Posts from hacking finance

Coinbase Vault

If you want to buy some Bitcoin and store it online and have it on your Android phone or your iPhone, then our portfolio company Coinbase has the product for you.

But what if you own a couple thousand Bitcoin? That’s $1.3mm of Bitcoin at today’s price. Well then you might want something more secure.

Yesterday Coinbase announced Vault, a more secure offering designed for people who own a lot of Bitcoin and want to protect it and are willing to put up with more security as a result.

Like the core Coinbase wallet offering, Vault is free. It is being rolled out now and about 5% of Coinbase’s customers have it already. Coinbase told Coindesk that all Coinbase users will have access to Vault by mid July.

I like to think of Coinbase as the bank and brokerage firm for Bitcoin. They have checking accounts (wallet), CD/savings (vault), brokerage (buy/sell), and merchant services.

And more is coming. Stay tuned. I will keep you posted.

The Law Of Unintended Consequences

One of the great things about getting older is you see things over and over again and you start to understand. That’s called wisdom I guess. One thing I have seen over and over is that the best of intentions often lead to unintended consequences that are exactly the opposite of what the good intentioned people wanted to happen. I like to call that the “law of unintended consequences” and it goes like this:

Whatever it is that you intend to do, you will likely do the exact opposite

I was reminded of that when I read Marc Andreessen’s comments on Sarbanes Oxley (and IPOs in general) in this interview in Vox. Marc said:

The irony of Sarbanes-Oxley was that it was intended to prevent more Enrons and Worldcoms but it ended up being a gigantic tax on small companies.

Sarbanes Oxley and Regulation FD were an attempt to make the stock market safer for the average investor. What it did is make the stock market less attractive for the average investor by removing the best investment opportunities from the market.

Marc lists investments like Netscape, Microsoft, Oracle, HP, and IBM as companies that went public at relatively small valuations and grew their valuations in the public markets. I would add Apple, eBay, Yahoo!, Cisco, and a host of other silicon valley success stories to that list.

The Vox piece points out that:

Twitter waited until it was worth about $25 billion before it went public last year. Facebook was worth more than $100 billion when it had its IPO in 2012.

Dropbox did a private financing recently at $10bn, Uber did a private financing recently at $17bn, Airbnb recently did a private financing recently at $10bn. All three of those deals could have and would have been an IPO in the 1980s or 1990s.

The public markets are not as attractive to emerging high growth companies as they used to be. The private markets have accumulated enough capital to support the growth needs of high potential companies and IPOs are no longer being used to finance growth. They have now been relegated to liquidity paths for the most part. And Marc explains why in this part of the interview:

But for young companies, everything is connected: stock price, employee morale, ability to recruit new employees, ability to retain employees, ability to sign customer contracts,  ability to raise debt financing, ability to deal with regulators. Every single part of your business ends up being connected and it ends up being tied back to your stock price.

I have lived through this (being public while you are still building the company) and it is not easy. You really want to wait until you’ve got everything very buttoned up before you run the gauntlet that is the public markets.

Of course the important question is can we go back to the way it was before the federal government messed things up with all of their good intentions. I think the answer is no. We are not going to put that genie back in the bottle.

But I do think there is another way to fix this mess and it is already happening. As my partner Albert likes to say “the line between the public markets and the private markets are blurring”.  Platforms like AngelList and our portfolio company CircleUp are allowing individual investors the opportunity to invest in startups and the amount of capital that is being invested on these platforms is growing very quickly.

If the regulators keep their hands off these new emerging markets and let them develop naturally, we will eventually fix this problem. Let’s hope they have learned their lesson from the fuckup that was Sarbanes Oxley and Reg FD and don’t try to help us out again.

Feature Friday: Bitcoin Payments

A payment protocol was added to the core Bitcoin system recently. The details on the Bitcoin Payment Protocol are here.

