Bitcoin survived a wild youth marked by drug trafficking, money laundering, theft, bankruptcy, and political spats. Now, the digital currency is getting cleaned up and heading to grad school.
A fledgling project at the Massachusetts Institute of Technology Media Lab is offering researchers and software developers a quiet home to work on bitcoin’s core technology, a computer science breakthrough that lets people trade money securely without paying a middleman.
Media Lab leaders hope that, by acting as a safe home for research and development, MIT can help the sprawling bitcoin software project shed its chaotic past and emerge as a more versatile technology platform.
If the idea works, bitcoin’s underlying technology — known as the blockchain — has a chance to become a new digital system that makes transferring money or signing a contract as cheap and simple as sending an e-mail.
For anyone who’s spent an afternoon signing piles of loan documents or paid through the nose to send money overseas, that’s an appealing idea.
“There are problems that academia is really good at solving that are tough to solve in other ways,” said Sean Neville, co-founder and president at the bitcoin startup Circle Internet Financial. “We need a process that opens the doors to more people and exposes blockchain technology to more people.”
Bitcoin, which emerged online in 2009, is seen as the fruition of long-running experiments with digital currency. Its key innovation is the ability for strangers to send each other money, and verify that the transfer was valid, without using a bank or other trusted intermediary.
That’s possible because the blockchain technology acts like a digital ledger. It records transactions from one party to another and verifies those transfers are valid when computers on the network solve a complex math problem that essentially unlocks the transaction.
But rather than being held by a banker who might charge steep fees for that work, the blockchain’s ledger is viewable by anyone and spread across the entire network.
Bitcoin lingered as a largely unknown project in the deep corners of the Internet until 2013, when more people began to accumulate and trade the currency online.
As interest in the digital currency grew, so did its price in real-world money. Speculators soon followed, hoping to get rich on the wild swings in bitcoin’s price. But the sudden spike in bitcoin interest soon devolved into a sideshow of crime and mismanagement.
Last year, the Internet’s largest bitcoin exchange, Mt. Gox, collapsed after hackers broke into its accounts and stole nearly $500 million in bitcoin.
Since it allows people to exchange money without revealing their full identities, bitcoin also became the currency of choice for online black market purchases. This spring, two federal agents who helped bust the online drug marketplace Silk Road were charged with stealing hundreds of thousands of dollars worth of bitcoin during the investigation.
But the most significant blow for the promising blockchain technology came when the turmoil began to affect the Bitcoin Foundation, which had helped guide work on the software. In 2014, a foundation board member was sentenced to two years in prison for money laundering. Earlier this year, a critic within the board said it was effectively bankrupt.
The foundation’s financial problems were a serious blow to further development of the blockchain. Although bitcoin software development is an open-source software project that lets anyone contribute, some of the engineers doing the most important work were being paid by the foundation’s individual and corporate sponsors.
One of those core developers, Gavin Andresen, an engineer based in Amherst and former board member of the foundation, wrote on its website that he hoped a nonprofit organization of some kind could step in to pay for the core bitcoin development work. The only real requirements, he said, were that the new effort be “legal, transparent, and that I’m never put in the position of deciding how to divvy up a Big Pile Of Money.”
Less than two weeks later, MIT announced its new Digital Currency Initiative to support bitcoin research and development. Andresen and two other important developers of the core bitcoin project, Wladimir van der Laan and Cory Fields, were soon hired by the Media Lab to continue their work.
The initiative is being run by Brian Forde, a former entrepreneur who most recently worked as a technology adviser in the Obama administration. In addition to raising money for the new initiative, Forde is digging through years of crypto-currency research to find areas that MIT students and professors can help tackle.
The blockchain has been compared to some of the underlying protocols governing the Internet, and Forde and others say the bitcoin technology needs a similar infusion of research to help fulfill its potential.
“The Internet had 20 years to spend in government and academic research labs before being fully commercialized, whereas bitcoin, for example, has only been around for six years,” Forde said. “So that foundational research still needs to be done to help mainstream the technology, and we want to help.”
MIT hopes its project can also influence public policy around bitcoin and develop new ways of using the technology for social benefits. One example could be using the blockchain’s identification features to help governments and banks verify identities without asking someone to produce a utility bill or a pay stub.
That’s a natural role for MIT to play because such applications might not have a big enough financial reward to draw private entrepreneurs, but also are too experimental to be hammered out inside public agencies, Forde said.
“Our hope is that we could incubate a few of these ideas at the MIT Media Lab so that we’re collaborating with governments and nonprofits and technology companies, and we can do it here where we can fail fast, as opposed to government where it’s more challenging to fail fast,” he said.
Neville, co-founder of the Boston-based bitcoin startup Circle, said that having a high-profile university like MIT playing a central role in its development should help the digital currency win more acceptance from mainstream financial markets.
“There are a lot of really smart people who have been working on bitcoin for the last number of years, and we just need more smart people,” Neville said. “MIT and what they’re doing helps bring more smart people and different domains of expertise into the fold.”