Bitcoin Update

I wrote a post about Bitcoin last November wondering if it was over or if we were just in a down phase in the hype cycle (http://www.avc.com/a_vc/2011/11/bitcoin.html).

In the nine months since that post, Bitcoin has made a nice recovery. The price is up and volume of transactions is increasing.

Bitcoin is still very much a fringe thing and is tiny as these things go. Compared the the volume of transactions Square will do with Starbucks, Bitcoin looks like a joke.

But I like to pay attention to the jokes, the laughing stocks, because occasionally they get the last laugh.

I am curious what the AVC community thinks about Bitcoin these days.

#VC & Technology

Comments (Archived):

  1. Steve Hallock

    Definitely fascinating. Whether it succeeds or not, it is likely to be just an early example of connected, free individuals challenging governments. At some point there will likely be something governmental suppression in this area otherwise we are going to see some incredibly interesting geopolitical changes within our lifetime. Maybe the Internet isn’t all about cat videos…

  2. nano

    It definitely has promise. It’s just missing the real killer app that makes heavy use of it. The app is still a twinkle in my eye ๐Ÿ˜‰ but wait another 8 months if I could manage to quit my cushy job and we might see something exciting there.

    1. Ela Madej

      Well, there’s actually a Y Combinator company that is going to do just that, so watch out. They are called Coinbase, want to be THE Bank for bitcoin and the founder/CEO is really impressive so I think they can pull it off… More here – http://allthingsd.com/20120

      1. fredwilson

        I like what coinbase is up to Ela

        1. Prashant Sachdev

          bitcoin is very interesting idea for internet “cash” currency but has list of execution problems….it is good to know of coinbase that is solving an important problem of hosted digital wallet and am sure it would go ahead in solving add / remove fund from your regular bank.

    2. FAKE GRIMLOCK

      RULE #27 OF INTERNET:IF PORN NOT ADOPT IT YET, IT NOT GOING TO WORK.

      1. Ric Fulop

        I wish Disqus would let me upvote multiple times when I read a comment like that!

  3. Cindy Gallop

    Taking Bitcoin seriously and very interested in its progress. We considered utilizing for https://www.makelovenotporn… given the significant issues we’ve had with the old world order of finance when it comes to putting payments infrastructure in place for a startup that is deemed ‘adult content’ – not right for us out the gate, but definitely a consideration for the future.

  4. sull

    a little bit like online gambling… stock brokers have fun with it on the side. fun aside, some serious web apps have been built around the BC phenomena…. such as bitfloor.com. if nothing else, it remains one of the more fascinating developments on the interwebs in recent years and i think it will continue to linger and nudge and work its way into a global culture of transaction-making.

  5. Mt.Gox - Alex

    Bitcoin has a real potential and we are proud of our work at Mt.Gox. Also we would be delighted to chat with you whenever you feel doing it!

    1. fredwilson

      I may take you up on that

      1. Mt.Gox - Alex

        Any time!

        1. GSukenik

          Mr. Wilson: BitInstant.com, a Bitcoin transfer service, recently moved into their first office in NYC. I’m sure they would love to sit down with you, and they’re right in the neighborhood. Mt. Gox: Love your work! Very happy account holder, here.

          1. Erik Voorhees

            Absolutely! I work for BitInstant here in NYC on 23rd st. We are one of the top two or three largest Bitcoin companies, growing at 20-30% per month over the past six months and secured significant VC funding this summer. We’d absolutely love to chat with you Fred, about all things Bitcoin, whenever it’s convenient. 720.382.4326

      2. Mt.Gox - Alex

        I have a colleague in the US so we could definitely have this talk, meanwhile my email address is gonzague [at] mtgox.com.

      3. Prokofy

        If you really believe in BitCoin, convert one of your investments to BitCoin, and then report honestly about it.

    2. ShanaC

      How do you deal with trying to get people to make investments in bit coins as opposed to dollars. I mean, lets pretend USV wants to do a valuation in Bitcoins – how does that work?

      1. Mt.Gox - Alex

        Bitcoin is not a standard investment product, and I believe that if this were to happen we will have to rethink a few things. If you want to chat about it send me an email : gonzague [at] mtgox.com

        1. ShanaC

          I would love that! Seriously, I think this is an essential question of whether bitcoins can work.

    3. haha

      We need money to become solvent …

  6. Ric Fulop

    Bitcoin transactions take too long. Someone needs to develop a way to do realtime transfers. I miss the 1990s original paypal app for the Palm that would let you beam cash from Palm V to another.

