It could probably have been predicted that a hyper-geeky, shockingly valuable new economic system would be all it took to compress the full cycle of internet awareness into one 24-hour period.
If you got online at all today — which we can assume you did, since you're reading this — you probably ran into at least a piece of what we are referring to. Thousands of people who woke up this morning having never heard of the virtual currency exchange will go to bed tonight ruminating on the Mt. Gox outage and what the long-term effect of the Instawallet hack might be.
Why today? Probably for several reasons. The near-collapse of the economy in Cyprus laid the ginned up interest in stories about currencies. A few data points along the way pushed Bitcoins up the news agenda. Last week, as we noted at the time, the Bitcoin market passed $1 billion in value. Since, more attention has been paid to the market. Earlier this week, a tool that converts Bitcoin transactions to sound, generating a sort of Very New Age concert, went viral online. One possible trigger for the sudden rush of interest today was Maria Bustillos' article on the system at The New Yorker. The story — a comprehensive look at the technology and culture of the system — spread quickly, inspiring another series of stories this morning, further explaining details of how Bitcoin works. Overnight, the price of a bitcoin spiked and then plunged, adding more interest to the system.
Then America woke up — and went from novice to expert to blasé on the topic.
Step 1: What is Bitcoin?
People who'd never heard of Bitcoin before started exploring the existing literature. Bustillos' piece, for example, or, perhaps, one of our previous stories. Or through this article, passed around this morning, which analogizes Bitcoins to the giant circular stones once used as currency on the island of Yap.
In Bitcoin, instead of expending manual labour to find a kind of stone that is rare, we expend computing power to find sets of numbers that are rare. These sets of numbers have a particular mathematical property that makes them difficult to find but once you have found them it is easy to check that they have that property, just as the Islanders could easily check that your disk was made from the rare limestone from Palau. Once you (or rather, your computer) has found one of these numbers then it is yours and you can keep it or trade it.
Step 2: Where does one get a bitcoin?
(Step 2a: How should we type Bitcoin? "Bitcoin," with a capital B, is the system; "bitcoin," with a lowercase B, is the currency.)
Because Bitcoin is predicated on anonymity, you can't buy bitcoins with a credit card online. Kevin Roose at New York walked through the process of buying the currency, which ended up yielding 0.93523120 of a bitcoin and involved handing over cash at a CVS.
I picked up the red phone and was connected with a Moneygram representative. She asked for some basic information about whom I was trying to pay (ZipZap) and how much I was trying to pay them ($133.95). I gave her the information BitInstant had given me, and she confirmed my transfer. Now the only remaining step was to give the CVS cashier $133.95, as if I were buying a really expensive pack of razors.
This is, apparently, the brave new world of international economics. Give cash to someone at a pharmacy, get ready to buy 1/300th of a Porsche.
Step 3: What are the economics of Bitcoins?
As the day progressed, more detailed explorations of the system emerged. Reuters' Felix Salmon wrote a lengthy post on the newish platform Medium articulating the economics behind the system, making very clear in the third sentence of the first paragraph what he thought about it: "[W]e’re in the middle of a bitcoin bubble right now, and it’s only a matter of time before the bubble bursts."
Image from Felix Salmon.
There are a couple of reasons why the bubble is sure to burst. The first is just that it’s a bubble, and any chart which looks like the one at the top of this post [Ed. – See above] is bound to end in tears at some point. But there’s a deeper reason, too — which is that bitcoins are an uncomfortable combination of commodity and currency. The commodity value of bitcoins is rooted in their currency value, but the more of a commodity they become, the less useful they are as a currency.
By mid-afternoon, someone else had written an also-long rebuttal.
Step 4: Should we worry about Bitcoin?
As though proving Salmon's point, the online market stumbled badly this afternoon, though that was most likely due more to the sudden surge of interest in the currency than anything. Our colleagues at Quartz noticed the currency's big dip this morning on massive trading volume — and the subsequent blackout of Mt. Gox, one of the leading trading sites, which collapsed under the traffic.
Interest in Bitcoin is getting so high, that the various Bitcion sites are getting slow.— Joseph Weisenthal (@TheStalwart) April 3, 2013
Shortly after, Instawallet, a website facilitating the creation of bitcoin-holding wallets, announced that it had been hacked. "Our database was fraudulently accessed," they wrote, and "due to the very nature of Instawallet it is impossible to reopen the service as-is."
By late in the afternoon, financial reporter Heidi Moore provided a hearty splash of cold water at the Guardian.
Bitcoin, known to very few people, used by very few people, is now in heady company, taking its place alongside other once-afflicted currencies like the Russian ruble or the Argentinian peso. Bitcoin, while it was functioning quietly, was boring. Now that it's crashing, it has taken on an air of tragic glamor.
Is it only matter of time before we find out about sub-prime Bitcoin lending or Bitcoin consumer abuses? Features will abound on poverty and Bitcoin, how Bitcoin oppresses inner-city development, and how Bitcoin will raise food prices. Senate investigations into Bitcoin will follow. Hacker heads will surely roll.
Step 5: Shut up about Bitcoin!
Wishing for an insane Apple rumor just so Twitter can shut up about Bitcoin.— Nathaniel J. Mott (@nathanielmott) April 3, 2013
Oh, shut up about bitcoins already.— Cassandra Poe (@cassiepoe) April 3, 2013
+100 RT @euromoney: "Shut up about Bitcoins" says everyone secretly.— Matthew C. Klein (@Matthew_C_Klein) April 3, 2013
If you were going to create a graph of the day's interest in Bitcoin, it would likely spike high in the morning, run steady for a little bit, then crash early in the afternoon. It was, if you will, a Bitcoin conversation bubble. And like any bubble, it burst.