Posts from hacking finance

Tipping Tuesday

One of the most promising use cases for Bitcoin is micropayments. And one of the most promising use cases for micropayments is funding content. There are two primary ideas for how to do this with micropayments.

1) A paywall that requires a tiny micropayment to read something (like a penny or less).

2) A tip mechanism. Think of a facebook like or a twitter star with money attached.

We are testing out the latter on AVC starting today. Our portfolio company Coinbase launched a tip button today.

You will notice a tip icon at the bottom of this post (and every post at AVC). If you click on that tip icon, you will see this dialog box:

coinbase popup

For those that don’t know, CSNYC is a non-profit I helped to start that is bringing computer science education to the NYC public school system. They will be the beneficiary of all tipping here at AVC.

300 “bits” is 0.0003 bitcoin, or roughy 10 cents. If you are logged into Coinbase on the web or on your phone, you will see the option to use Coinbase wallet to send the money. If you are not, you can type in a bitcoin wallet address and send the money. If you enable one click tip, you will send 300 bits every time you click on the tip button. You can also do this on William’s blog.

Since not all AVC readers have Coinbase wallets or own Bitcoin, we are doing a Bitcoin giveaway today on AVC to jumpstart the bitcoin tipping thing. We will give away $10 in bitcoin to the first 200 people to raise their hands, virtually, for this giveaway.

Here’s how the AVC Bitcoin Giveaway works:

2.) Receive an email back from Coinbase to “claim $10 worth of free bitcoin”
3.) Create a Coinbase account with that link
4.) Receive funds

Please don’t send that email if you don’t think you will go through this entire flow as you’ll be taking one of the 200 spots.

I think that’s all there is to say about this right now. Let’s see how this goes. Should be an interesting experiment. Here are some other blogs you can tip at today:

FinTech Innovation Lab

I’ve written about this financial services oriented accelerator program run by the Partnership Fund for NYC and Accenture before. It’s a great program. Most of the major banks and brokerages are sponsors of this accelerator. So if your startup is accepted into FinTech Innovation Lab you will have high level access to these banks and brokerages. And there are “sister” programs in London and Hong Kong so you can also access sponsoring financial institutions of the sister programs.

If you are building a company that intends to sell to or otherwise partner with the largest financial services companies in the world, you would be well served to apply to FinTech Innovation Lab. The next program runs from April to June of 2015 and you and several of your colleagues will be required to be in NYC during that time period.

Applications for the 2015 spring program are now open and the application deadline is December 5th. There is an info session next week on November 12th. Details on all of this and how to apply are here.

Ticketing

I have seasons tickets to the Knicks and I share seasons tickets to the Nets with my friend John. Managing these tickets is a bit of a pain. At the start of the season, I download the iCal files that both teams post on their websites and convert them into CSV files. I then convert them to Google Spreadsheets and then share them with a bunch of people. Then I take the games I can go to, and give away games to friends and family, and sell a few games here and there. John does the same on his “half” of the Nets tickets. The truth is John gets to go to a lot more Nets games than I do but I get to go to the ones that matter, with him in most cases.

This morning I logged into the Nets season ticket holder website, and sent two tickets to tonight’s Nets Thunder game to Alex. Neither John nor I can go so I gave these tickets away. This wasn’t too hard and it would have been even easier if I had done it on the Nets iPhone App.

Like many industries, the Internet and mobile has changed ticketing. These days you have your tickets on your phone, when you board a plane or enter a stadium, you just pull out your phone, they scan the QR code, and you walk through. Getting the ticket on the phone is pretty easy if you have the app installed. And, though I have not figured out how to use it yet, Apple’s Passport App seems like a secondary storage system for tickets for those who don’t want to have hundreds of ticket apps installed on their phones.