    1. Jim

      Mt. Gox to Mt. Gox transfers and Coinbase to Coinbase transfers are instant. Built on top of the bitcoin network.

      1. Giles

        That’s not really a bitcoin transfer in the sense that Ric Fulop meant, AFAIK — it’s just shifting money from one account at Mt Gox to another. It’s the same distinction as an interaccount transfer within a bank versus physically paying someone with cash.

        1. BladeMcCool

          there is very little risk in accepting 0 confirmation payments as long as you know the major mining pools received that transaction as well. Very likely safe for low value things that you want to be in and out with quick, like a coffee, or a sandwich. If you want to buy a car with Bitcoins, yes you’ll probably have to wait the 10-60 minutes for some confirmations before they let you drive off the lot.

        2. Serge

          Same as Paypal

    2. Rohan

      Beam!Ah. Love the sound of that.Reminds me of my very faithful Palm Treo 650. ๐Ÿ™‚

    3. Anonymous

      Bitcoin Spinner for Android is an easy mobile wallet.Install that, then go to the Bitcoin Faucet to get a free sample (worth about a nickel).Then go to bitZino, create an account, fund it with the free sample, and play video blackjack for real money (try to double your free nickel from the Faucet). – http://en.bitcoin.it/wiki/M… – http://www.BitZino.com

      1. Anonymous

        The free sample will take one confirmation (about 10 minutes) if to your mobile wallet, or immediate if to bitZino directly.

      2. falicon

        I think this reveals the true challenge with bitcoin right now…it’s still *too* difficult and there are too many parts/steps to use it…the concepts are there, and it’s slowly getting better, but there is no easy story or single, simple process an average person off the street can understand and accomplish.What is bitcoin? How do I get bitcoins? Where do I keep my bitcoins? What can I do with my bitcoins? How much are my bitcoins currently worth?It needs to be a super simple story that anyone can repeat and quickly answers these questions…then it’s *really* something…

        1. LE

          “It needs to be a super simple story that anyone can repeat”The story needs to be complicated which is why it’s complicated. If the story was simple people would be able to understand that the bottom line is as a pioneer with this you will be shot in the back. And they would avoid it.Try to pitch a business person on a technology project and run circles around him with technospeak. Note how he will feel embarrassed to ask questions and assume that you are truly intelligent because of what you know that he doesn’t know. As a result you stand a high chance of getting him to part with his money for something he doesn’t really need.Then try the same thing but make it simple. He will understand, ask questions, and in the end might not pay you the extra money for the software .Probably a good example is with hardware. Say a faster processor which has no benefit at all if all he does is surf the web and send email. Or more megapixels for a camera to take pictures at Dad’s birthday party. Or ability to shoot in “raw” mode vs. jpeg.

          1. falicon

            :-)I guess it depends on the goal…if the goal is to gain adoption and have it spread…then it needs the simple, repeatable, story approach…if the goal is to over-hype, scam, or over-sell then perhaps sticking with a complex story is the proper approach.I do actually think there are some good concepts and solid parts to bitcoin though…so I don’t think it’s entirely hype or scammers just trying to make a buck (though yes there are some in that crowd)…but because I think there is some quality and potential there, I think the ‘simple story/experience’ is the real missing ingredient to wider adoption here…

          2. LE

            Let me clarify.I don’t think it’s a scam on the parts of the creators or everyone involved by any means. I think they think their intentions are pure. In a naive way of course. So no Mens rea …But others who are jumping on board (the people who would be selling the pick axes) I do believe they are simply taking advantage of something to put money in their pocket.I agree that in order to gain adoption you need a simple story of course.

        2. cypherdoc

          it is a simple story; it’s just how you choose to tell it. here, let me try. “it’s a new digital currency you can transfer around the world for free in seconds w/o any banks”. there, that was simple and that’s really all it is.the techies who try to describe it get themselves all tongue tied up describing the cryptography, mathematics, and internet protocols when asked. they think the first thing ppl want to know are those things. but simple business ppl like myself don’t suffer from that.

