Cormac Slade Byrd ’20 wakes up early. Never mind that it’s Sunday: Byrd doesn’t want to miss his 9 a.m. He won’t leave his room until lunch, so he doesn’t change out of his purple plaid pajama pants. He might as well be comfortable.

He sits down, facing dual monitors, and, as his mouse clicks speed up, his bare toes twitch in syncopation. He culls eight tabs from the web. He stares down one screen, then pivots to stare down the other, neon graphs and ticker tapes dancing across both displays. He waits. He switches tabs. He scrolls through the finance board on 4chan. He switches back. He waits. And then, without fanfare, he presses a button to purchase a small amount of Po.et, a digital currency, with a small amount of Bitcoin, another digital currency, and sits back: The morning’s trading has begun.

For the past four months, Byrd has begun almost every day this way, trading small amounts of one digital currency for small amounts of another. It may sound frivolous, but Byrd’s strategy is surprisingly straightforward. “If Shitcoin is 11 cents in Ethereum and 13 cents in Bitcoin,” Byrd explained, “I can, in the span of 2 minutes, buy Shitcoin at 11 cents, sell it at 13, and then trade back to what I started with. And then I do it again and again.”

Arbitrage, the technical term for this trading technique, may happen in the blink of an eye, but figuring out when to blink takes time. Byrd only attends one class regularly, because to him, arbitrage is a full-time job. Some days, he watches the graphs for four hours. Others, for 12.

Since Byrd began trading in earnest, his single-minded dedication to the cryptocurrency market has paid off. In December, Byrd owned $500 in Bitcoin. Now, his crypto assets are worth $30,000.

“It’s like investing in the wild west,” Byrd said. And like the gold rush of yesteryear, cryptocurrencies have attracted eager prospectors from all around, elevating Bitcoin from mere technology to cultural phenomenon. At Yale alone, hobbyists, economists, entrepreneurs, skeptics, computer scientists, social theorists and diehard day traders are digging (albeit virtually) for their eureka moment. That moment tends to elude those who treat cryptocurrency as a side hustle. To make money or effect change in the cryptocurrency scene requires deep immersion in the rabbit hole of its subculture. And to those on the outside of it all, who feel perfectly content with Mastercards and $100 bills, “Bitcoin” can seem more buzzword than real, its significance obscured by its outsized hype, opaque to all but its most dedicated adherents.

So What Is Bitcoin, Really?

Analogies break down in the face of cryptocurrencies, which chafe against most people’s understanding of how money works. Cryptocurrencies do not have intrinsic value, like gold, and they are not controlled by a central authority, like U.S. dollars. Instead, they are simply lines and lines of code, reliant on something called the “blockchain” to store and regulate their transactions.

The pseudonymous Satoshi Nakamoto conceived and popularized the blockchain in the now-famous eight-page white paper they published online in 2008: “A Peer-to-Peer Electronic Cash System.” In a peer-to-peer transaction, there is no bank or middleman between the two parties.

Instead of deferring to an uber-powerful core authority, each computer operating in a particular blockchain’s network validates every other computer’s transactions. Once verified, this block of transactions gets added to the ledger, a chain of blocks that contains every transaction ever made. The blockchain is open-source, meaning anyone can download and trace each and every transaction, all the way back to the “genesis block.” This is why many techies wax poetic about the blockchain — to them, it embodies trust, decentralization and democracy as the Federal Reserve never could.

Nakamoto’s development of the blockchain couldn’t have been timed better, according to Stephen Roach, an economist at the Jackson Institute for Global Affairs.

“The period when cryptocurrencies really started to take off was immediately after the housing crisis of ’08 to ’09, when central banks decided to debase their currencies, diminish their value,” Roach said. “If you are holding wealth in a currency whose value is being drawn into question, maybe you want an alternative.”

But trust in machines has never come easily to our culture. If each computer in the network has vested legitimacy, what’s to stop hackers and forgers from wrecking network-level havoc?