But as much as ticketing has changed, it still hasn’t reached the ideal state which in my mind is how Bitcoin works in my Coinbase app. The Coinbase app offers the following options:

coinbase app

I would like to have a ticketing app that offers the same thing. Buy/sell, transfer, account summary. When I want to buy tickets, I just buy them from the app. When I want to sell tickets, I just sell them from the app. When I want to transfer, I just send them from the app.

Bitcoin can be the transactional system that all of these tickets run on top of. You can “color a bitcoin” with anything, and a ticket would be an ideal thing to color a Bitcoin with. Coloring means you take a tiny amount of bitcoin, say one penny worth of Bitcoin, and you attach something to it, like Row 15, seat 9 to tonight’s Nets Thunder game. When that ticket is sent, bought, or sold, that penny worth of bitcoin clears in the blockchain and the transfer is recorded. This insures that there is only one valid ticket to that seat to tonight’s game out there in circulation. That’s pretty important and that’s what most ticketing systems spend a lot of time and effort insuring. You no longer have to build or buy that technology if you want to sell tickets. It’s free for anyone to use. It’s called the blockchain.

Anyway, I think within a decade all tickets will be bought, sold, and transferred this way. The phone, or watch, or ring, or belt buckle, or something else, will house the ticket. And it will be bought, sold, transferred, and cleared on the blockchain. And the whole world of ticketing will be a lot easier for everyone as a result.

Multisig

A few days ago, I got an email from a reporter asking me this:

What is needed to help bring Bitcoin security and ease of use to mainstream Bitcoin users?

I was in a hurry, trying to get through my email, and wrote back this:

i think wider use of multisig would be a good thing

Mutisig is a technology that was added to the Bitcoin protocol in 2011 and 2012. This article on Multisig by Vitalik Buterin is a good description of the technology. This is from Vitalik’s article:

In a traditional Bitcoin account, you have Bitcoin addresses, where each address has one associated private key that grants the keyholder full control over the funds. With multisignature addresses, you can have a Bitcoin address with three associated private keys, such that you need any two of them to spend the funds. 

In principle this is a lot like the check-writing policies that many of our portfolio companies have. For checks below some number, say $5000, one signature is fine. But for checks above that number, two signatures are required.

Multisigned transactions are more secure. I would like to see more Bitcoin based systems implement multisig, as I explained to the reporter.

Yesterday our portfolio company Coinbase announced that their Vault service supports multisig. I use a Coinbase Vault and like to think of it as my “savings account” and I use it in combination with my primary Coinbase wallet, which I like to think of as my “checking account.” In addition to a Multisig Vault being more secure, it also allows the user to store their own private keys, something that has not been possible with the Coinbase wallet service. You can increase the number of required signatures from two of three to three of five. The latter service is great for family vaults or group vaults.

The reaction to Multisig Vault has been very good, as evidenced by this Hacker News thread. I particularly liked this comment:

the mere fact that a major Bitcoin exchange is allowing users to hold their own private keys really puts a smile on my face today.

It is completely unheard of in the financial industry (and usually technically impossible before cryptocurrencies) to have a bank give away their “middle man” access of people’s money and empowering their customers with complete control over their finances.

This is what Bitcoin is all about. Giving us control back over our money and taking it away from the financial institutions. It is not a coincidence that Bitcoin was invented in the wake of the financial crisis in 2008. But you can’t take control back from the financial institutions without providing trust and security. And multisig is a big part of that.

Sidechains

Earlier this year some entrepreneurs walked into our office and explained sidechains to us. I was pretty excited about the concept then and I continue to be excited about it. This past week some of the people who explained them to us and some other people I don’t know published a paper about sidechains called Enabling Blockchain Innovations with Pegged Sidechains. I think this is an important paper and everyone involved in bitcoin, blockchains, and cryptocurrencies should give it a read.

Here’s the basic idea in layman’s terms. I am purposely trying to dumb down and simplify the idea here.

1) The Bitcoin Blockchain is the most liquid blockchain, has the most mining on it, and is likely to remain that way given the network effects it has built up over the past five years.