          1. falicon

            yes the most basic story is that it’s like credits…but that doesn’t mean enough…how do I get some? how do I use it? how does the value get set? who owns the system if it’s not backed by banks? how do I know I won’t lose my money (how secure and trust-worthy is this thing?)…the stiry has to cover this stuff or it’s just something you know about but would never actually try…

          2. cypherdoc

            you mean i’m not spoon feeding you enough. sorry, couldn’t resist. it depends on how much you want to invest. if it’s $500-1000 i’d just use Bitinstant where you can go deposit cash at anyone of thousands of local retailers near you like CVS or 7 eleven: https://www.bitinstant.com/… and then they’ll email you a link to claim your Bitcoins within 30 minutes. but if you want to invest $50-100K like some of us (that’s the cheapest way since you only pay the $45 wire fee plus the 2.5% exchange fee) you go to MtGox which is the most popular (many others) Bitcoin exchange in Japan: https://mtgox.com/ sign up for an acct in 2 min or less and then send the wire. you can have your Bitcoin by that evening in that case.the price value is determined in an unmanipulated open market, the exchanges, by normal supply and demand and like any other security. the Bitcoin System is not owned by anyone. you might say that’s a bad thing but no, its a good thing. until you understand that the world’s financial problems can be distilled down to the term “fiat currency crisis” you’ll have trouble understanding Bitcoin just like you would gold. fiat currency is a rigged system to the vast majority benefit of the bankers who own the printing press and use it to their own advantage. we could debate this to high heaven but i don’t have the time. as evidence just where did the $2T of high power money printing from the Fed go? you can see it the Roman Candle increase in Excess Reserves here: http://www.research.stlouis…. they’ve not given or lent it out to the Real economy, they’ve hoarded it or used it to speculate on stocks and commodities. no wonder the economy is in the shitter.so sorry to digress. so its a GOOD thing nobody owns it b/c thus Bitcoin cannot be “debased” or “devalued” as the USD has been been to the tune of a drop in purchasing power of 100% since the Fed manipulators have come into existence in 1913.as far as security look at the balances here in these Bitcoin addresses: http://www.forbes.com/sites…. if you inspect the blockchain public ledger, some of these balances haven’t been touched for over a year and contain millions of USD’s. not a single address (think of them as personal bank accounts) has ever been hacked due to the robustness of the cryptography and hashing systems employed. how secure? think of all the grains of sand on the Earth today. what are the chances that you can pick up the same grain of sand 1000x in a row? that’s the likelihood that a supercomputer could hack into your address. at that level of unlikelihood, govt’s or their financial lackies can’t take the risk of loss of resources to try to hack their way into Bitcoin to destroy it. yes, their computing power will increase with time but so will the cryptography, mathematics, and computing power behind the Bitcoin Network as it continues to grow.who backs Bitcoin? the detractors say nothing. they’re wrong. it’s backed by the investors, enthusiasts, time, software, hardware, innovation, & yes, fiat money invested into the Bitcoin system to ensure that it continues to innovate, secure, and stay several steps ahead of corrupt govt’s and financial terrorists. it’s almost a social movement as evidenced by Twitter and Facebook used in the Egyptian Revolution. as an example. i know of several Bitcoin backers who don’t code yet own their own separate businesses. to show their support for the network, they leave a half a dozen or so of their office computers on to help propagate the network and process transactions.its funny; i fly across the country alot on business and pleasure and oftentimes i just look out the window at the countryside as i fly over rural and urban areas. i just marvel at what the Internet has done to connect all those little condos, apartments, houses, farms, commercial buildings worldwide. i also imagine each of those structures with a computer inside with a copy of the blockchain. what are the chances that the gov’t can raid everyone of those structures to shut down those computers with the sacred blockchain? impossible. and as long as just one copy of the public record that ensures everyone will hold onto their specific Bitcoins exists, Bitcoin can never be destroyed.

          3. falicon

            Awesome info and I’m not saying bitcoin isn’t awesome…but my whole point was that “simple story” was needed…the above is a bit more than a “simple story”.’Facebook credits – you can use them, via your facebook account, to buy stuff online just like real money’…that’s a simple story that regular people can gleam trust and understanding from…at least enough to say, oh OK, I am willing to put in $50 via my facebook account and give it a try…

          4. cypherdoc

            the above story is b/c i spoon fed you the specifics on how to get them and you asked multiple questions. what do you expect?here’s the simple story: ‘Facebook credits (Bitcoin) – you can use them, via your facebook account (Bitcoin software), to buy stuff online (and face to face) just like real money’…