Austin Tuan ’21 is one small part of the answer. He owns a high-powered computer that works to audit the transactions of the network and, in doing so, generate new Bitcoins. This process is called mining. Like its geologic namesake, it requires heavy machinery. Instead of splitting rock, Bitcoin miners compete to bundle transactions into a block, which requires the computers to solve a hypercomplex mathematical problem. The answers to these problems don’t actually matter — it’s the rigor the problems demand of the machine that’s important, as they prevent the blockchain from being easily rewritten and so guard against fraud. When a miner successfully solves a problem and is validated by the rest of the network, they are rewarded with 12.5 Bitcoin, which in late April was worth roughly $120,000.

With a figure that life-changing available six times an hour, mining Bitcoin might seem unbelievably lucrative. Not so for the layperson miner, Head of Silliman College Laurie Santos discovered. She, her husband and a few friends “got into [mining Bitcoin] a bit late and only mined a few” before they realized they were outgunned. If you were to use your Mac to mine Bitcoin, you would be pitted against Chinese corporations like Bitmain, which operates 24/7 computer farms in Iceland and similarly nippy locales, where they don’t have to waste money on air conditioning the machines.

Aware of the competition, Santos and Tuan see their miniature mining operations as novelties, rather than legitimate money-making investments. Santos stopped mining a few years ago and never bothered to convert her small earnings into real-world tender. Tuan’s uncle, a tech mogul, gifted each member of Tuan’s family a personal mining rig. Since Bitcoin is designed to make mining more difficult as more Bitcoin enters circulation, most individual miners pool their computing power with other miners and split the reward. So Tuan’s machine still whirs away in Taiwan, earning a miniscule cut of the Bitcoin profits.

The Bitcoin Balloon

Millions upon millions of miniscule cuts mean that the global scale of this activity is hard to conceptualize. Two years ago, the only people who seemed to own Bitcoin were libertarian-minded millennials, Silicon Valley venture capitalists and high schoolers. (Byrd and three other students with whom I spoke were introduced to Bitcoin when buying fake IDs on the darknet.)

But after the value of one Bitcoin ballooned from $900 to almost $20,000 in 2017, it went mainstream. As Byrd put it, “These days, your grandmother can go on Coinbase [a digital currency exchange] and buy Bitcoin.”

With the explosion of interest in Bitcoin came an explosion of interest in alternative cryptocurrencies. This interest was both altruistic — “Maybe we can design a better application of the blockchain, one that more resolutely resists centralization” — and self-serving: “If we create the next big cryptocurrency, we’ll be rolling in dough.” As a result, the crypto market has widened dramatically in the past six months. At last count, 1,552 altcoins, the colloquial term for cryptocurrencies “like Bitcoin but different,” are available.

If Bitcoin is famously volatile, altcoins are infamously so. Although all altcoins rely on some iteration of the blockchain, which is self-regulating, the market for these technologies is almost completely devoid of regulations. Some altcoins, like Dogecoin and Trumpcoin, are more internet meme than viable business venture. That’s not say they aren’t worth something — Dogecoin briefly had a market capitalization of $2 billion and funded part of the Jamaican bobsled team’s Olympic run — but they attract buyers with virtual stars in their eyes. “I have to be in an investing world where people are making dumb decisions,” Byrd said.

Because of Byrd’s arbitrage practice, what matters to him is not the prices of altcoins but the momentary differences in prices. “The cryptocurrency exchanges I use release their coins at 9 a.m.,” he said. “The moment the coins are added is the time of the most volatility. There’s not a set price, so it’s more likely to have a scenario where someone’s price in Ethereum is very different from someone’s price in Bitcoin.” Although he estimates that 90 percent of these newly introduced coins crash and burn, he takes advantage of the initial confusion and turns a profit.

Bryce Bjork ’20 and Tyler Caldwell ’18 think they’ve hit upon an equally fruitful cryptocurrency project. They are the CEO and chief financial officer, respectively, of Hexa Financial. The project is a startup funded by Tsai CITY’s Startup Accelerator. Their big idea is an app called Splash, which they’re marketing as “Paypal for Bitcoin.” The app would convert Bitcoin into U.S. dollars, allowing users to make purchases with cryptocurrency. With an interface inspired by Venmo, Splash is hoping to provide a model for how cryptocurrencies might be treated not as speculative investments but as usable money, according to Bjork.