From that link, the key attributes of this payment protocol are:

  1. Human-readable, secure payment destinations– customers will be asked to authorize payment to “example.com” instead of an inscrutable, 34-character bitcoin address.
  2. Secure proof of payment, which the customer can use in case of a dispute with the merchant.
  3. Resistance from man-in-the-middle attacks that replace a merchant’s bitcoin address with an attacker’s address before a transaction is authorized with a hardware wallet.
  4. Payment received messages, so the customer knows immediately that the merchant has received, and has processed (or is processing) their payment.
  5. Refund addresses, automatically given to the merchant by the customer’s wallet software, so merchants do not have to contact customers before refunding overpayments or orders that cannot be fulfilled for some reason.

In my view, this is an important addition to Bitcoin and addresses a number of limitations on using Bitcoin for payments.

Our portfolio company Coinbase, which offers the leading Bitcoin merchant payment solution in the market, has implemented the Bitcoin Payment Protocol. Their blog post about this is here.

So if you are a merchant and you want to accept Bitcoin from your customers and you want the advanced functionality that the Bitcoin Payment Protocol offers, you should check out what Coinbase offers. You can do that here.

Free Bitcoin For College Students

Our portfolio company Coinbase is offering $10 worth of Bitcoin for every college student who opens up a Coinbase account using an email address with a .edu domain on it.

In the blog post announcing this giveaway, Coinbase says:

We believe that getting more young scholars thinking about and transacting in bitcoin will help spur the growth of the ecosystem and contribute to the ever-increasing creative ways bitcoin is being used to make the world a better place.

The big state schools were dominating the early results. This chart was published almost a week ago now:

bitcoin giveaway

I know that a lot of college students read AVC. So if you are one of them, go to Coinbase, sign up with your college email address, and get $10 of free bitcoin.

The Pied Piper Effect

I’ve said many times on this blog that I like to give away bitcoin. I have my Coinbase wallet on my phone (yet another great reason to use a phone that allows you to do what you want with it). I’ll be out at dinner with friends or wherever, and I will take out my phone and send some bitcoin to a friend. It is amazing to see the effect of owning bitcoin on people. They go from being dismissive to being fans pretty fast when they own some bitcoin.

So it was with great joy that I read that every MIT student (all 4,528 of them) is going to get $100 in bitcoin to use however they wish. This is like giving every MIT student a laptop thirty years ago. That didn’t happen, but I had to make some kind of comparison. I can’t imagine a better group of students to infect with bitcoin religion than the MIT students. This will encourage them to get into bitcoin, understand it, and build stuff on top of it.

I don’t know the two MIT students who are doing this, but I do know their largest funder. I have reached out to him this morning in hopes that I can join the funding group behind this bitcoin giveaway. It is awesome. I love it.

A Letter To Senator Manchin

Senator Joe Manchin wrote a public letter to financial regulators asking them to “take appropriate action to limit the abilities of this highly unstable currency.” The letter in its entirety is here.

What follows is a letter from me to the Senator.

Bitcoin is a powerful new technology platform that, like the Internet itself, is not controlled by anyone or any company. It is a globally distributed network of computers that allow financial transactions to flow seamlessly and at a much greater efficiency than current methods. A bitcoin is the store of value in the system and it acts a bit like a currency or a commodity. This store of value is actively traded for fiat currency at a number of exchanges around the world.

Bitcoin is already regulated in the US and it is becoming more regulated every day. And the regulatory environment in the US has dampened the amount of innovation around Bitcoin that has developed here in the US. All the major Bitcoin exchanges have been built outside of the US and a significant amount of the venture capital investment in the Bitcoin ecosystem is happening outside of the US. This is a direct response to the stricter regulatory oversight and requirements here in the US versus other countries.

The volatility of Bitcoin relative to fiat currencies should be expected in a nascent and emerging technology. What is amazing, however, is its resiliency in the face of massive scrutiny, company failures, fraud, theft, and a host of other challenges it faces as it becomes mainstream and mature. The value of a Bitcoin at this stage of its development should move up and down more like a hot technology stock than a stable currency. In time, as Bitcoin’s market value grows and transactional activity  and liquidity develops, the value will stabilize and act more like a traditional currency.

When something as new and as different as Bitcoin emerges, it is tempting to want to “put the Genie back into the bottle” and protect ourselves from it. But thankfully the US did not do that with the Internet. The impact of the commercial Internet on the US economy and our society as a whole has been massive and overwhelmingly positive over the past twenty years. We should approach Bitcoin in exactly the same way and if we do, I expect the benefits we will see will be equally important, impactful, and beneficial to our economy and our society.

