Friday, 7 March 2014

Mark Karpeles & Gonzague Gay-Bouchery, bitcoin "entrepreneurs"

Gay-Bouchery and Karpeles

In early 2013, the “virtual currency” or “crypto commodity” bitcoin was starting to attract a lot of attention around the world. Realizing that Mt. Gox, the world’s largest bitcoin exchange, was located here in Tokyo, I decided that it might be a good idea to do an article on it. Around the same time, Mark Devlin, the founder of Metropolis, was in Tokyo trying to start a new magazine called M2. He managed to involve me in the project. Following the launch of what turned out to be the first and last issue, we decided to do a story on bitcoin for a second issue that never appeared. Accordingly, sometime in April, we went along to Mt.Gox’s office in Shibuya to interview the company CEO Mark Karpeles and his right-hand man Gonzague Gay-Bouchery, now notorious around the world following the collapse of Mt.Gox. This is the first 15 minutes or so of what turned out to a long, complex, and baffling interview about something that was there one minute and gone the next.

CBL: I thought that as a starting point we kinda need to convey to the readers what Bitcoin is, how it works, in a way that isn’t going to confuse them

MK: That’s probably going to be the most difficult part.

CBL: Yes. So, how would you explain Bitcoin to the layman?

MK: The base of Bitcoin is to be a kind of currency that is not controlled by one individual but all the people who actually use bitcoin. Uh, so the whole idea that anyone can, uh, by installing software or by registering on our website, send and receive bitcoins because it’s not controlled by anyone. There is no one... Well, actually, there are actually people at the network but there is no requirement to pay them a fee so unlike bond transfers or credit cards and so on, which comes with a fee, there is almost no fees with bitcoins.

CBL: Almost no fees, but there is a fee?

MK: Yes. If you want your transactions to be handled in priority you can set a small fee and people who actually make the network work by doing what we call mining will pick up this function faster than the one sheds no fees.

GGB: One thing, uh, it is not a currency per se. I mean its very important that we clear see that up, but the Japanese FSA explained that…

MK: Legally that is not really for the layman.

GGB: Yeh, I know, but we don’t want to confuse people that it is not a currency like dollars or anything else, because people, when you say currency...

MK: It’s a commodity that you can easily trade over the internet.

CBL: So, it’s a virtual currency...

MD: It’s described as a virtual currency, but you prefer to call it more of a commodity

MK: It’s described as a virtual currency but under the laws of most countries it’s not recognized as a virtual currency because it doesn’t fit exactly within the definition in the law of legal, uh, virtual currency. Basically, a virtual currency has an issuer, bitcoin has no issuer, that’s the main difference that makes everything different.

GGB: Sorry for [indecipherable] but it is very important that we clear this because we don’t want people to misunderstand or misinterpret bitcoin, and don’t say bitcoin dollar the same – not! Very different.

MK: Even if we could and we can purchase things with it that is still different.

MD: So, basically you’re converting it into something... As you say, it’s a rather like commodity or something like that, and then you can use that, transfer that value and that commodity to something else.

CBL: Some people would, em, compare it to currencies that can be used in computer games or online gambling or things like that, so how does it differ from... So, if you have some kind of computer game where you can earn money playing the game and then you can use the money in the game, and then sometimes that kind of game money can be monetized and then you can sell it to other game players. Is it similar to that or is it quite different.

MK: Close but it’s not the same thing at the same time. Uh, game currency can only be used within the game, and even if you can monetize it outside of the game, usually it’s not usually not allowed by the game developer and this kind of virtual currency is an “in game” currency so you have the game first and the currency inside. Here you have bitcoin, and of course actually there are some games using bitcoins as a currency inside the game, uh, but the main concept behind bitcoin is not to be part of a game. It’s kind of different, but as the concept itself it’s kind of close.

CBL: What about the actual existing financial uses for bitcoin at the moment. What... With bitcoin, what can you actually buy at the moment?

MK: Well, you can mostly buy online services, so this include domain names, hosting, eh, VPN [Virtual Private Network], lots of other things. Um, art.

