Posts from hacking finance

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.

Bitcoin – Getting Past Store Of Value and Currency

Lightspeed India has a post with ten predictions for Bitcoin in 2014. It’s a good read and I agree with many of them. But prediction number 7 is the one I am most interested in right now:

7. The use of Bitcoin will evolve beyond ‘store of value’ or ‘transactions’

The underlying Bitcoin protocol makes itself applicable beyond the use cases of ‘store of value’ and ‘payments’. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and maybe even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map (http://bit.ly/1krEd0Z) that there are almost no start-ups, which solely use the protocol without using the ‘coin’ or the ‘currency’ as a function. 2014 will be the first year to see some of these.

I think there have been three phases to Bitcoin so far

1) Bitcoin emerges, community develops, mining, wallets

2) Bitcoin vice, silk road, etc

3) Speculation, trading, collecting, price spike

I think the next two phases will be/need to be

4) Commerce – real people buying real stuff with Bitcoin

5) Bitcoin as infrastructure – this is what prediction number 7 is all about. When will we see entrepreneurs coming to USV to talk about the marketplace for XYZ that they build on top of the Bitcoin architecture?

Soon I hope. I would like it to happen today actually.

A Web Service For Qualified and Accredited Investors

I just finished filling out a sixteen page questionnaire for an investment the Gotham Gal and I are making. I fill out this identical form about once or twice a month for various investments we make. Each time I get the form, I find a version I filled out previously in my archived email and copy the answers line by line. It’s complicated and I want to make sure I answer the questions correctly.

This form is created by lawyers to make sure that we are qualified and/or accredited investors. They also use this form to verify our tax and regulatory and compliance status. If you make an investment in a venture fund, a hedge fund, a private equity fund or a private placement, you will probably fill out a similar or indentical form.

Here’s the thing. I am literally answering the exact same questions again and again. I take great pains to make sure I answer them the same way each time. And it is a chore. I hate doing it.

Though the size of the accredited/qualified investor market may be small, I really don’t understand why there isn’t a web service where I can go, fill this form out once, and then certify that the answers are correct, and then simply auth with this service each time we make an additional investment.

If such a service exists, please point me to it and I will recommend it to the lawyers who handle these sorts of transactions.

USV requires our investors to fill out these same forms. When we close our next fund, we are going to hack together a web based system in partnership with our portfolio company CircleUp. But this isn’t really CircleUp’s business and they are doing this as a favor to us and our investors.

What we really need is a third party to offer this service to all accredited and qualified investors and we need the market to adopt it. It would make me and many others very happy to stop filling out these forms.

The Smartphone As A Wallet

Last night the Gotham Gal and I went out with a bunch of friends. We met at a restaurant on the upper east side that had recently opened. It was snowing pretty heavily all day yesterday and we were worried about getting a cab on the street. So as we were getting ready to leave, I hailed a cab on my smartphone so that it would pull up in front of our apartment building. The car came more quickly than I thought it would and we scrambled out of the apartment and got in the car and headed uptown.

When we arrived at the restaurant, I realized that I had left my wallet in the apartment. Because the cab was paid for on my phone, the driver had been paid and tipped. But I was concerned about paying for dinner. So I told the Gotham Gal that she would have to pay for dinner. And then she told me that she too had walked out without her wallet.

Fortunately we were having dinner with friends and I asked one of them to pay for our share of the dinner, which he was happy to do. When the check came, I asked him how much our share was, he told me, and I pulled out my phone, opened my Coinbase app, and sent him a fraction of a Bitcoin to cover our part.

I then hailed a cab to get us back home and when we walked out of the restaurant the car was out front waiting for us. We got in, went home, and walked the dog and went to bed.

We paid for every part of the evening on my smartphone. Had we been going out solo last night the Bitcoin bit would not likely have been possible. But my gut says that will change pretty quickly. We are not the only people getting used to paying for things on our phone and doing it frequently. The experience we had last night seems likely to be normal and customary in a few years time. And I can say that it is a convenient and pleasant and I am excited to see it coming.