          5. falicon

            yep – it’s a difficult thing to answer so many questions in a short line or two (and it’s an idea that begets a ton of questions)…again that’s my point in saying the ‘idea’ is still just a bit early for real adoption.Your updated version of the Facebook one is a good start, but lacks the ‘trust/brand’ of Facebook (ie. without that big name backing that people already know/trust it’s going to be hard for a ‘regular’ to try or trust it)….also bitcoin software is not something people already know, understand, or are already using (another hurdle)…The good news is that ‘money’ wasn’t used, understood, or trusted for years when it was first introduced either (regulars still preferred to just trade physical goods or actual services)…so it’s not an impossible uphill battle…I just think it’s a bigger and harder journey from the current starting point than most currently involved in bitcoin want to admit…

          6. cypherdoc

            you really think Facebook is a good example of putting trust into a new monetary system after what they just went thru with this?: https://www.javelinstrategy…” Facebook likely was confronted with concerns from potential partners about its Facebook Credits requirement, and it may have even faced legal challenges that forced it to abandon the currency.”This is exactly why Bitcoin is destined for greatness, IT DOESN’T HAVE A CENTRAL POINT OF FAILURE. This is the beauty of open source and distributed networks. Look at successful examples of the concept: Linux http://en.wikipedia.org/wik…, Apache (backbone of the Internet), Bittorrent (free songs), Android (top OS for smartphones), Skype (free face to face communitcation), Wikpedia (defacto online encyclopedia), Mozilla Firefox, etc. http://en.wikipedia.org/wik…so just why would Open Source software like Bitcoin be superior to closed source products? because it taps into the collective wisdom of the world. whereas Apple can only tap into its dozen or so talented devs in house (not the best example cuz Apple has done a good job but Android IS beating iPhone sales), open source software can tap into a 17 yo computing wizard in the Ukraine who is dirt poor and would never get a shot at working at Apple but just happens to be a math wizard like Ramanujan of India who lived in a tent. and the kid WILL develop for Bitcoin for free b/c he knows he can gain a reputation if his code is good and eventually he WILL get a chance for a better life.

          7. falicon

            Personally I would prefer bitcoin over Facebook as well…but I believe most ‘regular’ people would still trust something backed by Facebook more than they would something backed by a distributed set of it’s users.Brands are powerful things — quite possibly the *most* powerful things in the world today actually…

          8. cypherdoc

            well since Facebook credits are now defunct, they are a non issue.for something as new and revolutionary as Bitcoin it will take smart ppl like you and i to invest and get it going. once that happens, and i think it already has to a degree, regular ppl will just sign on as the washed masses do.

          9. Gary Rowe

            Bitcoin is its own brand, just like Linux.

          10. falicon

            Yes…but it’s not a very good one (yet).1. Even Linux isn’t widely adopted by the average person. In fact the largest adoption of ‘nix stuff has traditionally been when another brand incorporates and backs it (usually locking it down at the same time)…ie. Mac, RedHat (for gov.), universities…2. Bitcoin has the unfortunate association in the brain to Bit-torrent…the average person that does know about bit-torrent (mostly the younger crowd) generally makes the association of ‘stealing’ or at the very least ‘free borrowing’…this is a crushing association to have for a money platform3. Nobody ligit at the moment really has the motivation or reason to push Bitcoin as an intelligent/solid option (and the legit ones that do right now are just individuals that come across as likely to highly profit if it’s adopted)…as a few others in the thread have mentioned, Bitcoin needs a motivating factor or reason like jobs or something to show people *why* it’s better than traditional money…actually I think this is actually the first and most important branding challenge for Bitcoin…if there is a compelling enough reason to want/need/use Bitcoin, the masses will wake up to it…but just being distributed and secure isn’t really compelling enough on it’s own yet (perhaps one day given the world economy and direction of politics it will be, but I don’t think any time soon)

          11. ShanaC

            The time scale to get the vast majority of people to use currency is incredible. It takes a lot of time.

    4. goks

      You can always accept 0 confirmations for small amounts, which is instant. I made thousands of Bitcoin transactions so far and haven’t seen any transaction that showed on the receiving side but didn’t confirm. Though for larger amounts (e.g. above $1000 worth) it’s worth waiting 10-30 minutes IMO.

    5. Erik Voorhees

      Bitcoin transactions ARE instant. If you are talking about the 10 min confirmation delay, you only need to wait that long if you want far higher certainty that a reversal can’t happen. This is only relevant for large amounts of money. I run several Bitcoin businesses and we accept Bitcoin payments instantly, without delay. Not once have we ever had a reversal and we’ve had thousands of transactions.

