Imagine a self-regulating, world-wide, distributed digital system, engineered to operate beyond the management or control of any human, corporation, or government, impervious to government regulation or national jurisdiction, growing in size and reach exponentially. No police officer can arrest it. No spy organization can find it. No army can kill it. No human can stop it.
Sounds a lot like Skynet from the Terminator movies, doesn't it? In the Terminator franchise, a self-aware AI network created by the military broke free of human control with the intent of destroying the human race.
So, how do we get from bitcoin, a mere digital currency, to Skynet? It may not be as far-fetched as you think.
Back in time
To trace the untraceable, we're going to have to travel back in time almost 50 years, to 1969 (don't worry, you can keep your clothes on). It was quite the year of contrasts. On one hand, there was the Apollo moon landing. Tricky Dick became president. The Vietnam War was about to begin winding down. Woodstock. And the very earliest origins of the Internet.
Popular legend has it that the ARPANET, named after the Advanced Research Projects Agency of the US military, was created to provide unstoppable communications in the event of nuclear war. This claim is disputed by former ARPA director Charles Herzfeld, who -- at a 1994 BBN conference -- claimed that ARPANET was intended to give scientists access to a limited number of research computers. The fault-tolerant, distributed nature of what eventually became the Internet was actually the result of a RAND presentation on secure voice networking for the military.
Even so, the concept (and eventual reality) of the Internet was a decentralized system, able to withstand regular and unpredictable disconnections of nodes, with no true central authority. Today, of course, we know the Internet is not truly decentralized, but it also is not fully controlled by a single nation or authority.
The fundamental architectural technology underlying the entire Internet is packet switching. There are two key concepts in packet switching. First, all transmissions are divided up into small chunks (packets) containing both data and routing information. Second, if any node that's supposed to retransmit a packet is down, the packet is redirected to another operational node that completes the transmission.
In Jurassic Park, Jeff Goldblum explains how, despite supposedly careful genetic engineering to prevent dino reproduction, "Life finds a way." On the Internet, packets always find their way. To be sure, we've seen how some nations have managed to temporarily cut off their population's access to the Internet, but even so, citizens have found ways to route around their government's data blockade.
The key to the Internet's fault tolerance is decentralization. There exists no single, central Tron-like Master Control that can be shut down to stop the Internet. Sure, there are hubs of power (like the DNS infrastructure), but even there, the network is highly decentralized, with the master name server table replicated to servers all around the world. Because of this decentralization and replication, it's very hard indeed to shut down the entire Internet.
Back to the future
It's the concept of decentralization that lets us jump back to the future, to bitcoin, and to its potential of becoming something like Skynet.
Bitcoin has had a pretty crazy month. There was the Mt. Gox debacle, where thousands of bitcoin holders lost their virtual shirts when the company imploded. There was Newsweek's claim that it had finally "outed" Satoshi Nakamoto, the pseudonymous creator of bitcoin. And at least three bitcoin currency exchanges were hacked and robbed, or suffered denial of service attacks.
With bitcoin under so much pressure, how could it possibly become as all-powerful and all-reaching as Skynet?
The answer is pretty simple: it's not about bitcoin as a currency. It's about bitcoin as a technology, a highly-distributed, leaderless, jurisdictionless, identityless, nearly anonymous decentralized architecture for managing ownership.
Let's go back to the Internet for a moment. The Internet is not a single monolithic entity. At its most simplistic, it's made up of plumbing (DNS, packets, routing, TCP/IP, http), applications (Facebook, Gmail, SharePoint, WordPress) and content (ZDNet, CNET, Mashable, Wikipedia). If one aspect of the Internet shut down (say Wikipedia couldn't get enough funding — a horrible thought to be fair), other elements that run on the Internet (say Facebook) would continue on, uninterrupted. The Internet is a platform, and ZDNet and Facebook and so forth run on top of that platform.
Bitcoin is quite similar. There's an underlying bitcoin plumbing component, a blockchain, that handles all the management of the bitcoin objects. There are a wide variety of applications using this plumbing, from the bitcoin currency to a plethora of alternative currencies, there's the "mining" industry that uses the bitcoin currency application's rules to generate objects that get stored in the blockchain, and there are exchanges (like Mt. Gox) that act as brokers and bankers of bitcoin value.
Next up: the disturbing potential of the bitcoin platform...