A) What is cryptocurrency? Why is BTC the most popular one?
A cryptocurrency is a purely digital construct that is designed
to be an asset that can function like regular currencies, but
without government involvement. It is based on cryptographic
techniques developed over the last half a century, which make
it possible to ensure only authorized transactions take place,
and there is no double-spending (where a person makes two
purchases with the same money).
Bitcoin (BTC) appears to be the most popular cryptocurrency
only because it was the first one. There are many others that
are just as good, and in some cases better in certain respects.
B) Why was it created?
We don’t know for certain, since we don’t know who created BTC.
That person, or group, used the pseudonym Satoshi Nakamoto, and
the original document implied that the main motivation for
creating BTC was to have a currency that avoided the fiat currencies provided by various governments, which appeared to
pose serious risks in the wake of the Global Financial Crisis
C) Who does it benefit?
Well, all the people involved in the cryptocurrency business. The success of BTC has given credibility to all sorts of
other cryptocurrencies and related businesses, which leads to
a big flow of money into the area, providing employment to the
technologists, promoters, PR people, and the like. And of course
all the people who bought or mined BTC early are gaining.
In terms of actually providing real currency services, there is
very little legitimate business being conducted with BTC (or other
cryptocurrencies). What is taking place is the primarily illegal
drug trade, ransomware, and similar endeavours.
D) Do you expect governments to regulate Bitcoin and other cryptocurrencies? If yes, how? What further regulations do you expect?
They already do, to various extents. For example, in the US, taxes
are assessed on gains on BTC holdings. And there are more and more
restrictions on transfers between cryptocurrency exchanges and ordinary payment systems.
If cryptocurrencies do grow, I am sure there will be many more
rules and regulations.
Expect requirements to verify identity of people using exchanges, reporting of large transactions.
E) In its relatively short history, Bitcoin has had spectacular booms and busts and is very volatile. Do you expect this trend to continue? Any historical examples?
Absolutely. One of the arguments that cryptocurrency proponents
make in trying to refute the claims of sceptics (such as myself)
is that gold has many attributes of cryptocurrencies, yet it
maintains its value. Yet if we look at the price of gold since
ordinary currencies have been decoupled from it, it has been
quite volatile. I expect that to be true even more with cryptocurrencies since there you have much greater uncertainties (such
as the potential for collusion, fraud, and replacement by another).
cryptocurrency, for example).
F) What are your thoughts on companies like Square and Tesla buying Bitcoin as part of their treasury?
A folly that can only be undertaken at the height of a bubble.
About Dr Andrew Odlyzko:
Andrew Odlyzko is a Professor in the School of Mathematics at the University of Minnesota. He is engaged in a variety of projects, from mathematics to security and Internet traffic monitoring. His main task currently is to write a book that compares the Internet bubble to the British Railway Mania of the 1840s, and explores the implications for future of technology diffusion.
Between 2001 and 2008, he also was at various times the founding director of the interdisciplinary Digital Technology Center, Interim Director of the Minnesota Supercomputing Institute, Assistant Vice President for Research, and held an ADC Professorship, all at the University of Minnesota. Before moving to Minneapolis in 2001, he devoted 26 years to research and research management at Bell Telephone Laboratories, AT&T Bell Labs, and AT&T Labs, as that organization evolved and changed its name.
He has written over 150 technical papers in computational complexity, cryptography, number theory, combinatorics, coding theory, analysis, probability theory, and related fields, and has three patents. He has an honorary doctorate from Univ. Marne la Vallee and serves on editorial boards of over 20 technical journals, as well as on several advisory and supervisory bodies.
He has managed projects in diverse areas, such as security, formal verification methods, parallel and distributed computation, and auction technology. In recent years he has also been working on electronic publishing, electronic commerce, and economics of data networks, and is the author of such widely cited papers as “Tragic loss or good riddance: The impending demise of traditional scholarly journals,” “The bumpy road of electronic commerce,” “Paris Metro Pricing for the Internet,” “Content is not king,” and “The history of communications and its implications for the Internet.” He may be known best for an early debunking of the myth of Internet traffic doubling every three or four months and for demonstrating that connectivity has traditionally mattered much more for society than content.
You can read his recent papers as well as further information can be found on [his home page].