    6. mckoss

      Transactions are propagated on the Bitcoin network in seconds. Virtually all of those will make it into a confirmed “block” within 10 minutes. So for small amounts (under $100), most people would be satisfied with the couple of seconds confirmation that the transaction has posted – and don’t need to wait for the irrevocable registration in a block to be satisfied that their money is “on the way”.

    7. cypherdoc

      take too long? spoken by someone who has never used Bitcoin. hmmm, right this second i decided to send $100 worth of Bitcoin around the world. done. try that with your Western Union. you’ll be done in about 3 days if you’re lucky. oh yes, since its Thursday and they don’t work on weekends (Bitcoin does) it won’t be until next Tuesday that’ll it might get there if you’re lucky.

      1. Ric Fulop

        How the heck do you know if I’ve ever used Bitcoin or not? If you want to send me that $100 please do so at my acct 15q4xfbSXmgLZN8EqQyoh6swmmvEmaqUzxI’m a fan of Bitcoin but there is a lot of work to do to get it ready for prime time. My view of the time to settle large transactions comes from spending personal 1:1 time with Gavin Andresen. I’ve been looking at this for a while. Something is going to happen but some pieces are missing. We need entrepreneurs to fill in some of the blanks.

        1. cypherdoc

          you just said “it takes too long”. even if you have to wait for 6 confirmation, which you don’t, how does that hour or so equate to having to take the morning/afternoon at your bank to send a wire tx @ $45 a piece or using Western Union which i hear is even more expensive and takes even longer?

          1. Ric Fulop

            How do you buy $5M in bitcoin without moving the market or negotiating a custom fee today? How do you enable institutional adoption? If a small business or even Target is to take bitcoin one day real time confirmation is necessary. That’s just my opinion. Lets figure out how to make that happen.

          2. cypherdoc

            at this early stage of ANY currency, you have to expect that a $5M buy on an exchange is gonna cost you b/c of market disruption. that’s not a bug of Bitcoin but just a reflection of its size.if Target brings Bitcoin to the masses, i could turn the “complexity” argument back on you doubters; the average Joe Blow wouldn’t have the technical expertise to create a double spend.

          3. Ric Fulop

            dude, $5M might sound like a lot of money but is a buckyball sized pimple on the butt of an elephant. Its a super tiny figure in the context of the word “currency”. You’ll never have viral adoption of Bitcoin without making it stable to rapid adoption and enabling real time settlement.I’m a fan of bitcoin and I’d like the concept to succeed but instead of saying its ready and sticking your head in the sand lets fix the real barriers to mass market adoption.

          4. cypherdoc

            stop acting like you’re a high roller and we might get somewhere. you have no idea of my networth but if you did maybe you’d stop acting like you’re hot shit. yes, Bitcoin needs some work to scale; we’re all well aware of that; nobody’s sticking their head in the sand. but if you know Bitcoin like you say you do then you’ve probably spent time on the Forum in the Dev area and know what’s cooking in this arena. there are ways to make it scale and it’s doing a pretty good already and still has plenty of capacity for growth at this time.

          5. Ric Fulop

            What does your net worth have to do with my point? We are trying to have an intellectual argument about the state of Bitcoin and areas for improvement for mass adoption. I think you are a lost cause. I’m going to sleep. Lets put it on the record that I got you to say “Bitcoin needs some work to scale; we are all aware of that”

          6. cypherdoc

            i don’t know how old you are but i know i didn’t stop using the first Mac released back in 1985 and its subsequent offspring just b/c it had a hard drive that held the equivalent of 2 programs and a coupla documents (exaggerating of course). i saw a concept and a tool that i knew would scale someday to become a much more practical piece of equipment for everyday productive usage. that’s where we are with Bitcoin as i see it. the seed is there.

          7. Ric Fulop

            The first Mac was released in 1984, not 1985! It only had a floppy drive.

  7. Charlie

    I’d like to know how bitcoins is supposed to scale to millions of users and transactions without losing the massively distributed topology that underlies its appeal.

    1. goks

      The fact that anyone can run a node will continue to make collusion between majority of the operators impossible, even if those who run those nodes are more likely to be dedicated hobbyists or mining cooperatives than the casual user. It’s unlikely that massive adoption will result in a decrease of nodes or miners either. Despite the increase in cost of running those operations, there is an increased incentive to do so.

  8. Stuart Campbell

    Still trying to work out why regular mortals care about bitcoin.