Mt Gox

Rumors are swirling that Mt Gox is in trouble. The top three stories on Coindesk right now are about Mt Gox.

If the rumors are true, it’s a sad day for the Bitcoin sector as Mt Gox was the first Bitcoin company I transacted with and probably was for many of us.

But the wonderful thing about a globally distributed financial network is that if one of the nodes goes down, it doesn’t take the system down. Bitcoin’s architecture is similar to the Internet’s architecture. There is no centralized control point. No single point of failure.

Our portfolio company Coinbase and a bunch of the other leading platforms in the Bitcoin sector put out a joint statement last night. You can read it on the Coinbase blog. Here is the critical paragraph of the statement:

Bitcoin operators, whether they be exchanges, wallet services or payment providers, play a critical custodial role over the bitcoin they hold as assets for their customers. Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading.

There is a lot of venture capital being invested in the Bitcoin sector right now. Much of that investment is going into the infrastructure, processes, and technology to provide the kind of safeguards that are mentioned in that paragraph. We are witnessing the maturation of a sector and part of that will inevitably be failures, crashes, and other messes. Almost every technology that I’ve watched come into a mass adoption has gone through these sorts of growing pains. One big difference is that in addition to technology, we are also talking about people’s money when we talk about Bitcoin. To me, that doesn’t change the discussion and the implications, but it sure does amplify the emotions around it.

Full disclosure: I bought a little Bitcoin today. Not much. But I always feel good buying when there is blood in the streets in any market. It is my favorite time to buy.

Video Of The Week: The NYS DFS Bitcoin Hearings

I don’t know who is going to watch all of these panels. There were five in total. I am not sure who is going to watch this video of our panel in its entirety. However, there are a number of fascinating issues raised in this discussion. From the role of regulation in the innovation economy, to the (I think false) choice between stopping bad actors and freedom to innovate, to the way a new technology comes to market. If you have two hours this weekend, you might want to put this on your TV and let it roll.

We were panel number one. I have watched parts of all five panels. I have included links to all of them below.

Here is the second panel (alternative virtual currencies, including the developer of Litecoin).

Here is the third panel (law enforcement)

Here is the fourth panel (entrepreneurs)

Here is the fifth panel (academics)

Reactions to these hearings have been all over the map. William sent me this video reaction from Andreas Antonopoulos which is worth watching if you still have time after (or instead of) watching eight hours of testimony.

Bitcoin Tuesday

There are at least three Bitcoin events that I know of in NYC today. I do not think any of them are public events but the fact that there are three in a single day is interesting to me.

This morning, NYC’s Economic Development Corporation is hosting a Bitcoin breakfast with some of the leading banks and financial services companies in NYC to discuss Bitcoin. My partner Albert will be attending that.

Also in lower manhattan, Ben Lawsky, New York State’s Superintendant of Financial Services, will be holding hearings about Bitcoin.  I have been asked to testify and will do so, at 11:30 along with Barry SilbertJeremy Liew, and maybe a couple others, in a panel of investors.

Then at 6pm this evening, in the USV event space, Wells Fargo is hosting a discussion about Bitcoin. My partner Albert will be part of the expert panel. I plan to attend the first part and then duck out to see the Knicks play the Celtics in the battle for the cellar in the east. This is a public event, but it has been sold out for weeks and if you are not already attending, unfortunately you can’t.

It certainly feels like there is a whirlwind of attention and discussion and debate about Bitcoin in the air in New York City. Last week Marc Andreessen penned a piece in the New York Times titled “Why Bitcoin Matters.” Later in the week, JP Morgan’s CEOdismissed Bitcoin on CNBC. And over the weekend, well known NYC Bitcoin entrepreneur Charlie Shrem, shown in this AVC post from this summer, was arrested for knowingly transacting in Bitcoin with drug dealers (or something close to that, the complaint is here).

So there is a lot going on at the intersection of the Bitcoin world and the world of finance and money and regulators right now. I am happy that USV is engaged and involved in these discussions. They are important and necessary.