“Bitcoin is in the very early stages as a piece of software, and if you’re a regular home user, then it’s not for you at the moment,” says Taaki. “It started as a plaything, and now we’re at the stage that for Bitcoin to grow, it needs the software used to get money in and out to be more solid and secure.”
Earning wider trust will likely require the Bitcoin ecosystem to become more like that of a conventional currency. Taaki and Garzik both say that in the future, there will be established, trustworthy exchanges to look after users’ bitcoins, and online services to manage and disburse their cash.
That might go against the libertarian aspirations of some Bitcoin users, who are attracted by its decentralized nature and lack of any controlling authority. Yet the currency will still offer those features, says Patrick Strateman, a developer working on building more robust, secure software for bitcoin exchange sites. “The big difference here is that people will have a real option,” says Strateman. “Everyone has the options offered by the old system, plus they have new options as well.” Even if many users turn to bank-like organizations to keep their bitcoins safe, it will still be possible to use the less controlled (if riskier) methods that prevail today, he says.
Bitcoin exchanges would benefit from becoming friendlier to investigations of fraudulent transactions, says Taaki, though their doing so would make them even more like conventional banks. Claims by two U.S. senators last week that bitcoins’ “untraceable” nature facilitated the purchase of illicit drugs were unfounded, says Taaki: the Bitcoin protocol is built around a public record of every transaction made with the currency. That log, called the “block chain,” is maintained and stored by all Bitcoin clients and can be used to trace the movement of any and all bitcoins. But it records only the cryptic public keys that swapped funds, not the identities of the people using them. For example, an online version of the block chain can be used to see how the address “1KPTdMb6p7H3YCwsyFqrEmKGmsHqe1Q3jg” received 25,000 bitcoins this week, the transaction that allinvain complained about.
But Taaki says his Britcoin exchange will help authorities interpret the block chain in cases like money-laundering investigations, and could even correlate it with records of the identities of users of the exchange. The operator of the Mt Gox exchange, the largest bitcoin exchange in the world, has made a similar pledge, says Taaki. “We don’t want Bitcoin to be outlawed by well-meaning but ignorant regulators.”