MIT Bitcoin Project Experiments & Results
The MIT Bitcoin Club was started by a group of students who are passionate about digital currency and often met up for events and discussions. One day they had an idea to see how people reacted to being given cryptocurrency — for free — way back in 2014.
It was later deemed the MIT Bitcoin Project Experiment — the group looked to give away 100 Bitcoins that were worth around $100 at the time to every undergraduate student, looking to follow them in the time prior and see how people reacted.
Would the test subjects (undergraduates) grow an interest in bitcoin and want to learn more, would they want to save it and invest more into it, or would they just want be happy they got a free $100 and go on to buy some beers and a meal for their self with the free bitcoin they received?
Before we share with you the results of the experiment and let you in on what these students did with their new-found wealth back then, it is important to explain what Bitcoin is, or rather what it was back in 2014 when this experiment was conducted and how it worked to better understand how the participants and why they behaved as they behaved — as times were different back in the days of this experiment — bitcoin was fringe and nobody but geeks and sound-money advocates really knew about it.
Table Of Contents
Traveling Back in Time to 2014:
Before getting into how the expirment worked I want to frame it for you — as if you hear the results without the context you’ll likely think the way people behaved as completely absurd and foolish — as while bitcoin is something most people can see value in now back then things were very different.
So before getting into what happened with the experiment lets travel back in time to 2014 and see how the participants may have understood bitcoin — as this is more or less what they’d be able to look up or learn about it easily.
What was known about Bitcoin in 2014?
Bitcoin is a cryptocurrency, which means it’s a digital currency that uses cryptography to secure transactions and control the creation of new units. Bitcoin was founded in 2009 by an unknown individual. Some believe it was created by a group who used an alias known as Satoshi Nakamoto. In 2010, the mysterious individual published his white paper describing the concept of a peer-to-peer electronic cash system. This sparked interest in the idea of a new type of currency. The creator/developers released the source code for free under a license that allows anyone to use it.
That’s all that was known about bitcoin at the time — there was no public knowledge of institutions, wealth management funds, or rich people investing in it. There were no real physical businesses accepting bitcoin at the time — maybe a few in the entire country at the time. There were no history of online shops really accepting bitcoin, other than some vendors on the Silk Road (illegal drug website), making it very hard to spend — so what future would it really have?
How did bitcoin work back in 2014?
Well it worked basically exactly the same as it does today — but that’s not how people saw it in general back then. It wasn’t the ultimate inflation hedge to most, it wasn’t the cross-border payment miracle it is today — generally people saw it relatively simply back then and few people thought it’d become what it is today.
To put it in perspective this is how people would have described bitcoin to someone back in 2014:
In our daily lives, we complete a transaction when one party sends money to another. Similarly, in the world of bitcoin, the sender transfers bitcoins to the recipient. When the transfer takes place, the two parties must agree upon certain conditions. These include things like the amount being transferred, the location to send and receive payment, and the date and time of the transaction. Once these details are agreed upon, the transaction can be recorded in a public ledger called a blockchain. This ledger contains information about each transaction that has occurred since the beginning of Bitcoin, making it verifiable. Every 10 minutes, this process repeats itself as more blocks of data are added to the chain and, as long as there are no errors, the blockchain will grow longer over time. No government controls bitcoin and it has very low fees, so unlike banks that charge $15 for a wire transfer you can make payments for just a few cents.
My point in this is that’s not how we’d describe it today — today bitcoin is seen as a financial asset that’s investable, ‘hard,’ and overall much much more than a simple currency to spend back and forth for goods. Most people into bitcoin don’t see it as a currency now — but rather an alternative asset to preserve and protect wealth.
Was Bitcoin Popular in 2014?
While Bitcoin has been one of the most talked-about investments for several years now it wasn’t always this way — back in 2014 almost nobody knew about bitcoin, back then unless you were part of obscure online forums, geek or hacker communities, the ‘dark web,’ or online drug dealing, you likely would have never heard about bitcoin, blockchain, cryptocurrencies — anything of the sort.
This being said participants in the study, who received the free bitcoin, had no way of knowing bitcoin would become the massive financial asset it is today — most people saw it as a fad with no real value other than buying from the Silk Road marketplace — there wasn’t YouTube channels talking about it enmass, there weren’t people really publicly investing in it, there was nothing of the sort — so don’t be hard on the participants, hindsight is 20/20 and even as someone who was into bitcoin back in 2014, and understood it’s potential, bitcoin’s success wasn’t at all guaranteed at the time, especially with Mt Gox collapsing earlier in the year.
How The MIT Bitcoin Experiment Worked
In 2014, two MIT students who were studying computer science, distributed $100 worth of Bitcoin to thousands of MIT undergraduate students. They wanted to promote bitcoin and more importantly see how people behaved with it so they launched the first ever academic study on the most known cryptocurrency in the world.
The goal of this experiment was to see how people would react when they were given access to their own digital wallets, and the results were quite interesting.
The experiment took place between February 2014 and March 2015. It involved 1,054 students from all different majors and backgrounds. Each participant received an email with instructions on how to create a wallet using the blockchain.com service. They also had to download a special app called Electrum which allowed them to manage their wallets.
After creating their wallets, participants could choose to receive one bitcoin or any other amount up to 100 Bitcoins. Participants could then use these coins for anything they wanted. Some used them to buy lunch, others bought electronics, and some even invested in stocks.