GGB: There’s also the online store...

MK: There is a hardware store, which, where you can buy computer parts [indecipherable] lots of other things, bitcoin. Lots of place to spend your bitcoin - a list of all those places actually on the bitcoin wiki.

CBL: Uhu. So...

GGB: So, as for today – sorry – it’s very orientated tech because I mean...

MK: The early adopters of bitcoin are tech people so you [indecipherable] actually you can also buy gold and get it delivered to your home.

CBL: Oh yeh? It is a reality now.

GGB: The purchasing action... Not the purchasing action but the stores are, yeh, I mean it’s starting. Bitcoin is very very new. There are a lot of products you can purchase if you’re a geek like we are, somehow, if you are. But for the average person maybe it is still limited.

MK: At some point there was a restaurant in New York where you could pay with bitcoin. I don’t know what became of this.

GGB: There are some bars in the US that accept bitcoin in the US, but this is very it is very spotty y’know...

MD: Do you think you see something like, em, a kind of Paypal system for bitcoin? Is that possible?

GGB: In the future...

MK: There are already quite a few ones [indecipherable]

MD: So you...So that an intermediary company can make a, a payment gateway essentially.

MK: To make it easy for anyone to accept bitcoins.

MD: Fine, OK, but that’s not really what you’re doing here. You...

MK: Well, actually we also do that in order to improve the adoption of bitcoin. [indecipherable] working various other points. The main unsure we had is by doing this how far are we going outside the lines of what we can do with what are being licensed. It turns out that in the end bitcoin being not a currency or a security or anything under financial laws, we be able to do that with an issue, so we’re gong... We already have the software existing and we already have some uses but we’ll be able to cope with that too... will be able to do that without issue... We already have the software existing and we have some users but we’ll be able with that to be able to publish even more.

GGB: Bitcoin is so different from everything what we are used to know so it’s very difficult to... We can’t... It almost look like something, almost like something else but it is not really this....

MD: I think some of the issue at the moment seems to be trying to define what it is, what bitcoin itself is, and how it can be used, right, because it’s so early in the market

GGB: Yeh, and only time will tell what people are doing with it, and of course we can help them and give them some guide to, to do something with it, but it’s ultimately the customer at the end or the user is the customer or the user who will…

MK: ...define what bitcioin is.

MD: Yeh, so at the moment, sorry...

CBL: Oh yeh, sure, go ahead.

MD: At the moment it seems that, em, the value... People have become more widely aware of bitcoin of course in the past, eh, eight weeks, right, really. Before then it seems to have been a small group of geeks really, not even a big group of geeks – would you agree with that?

MK: I think the first time I really started studying [garbled] bicoin, there was maximum of five or six hundred people touching bitcoin when I arrived, which was in 2010, middle of the year.

MD: And so that was the number of transactions that were happening on the exchange? Is that what you mean, sorry?

GGB: The number of users.

MK: The number of different people using bitcoin.

CBL: Is that in the world or...?

MK: In the world.

CBL: In the world, about five hundred, three years ago, uhu, and now that’s obviously grown to a much larger number.

MK: Just to compare, in March we had more than 60,000 new customers on the exchange.

CBL: 60,000 in March, uhu.

GGB: When usually for example for last year we had an average of 10,000 new customer [per] month, but January, February, march, we’ve seen double, triple, sextuple. Is that correct pronunciation? Uh, so we are seeing a tremendous growth and an awareness around bitcoin that make people very interested in it. Now, what, Mark, we are reaching 400,000 customers.

MK: Yes.

GGB: Within only Mt. Gox, but there is many other exchange, many people outside Mt. Gox, so...

MD: Go ahead, speak.

CBL: Oh yeh, yeh, just, just to sort of clear up the question of what bitcoin is now, em, y’know, to sort of, eh, get on top of this question we have to think about how, how bitcoin is, uh, created, how, how it can be expanded, how it can be... Uh, can it be... can people forge it? Uh, can people break into the system in any way, because all these security issues are the essence of bit coin.

GGB: We have the expert here, he will tell you everything so be careful, brace yourself.

