Bitcoin’s Inconvenient Truth

I’m standing in the lobby of a skyscraper in San Francisco’s financial district to meet a man who thinks he can fix Bitcoin. From the outside, it may not look like Bitcoin needs fixing. Between January and December 2017, Bitcoin’s value increased 1,500 percent, much of that happening in late November. Bitcoiners on Reddit dubbed it the Thanksgiving Effect — techies went home for the holiday and nerdsplained Bitcoin and how it was going to revolutionize the world by taking currency out of the hands of centralized governments.

Suddenly, the largest bitcoin exchange in the U.S., a site called Coinbase, where anyone can buy one of several cryptocurrencies with dollars, was seeing around 100,000 new users a day. By the following Monday, Coinbase had more than 13 million users, more than the online brokerage firm Charles Schwab. Futures trading for the cryptocurrency opened in early December, and Bitcoin’s price briefly hit $19,783, driving its market value above $300 billion, more than that of Bank of America or Wells Fargo.

But Bram Cohen, the 42-year-old famous for creating the file-sharing network BitTorrent, believes that the crypto boom is a threat to the planet. Wearing a black AC/DC shirt, he greets me at the elevator bank without shaking hands (“I have sensory issues, which make everything feel funky,” he later says) and takes me up to the eighth floor so we can walk down to the seventh floor, a routine that frees him from having to dig out his keycard. Cohen obsessively finds life hacks, and as we discuss our respective colds, he is keen to regale me with the benefits of zinc mouthwash.

Amid a beehive of glass WeWork cubicles, Cohen has rented one that’s about 150 square feet. It costs $5,000 a month and barely fits several desks, a mini fridge, and a small gray couch, where Cohen frequently takes naps in full view of all the WeWorkers around him. Sitting across the desk from me, Cohen lays out his plan for developing a better cryptocurrency. He talks fast and flat, spewing jargon punctuated by amused chuckles. He talks about ripping out a “proof-of-work module” and replacing it with a “proof-of-space and proof-of-time” module. I’m able to squeeze in a question only once, and it’s when he’s blowing his nose and can’t hear me. But he speaks plainly when describing what’s wrong with Bitcoin and the other leading cryptocurrencies: “The waste is just gross and horrible.”

Bitcoin requires tremendous computational power. As a decentralized currency, the record of payment transactions, or the “blockchain,” is maintained by and distributed across users, called “miners,” who verify the accounting. New bitcoins are minted every ten or so minutes and will be until 2140. Miners vie to win them by trying to guess a long number that the Bitcoin network issues. The competition has become so fierce that miners use custom mining computers that guzzle energy to make more than 10 trillion guesses a second, an expenditure of effort called “proof of work.”

As a result, mining has become largely centralized in parts of the world with cheap electricity — places like China, where people have banded together to pool tens of thousands of computers to extract more coins and then share the profits. “I can’t bring myself to buy lots of Bitcoin,” says Cohen, “because the more you hold it, the more you’re contributing to increasing its value, the more mining rewards are being handed out, the more electricity’s being wasted on mining.” According to the Digiconomist Bitcoin Energy Consumption Index, the Bitcoin network already consumes more electricity annually than Denmark and doesn’t appear to be slowing down anytime soon. In fact, Bitcoin has spawned a burgeoning ecosystem with competing cryptocurrencies (many of them energy guzzling), crypto-services startups, dedicated crypto VC funds, and millions of investors.

No one owns the Bitcoin network — the code is open source — so Cohen is free to build off of it to develop his spinoff, Chia Network. With Chia, Cohen aims to replace the energy-greedy part of Bitcoin’s code, which rewards miners for generating trillions of numbers a second, with an energy-efficient system, which rewards miners (or “farmers” in Chia’s parlance) based on the amount of unused hard-drive space they have on their computers and how long they’ve had it. If you opt in, the Chia Network will essentially populate that unused space with bingo cards. If Chia calls the numbers on your card, you’ll be awarded newly minted chia.  

Creating the sort of decentralized networks that cryptocurrency runs on — in which information is distributed not through a central server but through computers communicating directly with one another — is Cohen’s specialty. In 2001, the SUNY Buffalo dropout, who’d been writing computer programs since the age of 6, invented BitTorrent, which lets people efficiently share files online in a way that distributes the bandwidth burden among every participant. He generated interest in the fledgling network by seeding it with free pornography. Today, BitTorrent is used by more than 170 million people a month and, according to the company, is responsible for up to 40 percent of global internet traffic, much of it pirated movies and TV shows.

Bitcoin is like BitTorrent for money. “The name clearly is an homage,” Cohen says. When Bitcoin launched in 2009, Cohen was initially repelled by users who wanted to get rich quick. It wasn’t until last year, when he looked more closely at Bitcoin’s “horribly written code base,” that he got excited by the challenge of creating a cleaner code for cryptocurrency.

So far, Chia Network is a team of six. Cohen shares the WeWork office with his co-founder, Ryan Singer, a serial Bitcoin entrepreneur who is currently the CEO or managing director of three other companies, including Blockchain Clearing Corporation, Blockchain Health Co., and Neighborly. And there are several coders who work remotely — from Las Vegas and Thailand.

It’s hard to imagine Chia eclipsing Bitcoin. It’s one of more than 1,300 cryptocurrencies developed to suit different needs (there’s a cryptocurrency pegged to the dollar for use on eBay as well as a cryptocurrency to trade virtual items in video games). Some cryptocurrency experts, like Eric Voskuil, a former principal architect at Microsoft, wonder what’s to stop Chia farmers from buying thousands of cheap hard drives and running them 24 hours a day, burning electricity just like Bitcoin miners. That will only be an issue, Cohen says, if the currency Chia issues annually becomes worth more than a trillion dollars. “And, uh, it’s a little weird to criticize something by saying that it will start to encounter problems if it becomes a trillion-dollar-a-year industry,” Cohen says.

Cohen and Singer want to launch Chia Network by the end of 2018. They also plan to distribute some chia in the second quarter, possibly through an initial coin offering where anyone can buy chia for a set price with dollars. “Bitcoin just barely works and involves a lot of horrible things going on in the process of it working,” Cohen says. “As an engineer, this is great. There’s something to fix. As long as things are broken, there’s going to be no end of work to do.”