    1. fredwilson

      They don’t

      1. Stuart Campbell

        Will they ever? Chances are not.Despite the good intentions of the people in the bitcoin space the whole concept seems a bit suspect and winning the trust of the internet community will be tough. Good luck to Mt.Gox and Coinbase but IMHO the headwinds are way too strong.

        1. cypherdoc

          “a bit suspect”. that’s just having a closed mind. try it and you’ll understand what we’re talking about. the internet community is exactly the type that will get it first.

      2. Guillaume

        When I explain bitcoins to regular mortals, I say it is a money that holds in a file on computers and can be exchanged to anyone anywhere in the world without leaving traces. The first reaction is always that it is not possible, then that it is not safe, and then that it could break things badly. So in a way, once mere mortals are aware of bitcoins, they do care!

      3. LE

        Twitter, facebook, zynga, kickstarter etc. are addictive and provide entertainment. Craigslist provides value and solves a problem cheaply. Google solves a problem. A fancy car helps you get laid.What benefit does bitcoin have for mortals? None. That’s why they don’t care.By the way the benefits of cutting out the middleman banking system are nominal. Note people paying high interest rates on credit cards and not taking advantage of cash discounts at gas pumps as one impediment to mass adoption necessary to hit a tipping point.

        1. falicon

          Very good points.I often go the route of a credit card because it’s quicker/easier than paying cash (because I then have to go to the bank/atm to get more cash)…the exception being that I also always pay my credit card off each month (so I generally don’t pay the interest)…but I *do* pay the higher rates at pumps and such for the convenience (ie. time/personal-energy saved).I believe convenience and simplicity, btw, is the true vision behind square (and why it’s been getting so much attention and adoption so quickly)…in some ways it’s the exact opposite of bitcoin (with square the goal is that the technology is invisible and stays out of the way — with bitcoin, the tech. is front and center and more or less the whole thing right now)…

    2. Ryan Frew

      How many regular mortals care about actual currency? How many can explain the logic behind a currency exchange or have a decent grasp on what gives currency its worth? I don’t know if getting people to *care* about bitcoin is the most critical path. The question is whether or not they can use it, right?

    3. Erik Voorhees

      Regular mortals didn’t care about the internet in 1994, either. Nor did they care about commercial flight when the Wright brothers were working.Regular mortals do care, however, that they pay absurd fees to banks ($35 fee and days of waiting to make a digital transfer of digital USD to another digital account??). They do care that prices rise every year in the grocery store (though the usually don’t know the cause). They do care that they have to give vulnerable credit card details to every merchant they shop with, and that identity and monetary theft runs rampant from this exposure. And they do care that it takes days and hassle to transfer money around the world or even across town.Bitcoin solves all those problems and more, and once this is understood and the ecosystem developed to a convenient level, the mortals will care.

  9. guntees

    silk road is the killer app.. $2 mill a month may not seem like much but it is doubling every 6 months with no sign of slowing.

  10. Josh Jones

    I’m pretty sure it’ll take over the world someday before I’m dead. I’m 35.

    1. fredwilson

      A 65 year investment horizon. I like that!

      1. Josh Jones

        An implied 100 year life span for me. I like that! ๐Ÿ™‚

        1. Techman

          With today’s advances in medical technology, you could end up living longer then that. Medical Science is an amazing study.

        2. fredwilson

          Could be longer if you play your cards right. There is s lot happening right now on that front.

  11. Techman

    It seems that a bit coin is a very popular form of currency in the hacker/pirate world. I know very little about it, and don’t want to associate myself with it.

    1. Gรธran Berntsen

      Bitcoin and Liberty Reserve seems to be very popular in that world. (Read http://dendory.net/blog.php… for example)

      1. Techman

        That is what I thought.

    2. Radek Svoboda

      It seems that a “Dol lar” is a very popular form of currency in the drug community. I know nothing about it and don’t want to associate myself with it. …

    3. Erik Voorhees

      It’s also a very popular form of currency for individuals who don’t wish their money to be perpetually debased.

    4. cypherdoc

      Bitcoin is very popular outside it as well. i guarantee that.

  12. Cam MacRae

    I’m a fan, but the fuzzy legality of bitcoin takes the shine off. I imagine legislation will eventually be crafted to solve this — unfortunately it will probably also nullify all the benefits; a currency over which every treasury considers itself sovereign won’t be particularly useful.