2) The core Bitcoin system and software is not likely to change very much because making changes to it is risky and there is a lot of capital at stake on the Bitcoin blockchain now.

3) There are things you might want to do that are not well supported or not supported at all on the Bitcoin blockchain.

4) This desire for “other things you might want to do” has given rise to a ton of alternate blockchains, none of which have developed a lot of liquidity and mining on them.

5) So what if you created “sidechains” that are “pegged” to the Bitcoin blockchain that allow “other things you might want to do” while still leveraging the liquidity and mining of the Bitcoin blockchain?

That’s the basic idea and the paper I linked to explains how to do the “pegging” part which is critical to this whole idea working.

I believe that the core Bitcoin system and software will have to be modified to allow these “pegs” and I’m pretty sure (but not positive) that these changes have not yet been made.

It will be interesting to watch how all of this develops over the next year or two. If “pegs” are added to the core Bitcoin system and software, and if sidechains become popular and viable, then Bitcoin would essentially become the reserve currency of the entire cryptocurrency sector and there would be a host of sidechains and currencies that are pegged to it. This would allow a ton of innovation to happen around Bitcoin without requiring a lot of change to the underlying Bitcoin system. Which seems sort of ideal given how much money ($5bn at current prices) is at stake now.

Bitcoin Adoption Metrics

I said in yesterday’s post that price and volume charts were not what I look at when I think about Bitcoin. I mentioned Github repos, hackathons, and teams in accelerators working on bitcoin projects. This morning I came across an excellent slideshare on the state of the Bitcoin ecosystem. It had this slide in it.

These are the kind of metrics we need to be looking at to decide how Bitcoin is doing. And on these measures, I’d say 2014 has been a great year for Bitcoin.

bitcoin adoption metrics

I bumped into a friend of mine last night who said “all you write about is Bitcoin.” That may well be true. But I write about what I think about. So take that for what it is. I’m not going to apologize for my obsession with Bitcoin.

Bitcoin – Price and Promise

I’ve written a lot about Bitcoin. I’m a believer as I think it will be the transactional plumbing of the Internet and mobile and lots more in due course.

But the story right now is the sagging price of Bitcoin.

In full disclosure I’ve started buying it again after staying mostly on the sidelines for most of the past two years.

I have never owned much Bitcoin. I give away or spend what I buy. I am not a hoarder of Bitcoin. I don’t care about that aspect of Bitcoin, although many (most?) do. I care about it as programmable money.

But, of course, Bitcoin’s price is a function of its promise. Why own Bitcoin if it has no future?

So does a sagging price mean sagging promise?

In the long run, absolutely.

In the short run, not so much.

The market price of an asset in the short term is driven by emotion (greed vs fear), liquidity, technical factors, and a bunch of other things. Right now, those factors are driving down the price of Bitcoin. Last year they drove it up.

I continue to believe that the thing to watch is not the price chart, the volume chart, or any chart. The thing to look at is Github, Hackathons, Accelerators, and everywhere else that entrepreneurs and developers showcase their work. That’s where the future of Bitcoin and its promise will be determined. And right now, based on what I’m seeing, it’s future is very bright.

For another take on this same question, William Mougayar has a post up today on the same topic.

Video Of The Week: Fred Ehrsam’s Bitcoin Presentation

Someone posted this video in the comments a week or two ago. I watched it and liked it a lot. Fred Ehrsam, the co-founder of our portfolio company Coinbase, does a good job explaining what Bitcoin is and why it is important in ten minutes, no small feat.

In other Bitcoin news, the results of the AVC poll on Bitcoin ownership are in. 40% of AVC readers own Bitcoin, 60% do not.

bitcoin poll results

I purposely did not tweet out this pool as I only wanted regular readers of AVC to participate. I think if I had tweeted out a link with the headline “Do You Own Bitcoin?”, that would have skewed the results as Bitcoin fans would have poured in to vote.