A mom from Arkansas, a major donor to Republican causes with very little experience in technology, wants to invest $50,000 in bitcoin. A man from Switzerland curses during a Skype call because his Korean over-the-counter exchange went down during a massive trade. An entrepreneur placed a Trezor bitcoin wallet worth $150,000 on his car key chain. Another futurist is Tweeting late at night about a failed $300,000 wire to a bitcoin exchange.
Meanwhile, Kraken is throwing up server errors every few login attempts. Coinbase can’t keep up with account creation and they can barely hire anyone to ramp up their engineering team of 20 souls. Exchanges take days to confirm new users, trapping bitcoin and cash inside their opaque innards. Shapeshift, a tool for converting currencies, is overwhelmed with work, some trades not going through for hours.
Welcome to the new cryptocurrency boom, a roiling, boiling mess of speculation, broken transactions, and confusion. And that’s just how the crypto lovers like it.
Fear, Uncertainty, and Disruption
There is a common thread in the Valley positing that cryptocurrencies are like Linux. In 1991, an unknown programmer named Linus Torvalds built on the work of previous OS devs and launched what looked to be a pet project. It quickly grew underground like a mine fire and slowly but surely upended Oracle, IBM, and Microsoft along with a large swathe of the server market. One one could have predicted that one day we would type a few lines of code into our terminal and spin up a dozen powerful Linux servers but, as the tools grew in popularity, the incumbents spread fear, uncertainty, and doubt until, ultimately, there was none to spread.
Banks, for their part, are trying their FUD tactics as we speak with Jamie Dimon calling Bitcoiners “stupid” even as Wall Street is ramping up their crypto trading and development desks. Wall Street can sense the winds changing far better than Microsoft ever could and they have the money and the brain power to sew up the crypto world for decades to come.
What we are seeing now, then, is a conscious decision by the big crypto stakeholders to give Wall Street – and, to a degree, Main Street – a ticket to the crypto show. The prices have risen not because bitcoin is particularly usable or Ethereum will ever scale. Prices have risen because in the future these are the tools that, like Apache and Netscape, will power the next financial revolution.
So what’s happening right now with the exchanges? To many experts it looks like growing pains.
“I spent the first 8 years of my career working at a SaaS startup that grew quickly and experienced many scaling issues,” said Jameson Lopp, a prominent crypto developer. “This type of pressure is great because it forces the industry to innovate. I think that as long as the ecosystem is growing at rates faster than folks expect, there will be growing pains.”
Lopp is working with BitGo to manage a wallet. It’s pretty hard.
“It’s hard to say if multiple 10X traffic surges are sustainable; I think folks across the industry could use a breather to catch up at this point. Lots of us are spending time fighting fires just trying to keep the services running,” he said.
“Rising prices have two effects on exchanges: lack of support and slow technology,” said Kirill Suslov, CEO of Finom. “The human factor is important because the support team is not elastic. It has a time lag because training new team members takes time. And sometimes those support team members have very important roles, e.g. verification where fraud can kill the exchange and its banking relations. On the other hand, there is a technological stickiness. The matching engine and databases that work perfectly for thousands of users become bottlenecks when there are hundreds of thousands of users. Legacy systems have to be over-redundant to cope with increasing demand. For example, our matching engine can handle one million transactions per second while average exchange processes about one transaction per second. Coinbase has exactly the same issue because they also have a huge retail demand from their app business and they get hundreds of thousands of downloads per day making them one of the most popular apps. This user acquisition channel albeit, very effective, slows down their servers significantly.”