million in funding from Greycroft and others, bringing investment in the Bitcoin ecosystem closer to $100 million.
Part of the reason for that investment was that Bitcoin companies are increasingly focused on proving Bitcoin can be a legitimate currency that plays by the rules. Companies like Xapo and BitGo show that Bitcoin can be more secure than Mt. Gox was. And exchanges like Coinsetter and Coinbase have put efforts into following financial regulations already in place for financial exchanges in order to eventually obtain licensing (a focal point likely precipitated by Bitcoin’s crash).
Today, nearly 6 million people have downloaded Bitcoin wallets from Coinbase, Multibit, and BlockChain. That’s the best measure of how many people have adopted the currency, according to CoinDesk’s Bonney.
Even so, that’s a niche group compared to other currencies. And because of Bitcoin’s inherent value, a lot of people are hoarding it.
”While companies are increasingly accepting Bitcoin, few transactions are actually made using it,” Alec Liu, head of content at Ripple Labs, a cryptocurrency payment network, told me in an interview.
Payment network oversight
Though The Rise and Rise of Bitcoin acts as an excellent primer and general historical reference for understanding the world of Bitcoin, it doesn’t talk about one of the biggest promises of the currency: its function as a payment network.
So much of the world’s attention is drawn to Bitcoin as a currency. But it may be as a payment network, not as a currency, that Bitcoin finds its most lasting impact.
Bitcoin can facilitate fast transactions. You can send Bitcoin to another country, for example, a lot faster than you can cash. With Bitcoin as a vehicle, money can be exchanged instantaneously, converting cash to Bitcoin and then sending it digitally. Sending cash via a money transfer or through a bank can take days. Also, transaction fees are much higher when banks (or PayPal) are involved.
And though Bitcoin is used that way, the media mostly discusses its use as a highly valued and very volatile currency. That perception may be a barrier for Bitcoin’s development, especially as regulators move to bring it under control.
But it’s an inherent problem with a decentralized currency, Mross acknowledged to me. “Bitcoin has no marketing department,” he said.
“I think that’s one of the big challenges now as regulators are starting to look at it. A regulator who’s treating it as a currency is going to look at it completely differently than a regulator who’s looking at it as a payment token or an asset,” said Mross.
In the meantime, other companies are developing systems that mimic Bitcoin’s use as a payment network. Ripple Labs, which uses a digital asset to transfer funds internationally, just began working with two banks in the U.S.
Although Bitcoin has been around longer than Ripple Labs and has had success convincing companies like PayPal to accept it as a form of currency, it hasn’t made any headway with banks. As a decentralized currency and asset, Bitcoin doesn’t have anyone to make these kinds of inroads on its behalf.
That doesn’t mean it’s doomed to failure. Bitcoin already has enough of a user base to stay relevant, especially within a certain population. People who want an online cash equivalent, a currency that’s nearly anonymous and untraceable, will continue to use Bitcoin.
“You don’t need an account to use cash, and you don’t need an account to use Bitcoin, and that wasn’t possible before Bitcoin,” Mross reminded me. This one use case may help the currency to grow in countries with poor infrastructure too.
But Bitcoin’s lack of an overseer or decision-making authority may mean that the digital asset won’t realize its full intended potential for a very long time.
The Rise and Rise of Bitcoin debuts today at the Quad in New York, the Los Angeles Arena in Los Angeles, and Cedar Lee in Cleveland. Its is also available for pre-order on iTunes.
*This article has been updated. An earlier version of this story referred to Daniel by his brother’s name, Nicholas. An earlier version also incorrectly indicated that Charlie Shrem pled guilty to the same charges he was indicted on. He pled guilty to aiding and abetting an unlicensed money transmitting business.