Splash is still wooing seed investors, but Bjork and Caldwell are optimistic. They’ve already hired a product designer for the summer, and their posting for a summer internship garnered 35 applications in three days. They might even take a gap semester with the other co-founders, Tony Oliverio ’20 and Lukas Burger ’20, if Hexa continues to expand at its current pace. “Classes are far less pressing than the job I’m trying to create for myself,” Caldwell said.

The Bitcoin Bubble

Despite student optimism, Bitcoin’s future is anything but written in stone. The currency’s value plummeted from almost $20,000 to about $8,000 in the first four months of 2018.

Roach, an economics professor, believes that Bitcoin’s erratic price might signal the existence of a bubble. Bubbles occur when an asset’s market price skyrockets above its usual value. “When lines go up, when security prices go up, in a short period of time you know it’s going to end in tears,” he said.

Seen only on screens, Bitcoin can seem detached from our physical world. But the energy demanded by Bitcoin mining is so great that The Guardian called miners a “climate threat.” Bitcoin has resuscitated defunct coal mines: The Digiconomist Bitcoin Energy Consumption Index estimates that Bitcoin mining operations, most of them owned by large firms, expend more electricity per hour than the country of Ireland.

For all the buzz surrounding Bitcoin’s capacity to emancipate its investors, they often remain at the mercy of existing power structures. Emmett Chen-Ran ’20 was thrust into the cryptocurrency world during his internship at Bloomberg last summer. He bought NEO, an altcoin, on his mother’s advice. “She said, ‘The Chinese government is intending on adopting it, I heard about it on my group chat,’” Chen-Ran remembered. “Put in a thousand and I’ll pay you back.” He bought in when one NEO was worth $40. Last month, it was worth $200. Then cryptocurrencies were banned in China and it dropped to $65.

Chen-Ran is justifiably pessimistic. “It’s a long waiting game, and I’m going to be waiting a while. I’m just sad now. I keep losing money,” he said with a sheepish laugh.

The All-Applicable Blockchain

Many Bitcoin skeptics share the sentiments behind Chen-Ran’s experiences. As Bitcoin prices have fluctuated and fallen, analysts and amateurs alike have refocused their excitement on the blockchain itself.

According to Martin Wainstein, an Open Innovation Fellow at Tsai CITY and an affiliate of the MIT Media Lab, “The fundamental blockchain technology is still in a research and exploration phase. What values can it bring for specific sectors of the economy, specific processes? What new business models can it enable?”

To begin answering these questions, Wainstein helped to organize a campuswide blockchain conference. On March 2, 150 members of the Yale community attended “Blockchain for Sustainable Solutions.” Professor of economics and Nobel laureate Robert Shiller delivered the keynote, and three panels addressed the ways blockchain technology is being used to improve energy and water trading, bolster food and fashion supply chains, and improve systems of government. Presenters speculated that, in the future, national elections might be carried out with blockchain. We could vote from our phones, assured that the election could not be rigged because no authority could manipulate the vote ledger, and every ballot could be traced back to the citizen that cast it.

Ideas like this are popping up around the world according to Shiller. “Everywhere I go they want to talk about blockchain,” he said. Yale is eager to integrate the blockchain into its fabric. Tsai CITY, Yale’s innovation hub, inaugurated two blockchain initiatives this semester. Liana Wang ’20, a staff columnist for the News, who participated in both, said that the initiatives have fostered her interest “in how blockchain might be used to facilitate sustainable development or address certain human rights problems.”

This vision of radical empowerment undergirds much of the blockchain excitement. Then again, so does the prospect of getting rich quick. Like most technologies, the blockchain is neither good nor bad — it reflects and refracts people and ideologies.

Byrd too believes the blockchain will outlast Bitcoin. But for now, he’s content to arbitrage away. He said he’s not going to stop until he hits seven digits.

 

Correction: due to editorial error, a phrase was introduced that has since been removed.