The participants were then asked to keep track of their transactions for six months. At the end of the period, each student received a total of 50 Bitcoins. These coins were worth less than $2,000 at the time. The experiment ended after six months because the team wanted to make sure that no one got addicted to Bitcoin. They also wanted to know if there was any potential harm associated with owning such a large amount of Bitcoins.
What Were The Results Of The MIT Experiment?
After the six-month period, the team analyzed the data collected from the participants of the experiment, and it turned out the majority of people used their free money on beers, sushi, dinners, or textbooks. Understandable being broke college students, but for college students at MIT you’d think they’d be less broke — regardless most sold or spent their crypto in the first months.
After six years they did so again and it turned out that the gains were huge for the bitcoin holders. For example, someone who got 10 bitcoins saw a gain of 9,967%. Another person who got 50 bitcoins gained 5,842% before selling, while another saw a gain of 4,769% cashing out.
Overall for the diamond-handers, those who participated in the experiment and didn’t sell, their return was 13,000% and six years later. The few students who held the Bitcoin for all these years explained that they saw the value growing, in some cases to life-changing amounts of money, and just decided not to cash out — as they didn’t absolutely need the money and they received the bitcoin for free, so why not see where they go?
Most of the students kept their coins in cold storage (offline) while a few others lost their coins due to hacking or technical issues.
However, given the total amount of people participating and the amount of Bitcoin being distributed, the experiment showed that Bitcoin can be used safely without causing any major problems — even back then when the tech wasn’t as clear and use-friendly.
How Did The MIT Bitcoin Experiment Become Such A Success?
This was no ordinary experiment — it was the first of it’s kind (blockchain/crypto academic case study) — researchers also made sure that everyone knew about the project beforehand and gave them a brief introductory course on bitcoin — they sent emails to every student explaining what they were doing and why. They made sure to explain to each and every one of the participants that if they lost their bitcoins, there was nothing they could do about it, meaning that there was no insurance policy — if you lost your bitcoins, there’d be no getting them back.
Another important aspect of the experiment was that the researchers kept track of everything that happened throughout the entire process. They recorded which wallets were opened, how many transactions occurred, and how much time passed. All of this information was then stored in a database and, after the experiment ended, the team went back through the data and found out exactly how much money each participant earned.
What Can We Learn From The MIT Bitcoin Experiment?
One of the biggest takeaways from this study was that the majority of people are interested in using cryptocurrencies but didn’t know much about them — if given some and encouraged to use it, most of the time they’d adopt and learn more rather than just cash-out and run off with the funds.
They were still learning about the technology and its potential applications. While the world of cryptocurrency is gaining more and more recognition day by day, the MIT project and its results are still relevant and provide us with some insights into how people behave when owning crypto coins — especially how giving coins away, airdrops, are likely to effect the psychology of people and why they’ve been successful in the past.
With the rise of Bitcoin, people are more careful to not spend their Bitcoins today, especially when they have other options available. However, Bitcoin is indeed an alternative form of payment that looks like it is here to stay — as well as an interesting alternative asset class. Whether that is forever or not, only time will tell.
MIT Bitcoin Experiment FAQ's:
We’ve been asked quite a few questions about the MIT Bitcoin Project — below we’ll answer the most common questions, if you have others feel free to contact us and we may add them to our answers below — after getting back to you with the answers of course.
Did Decentralized Finance Exist during the Bitcoin Project Experiment?
No decentralized finance wasn’t really a thing back then — while it’s now changing the world of finance it used to not really exist at all. Keep in mind the idea of Ethereum had just been proposed and wasn’t released for many years after these experiments took place — and the functionality Ethereum provided there would be no way for decentralized finance to exist in the first place.
Did any of the participants lend out their cryptocurrencies to earn yield?
There weren’t real crypto-lending platforms like Hodlnaut back in the day to earn yield on crypto — these are relatively new inventions and didn’t exist back in the day. As far as what’s released they didn’t engage in lending on margin exchanges or anything like that — but it’s unclear if they would have reported this in the study or not, as it’s quite obscure and margin lending via exchanges like bitmex wasn’t at all common.
Did any of the participants send their cryptocurrency to exchanges?
Yes some did send their cryptocurrency to exchanges to sell — however mostly the folks who held longer-term did this, the ones who sold quite early in the experiment generally did so for cash to other participants or people rather than centralized exchanges like Voyager.
Did participants pay taxes on their gains?
While it’s unclear if they did or not — as it’s not reported in the study — it’s likely some of the people, those who held and made lots of money, did pay some level of taxes on their profits — however they would have done so manually as reporting wasn’t as simple as it is today with platforms like Koinly and Tokentax that provide you with full crypto-tax reports. Instead they likely had to manually report their transactions, which is a pain.
As for those who sold early on in the experiment, or spent their bitcoin, it’s likely they didn’t report taxes on it — maybe illegal technically, but not likely to land them in trouble. Lets be honest, back in 2014 if you bought a few dinners with your free bitcoin from this experiment would you have even thought it was taxable?
What Happened to the MIT Bitcoin Club?
The MIT Bitcoin Club still exists — they just no longer conduct experiments like this as far as we know of and no longer maintained the MIT Bitcoin Project Website, so we’ve decided as it was an important part of Bitcoin, and cryptocurrency, history so we here at Greenery Financial wanted to keep it alive and make this page to not only maintain the historical record, but pay tribute to the experiment and help people many years later understand the context around it better than they otherwise would from news outlets that reported on it many many years ago.