[general laughter]

MK: Bitcoin in itself is really a simple system. Basically there are blocks which [record] all the functions which happened so far and when someone wants to spend bitcoins, uh, the software will create a transaction which says that the bitcoin I received at that time are being sent to this person. So, it’s quite straightforward, and it use encryption [garbled] which is known as ECDSA, uh, which is currently one of the best, uh... Actually most people currently still use LSA but most funders are considering switching to ECDSA.

CBL: So, the bitcoin you’re referring to already exist. Somebody has it, but ha... You also mentioned the mining process, which, y’know, is a very colourful term...

MK: The mining process is actually the process of, uh, computing really specific value which requires a lot of work...

CBL: By the computer or the person?

MK: By the computer.

GGB: Well, he’s mining on his computer, so it’s the same thing.

MK: Basically this system is good because the network can define what the difficulty should be and by defining a different difficulty it will change the number of blocks that can be generated at a given time bcs if you increase the difficulty three is less chances that people will manage to get the right value and it’s… By computation [garbled] the same thing in some ways. If you increase twice the difficulty, it will take twice as long before someone manage to achieve the..

CBL: So the difficulty is always changing?

MK: The difficulty is changing once every two weeks on average based on the network performance during the past two weeks, so if...

CBL: What determines the change in the difficulty level?

MK: It’s an algorithm which basically during the past two weeks, uh, we can look at how fast transactions are generated. If its faster than one block every ten minutes we need to increase the difficulty. If it’s slower we need to decrease the difficulty.

CBL: That keeps the rarity value of the bitcoin?

MK: That ensures that bitcoin cannot be generated faster than, uh, currently 25 every 10 minutes.

CBL: Uhu.

GGB: Also it is... We have to understand that, um, this is... You are talking about, uh, how bitcoin are moving from one wallet to another and [garbled] the work done by the miners that, um, transactions are made, and when we say, when Mark say that it’s almost free, y’know – the bitcoin to bitcoin transactions are almost free – and Mark say well we can give a little extra to make my transaction go faster, its these miners we are going to give this kind of free wallet, and it is these miners, by, by not only digging physically the coins, yah, by answering a huge equation [garbled] that they also secure the overall network and make it possible all transactions between people, so it’s not... Miners doesn’t only mine. They make the system working.

MK: The main issue in the bitcoin network is that there is no central point so if someone says I use this bitcoin to pay this person and at the same time says I use exactly the same bitcoin to pay someone else, only one of the two transactions can exist, and when the mining, when one of the miners hears both instructions they will only take the first one they saw and if they manage to create a block right after this, this block will contain only transactions they saw as valid, and because it requires a lot of work to generate this block, everyone will consider that what this miner saw is considered as, well, makes authority and will discard the other transaction.

MD: Now, I was reading that if miners gang together or something they can take over the network something with 51%...

GGB: 51% attack.

MK: Basically if someone has enough power to generate blocks separate from the main block chain, they can, ah, for example, I send those bitcoins to this individual but because it’s normally on the network so it will be included in a normal block chain, but at the same time, with, um, see people which is much stronger, they write an alternate block chain where those bitcoins didn’t go to this user but to actually the user himself and make it longer than the real block chain so that it requires at least more CPU [power] than all the bitcoin network and then broadcast this block chain, um... The network actually takes the longer block chain because it requires the most work to be done, so the new block chain will take priority over the previous one.

MD: Ok, now is it... I mean, is that a possibility that it can actually happen, do you think personally?

MK: Ah, it would require a lot of work, uh, I mean a lot of [garbled]. At the origins of bitcoin there were only a few people mining so it would be easy to do at that time, but now that people are even using specialized [app?]ware to create bitcoins, unless, ur... An entity could get gener... could get more stronger hardware and, uh, much... Well it would take a lot of money to do...

MD: Right, but some things just for example, say a government or a criminal organization.

MK: Well, it would be quite difficult because the CPU power gained by bitcoin right now is much larger than the largest competing networks

(to be continued...)


Aminul Islam said...
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