    1. Avery Hackmann

      Fuzzy legality? All things that aren’t violating anyone else’s rights is inherently legal. Bitcoin itself certainly passes that test with flying colors. I don’t see how legislation would “solve” anything about Bitcoin other than your perception of it.If every piece of open source software needed a nod from the legal system to be perceived as legitimate and acceptable by the population at large, software innovation would come to a near stand-still.

      1. Cam MacRae

        Nothing like a little hyperbole to polish off the day.Odd as it may seem, there are ~194 sovereign nations not governed by the US constitution. In light of this you might consider the bulk of statute as an administrative, not moral instrument.In any event, it’s not my perception that needs to be addressed, but rather the perception of treasury and their indefatigable determination to meet their AML/CFT obligations.So yes, mate, fuzzy legality it is. (Mind you, fuzzy legality is slightly preferable to absolute illegality.)

        1. BladeMcCool

          i dont think any of the nation states have any jurisdiction over anything to do with bitcoin or other invented protocols for that matter. they may try to assert a position to the contrary, which will be full of drama and lulz, but in the end they can do very little legislatively to stop the spread and adoption of bitcoin. Its quite difficult to pin a bitcoin address to a physical human being. So it makes it easy for everyone to deny nation states their primary source of funding. And eventually the nation states will run out of money as their central bank systems collapse.

      2. Filip Wolski

        I think Cam was referring to bitcoin being a new thing that wasn’t referenced yet in a law; therefore if it grew, sooner or later it would, and that wouldn’t necessarily be for it’s good. You’re right with it’s current legality, but there’re loads of examples of laws prohibiting activities that never violated anyone’s rights, at least in no obvious matter.Online poker in the US could be an example; from what I understand, main problem regulators had with online poker was tax avoidance on the winnings (although I didn’t really follow the story, so I might be wrong). Bitcoin could pose the same problem (and probably many others)

        1. Cam MacRae

          Well said.

    2. cypherdoc

      they won’t make anything illegal unless they know they can actually enforce it otherwise the black eye would be politically suicidal. since they can’t enforce it, they won’t make it illegal.

  13. DPGoff

    A Carnegie Mellon Professor just released a paper on “Silk Road” (http://silkroadvb5piz3r.onion) an underground anonymous illegal drug marketplace conducted over Tor with Bitcoin as the only method of payment. The author estimates a $22MM USD run rate of bitcoin denominated transactions and growing quickly. He states: “A surprising result is the tight coupling between Silk Road and the Bitcoin market – the daily sales on Silk Road correspond to almost 20% of the average daily volume of USD-BTC exchanges on Mt. Gox the largest bitcoin exchange”The Paper:http://arxiv.org/pdf/1207.7…Summary from Forbes: http://www.forbes.com/sites…There is an offshoot site “The Armory” (URL: http://ayjkg6ombrsahbx2.onion ) that sells assault rifles using Bitcoin as the only method of payment. From Gizmodo: http://gizmodo.com/5927379/…While the Bitcoin is a brilliant piece of crypto / distributed systems research, it is very hard to see its mass adoption. Lots of the existing transaction volume appears to be amongst speculators (speculating on the value of bitcoin and differences in prices between bitcoin exchanges) and bitcoin miners. The closest thing to a “killer app” that has real underlying commercial transactions at this point are marketplaces like Silk Road and The Armory. Bitcoin has tremendous instability as a store of value and is cumbersome as a medium of exchange (together the two main functions of a currency) which makes it most useful to those that value anonymity over all else, hence its attractiveness to black market use cases.

  14. Paperwell

    Bitcoin will not succeed as a ‘currency’ because the supply is not able to grow proportionally to the economy.This causes deflationary cycle since the more you hoard bitcoins in an economy of bitcoins, the better off you are. (the same amount of bitcoins maps to a larger amount of economic value).This constrains lending and slows down money circulation causing a deflationary spiral. It has all the issues that the gold standard does as a currency for an economy.However, its possible that bitcoins can be an asset class the same way gold is an asset class. (I use the term asset class loosely since both gold and bitcoins have no practical value beyond their rarity and whatever value people decide to assign to it).As an asset class, bitcoins may rise or fall in value over the long run but it is dead in the water as a currency. Betting on its value is more like speculation than investing.It is not an ‘investment’ in the same way that investing in a company is an investment (a financial vehicle that produces returns–as warren buffett likes to say).It is more like speculation akin to betting on gold prices–which is purely driven by market speculation and anticipating a buyer willing to buy at a higher price.As a speculator, I think it will go up–the market is very new and only known to a handful of people. If it gets wider acceptance and averts any more theft issues, the price should go up.As an investor, I think one may be better off betting on a solid company with a stable business selling at a reasonable valuation–an AIG or BRK.B perhaps.

