Posts from hacking finance

Feature Friday: US Dollar Wallet

My colleague Joel told me he doesn’t own any bitcoin right now. Instead he has a “USD Wallet” on Coinbase and when he needs to spend or send bitcoin, he just does that out of his USD wallet.

So I decided to set one up myself. I now have three accounts on Coinbase. A bitcoin denominated wallet, a USD denominated wallet, and the vault where I keep most of my bitcoin (I don’t own much, around 30 bitcoin in total).

The recent slump in price for Bitcoin revives the issue for many of the price volatility of owning bitcoin. Some want that. They are speculators who think the price of Bitcoin will increase substantially as the technology is broadly adopted. That may well happen. But others, like me, hold bitcoin so that I can use to it spend money and send money. For them, having their bitcoin denominated in dollars makes a lot of sense. Joel is one of those people. I could become one, but for now I’m happy to do it both ways.

Coinbase has had a USD wallet since October 2014, but it has not been available in many states as a result of regulatory issues. Coinbase recently added New York State customers to the USD wallet which is why I was able to add it to my account.

If you own a lot of bitcoin and are concerned about price volatility, you might consider putting it in a dollar denominated account on Coinbase. You can still do everything with your bitcoin you want to do, but you can now do it in dollars. If you have stayed away from bitcoin because of the price issues, you now have a way to “pay with bitcoin” without taking price risk.

If you want to try it you visit your account or set up an account at Coinbase.

The State Of Bitcoin – January 2015

This is a slideshare from Coindesk:

I think this slidedeck shows that 2014 was a tough year for bitcoin, something I mentioned in look back and look forward posts. This year has started off poorly with problems at Bitstamp and the price breaking below $300, probably in relation to the Bitstamp issues.

It’s tough times for the bitcoin sector but venture capitalists continue to make investments and transaction volumes continue to rise. I believe we are witnessing a transition from one phase (monetary and speculation driven) to another phase (new applications and bitcoin as a platform) and there will be a shakeout as the transition happens. I think we are well into that shakeout.

More On The Coin Center

Last September, I blogged about a new policy organization called the Coin Center that had been formed and that USV was supporting financially along with a number of other entrepreneurs and investors. At the time, the Coin Center had only one employee and there wasn’t much information about them on their website.

In the roughly three months since that blog post, the Coin Center has already established itself in Washington DC as a credible and trusted source of information and education on bitcoin and blockchain issues and has also built a real organization that can deliver on all of that.

Today, the Coin Center has launched a fully functioning website that explains in detail what they do, has educational resources on it, introduces the staff and board, and of course, allows anyone to support it.

If you are active in the bitcoin and blockchain space or care about how it evolves and how policy makers and elected officials think about it, you should be aware of the Coin Center and consider supporting it.

Broken Cap Tables

A “cap table” is a schedule of all the shares outstanding for a specific company. Here’s an MBA Mondays post I wrote back in 2011 on the subject of cap tables. If you want to know how much of a company you own, a cap table is the best way to figure that out.

Cap tables are almost always prepared and kept in spreadsheets, usually excel, but also increasingly google sheets. And, it turns out, they are often wrong.

Henry Ward is the founder and CEO of a company that is aiming to fix that called eShares. Last month USV led a Series A round in eShares and my partner John Buttrick wrote a bit about that investment today on the USV blog.

The reason I tell you this is that yesterday Henry wrote a great post about broken cap tables that everyone in the startup world should read. Here are the four big takeaway’s from Henry’s post:

  1. Most cap tables are wrong
  2. Most investors don’t track their shares
  3. Note holders are often forgotten
  4. Employees suffer most

How does Henry know this? Well part of eShares’ business is converting cap tables from spreadsheets into their cloud based application and reconciling everything to make sure it is correct. They onboard about 100 companies a month right now and they see a ton of cap tables.

Tracking everyone’s ownership in companies is a perfect application for a cloud-based network of owners and issuers. If every company used a platform like eShares, and if all these platforms talked to each other, if there was a common identity standard, then as you move from one company to another over your career, collecting equity along the way, you could access and manage all of your ownership interests in a single dashboard.

This is a service that is incredibly useful to startups and angel investors and VCs. But as Henry outlines at the end of his post, it will ultimately help employees the most. And, as we have discussed here before, employee equity is certainly more broken than cap tables are. Fixing that is a worthy mission for a startup and that is what Henry and his team intend to do.

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.