    1. Giles

      Good points, but surely gold (which as you say is a very similar asset class) functioned pretty well as a currency for many years despite those disadvantages?

      1. Craig Wohlfeil

        The supply and demand for gold (and hence its value) swung wildly. The gold era of US money was characterized severe and frequent inflationary and deflationary events leading to depressions and banking panics. Milton Friedman’s A Monetary History of the United States covers all of this including the role that the gold standard played in causing the Great Depression. In short gold (and silver) worked well enough as currencies to get us this far but now we know quite a bit more about money and currencies. There’s no reason to be creating new currencies that have the same drawbacks as the old currencies.

        1. ShanaC

          Why is this being downvoted? Seriously!

    2. wendover

      Bitcoin is very divisible. The current client goes 8 decimal places, and future clients may be able to go further iirc. Just because we’re unused to deflationary currency doesn’t mean it wouldn’t work.

      1. ShanaC

        In theory you could do that with dollars and pennies.Deflationary currency has other issues. See the Yen – if you don’t think you will have a return, why invest in it?

      2. Paperwell

        Its not just about divisibility (although this is an important part of a currency) it is also about distribution.In the bitcoin scenario, lets say I’m the first guy there using bitcoins. I know that the rest of the world will soon follow. All I have to do is hoard bitcoins and never spend them! Since the discovery of bitcoins becomes harder and harder, people keep dividing the coins in smaller pieces to trade. Meanwhile I continue to hoard my supply of bitcoins which becomes more and more valuable even though I have contributed nothing to the economy.If the winning strategy for large bitcoin holders is to not spend money unless absolutely necessary, that is not great for the economy.

        1. kidmercury

          infinite divisiblity solves any liquidity concerns. hoarding is not a problem because eventually you will have to do things like eat and buy clothes. then you will spend your bitcoin. then they will circulate…..hoarding is rarely a problem. it is commonly referred to as saving.

    3. Erik Voorhees

      “Bitcoin will not succeed as a ‘currency’ because the supply is not able to grow proportionally to the economy.” <—- Most economists would agree with you. Most economists also completely missed the housing bubble.A money needn’t increase in quantity as an economy grows. That is a myth, though a popular one. Prices adjust to the supply of money, whatever it is, and the fact that we all live in a world of perpetually debased currency shouldn’t blind us to the possibility that markets may function better without such debasement.

      1. Paperwell

        It needs to expand to keep pace w/ the economy. Otherwise the incentive is to hoard bitcoins (which we are seeing now) and not let it into the economy. This is different from inflation in the sense that the money supply isn’t outpacing the economy.This causes another symptom which we already see in the bitcoin economy already (pointed out by craig above)–very extreme booms and busts.Yes, economists have been wrong in calling the housing bubble (for the record, I did call it). But alot of economics that has been developed over the years is not completely useless.The key to understanding bitcoins and its future dynamic is to understand the economics of gold. How does gold trade as an asset class long term? How did gold function as a currency during the gold standard?Understanding this will give you a huge leg up as a speculator in the bitcoin market.

        1. Erik Voorhees

          The extent to which “hoarding” happens is the extent to which the price for money (interest rates) will rise, and thus there is a natural market mechanism to keep things in balance. You also seem to assume that hoarding occurs without limit? Even if I hoard some BTC today because it may be worth more tomorrow, I must eat eventually. Spending will always occur, but under a currency that appreciates that spending will be restrained at the margin toward those items which are most valuable and away from those which are marginally less valuable. Contrast this with USD, wherein they are spent more easily (ie- on things marginally less useful) because of the depreciation.In other words, a Bitcoin world is a world in which people are more careful how they spend money, but money is still spent. Case in point: we all buy computers, even though we know if we wait 3 months we’ll have a better one.

  15. DPGoff

    A Carnegie Mellon Professor just released a paper on “Silk Road” an underground anonymous illegal drug marketplace conducted over Tor with Bitcoin as the only method of payment. The author estimates a $22MM USD run rate of bitcoin denominated transactions and growing quickly. He states: “A surprising result is the tight coupling between Silk Road and the Bitcoin market – the daily sales on Silk Road correspond to almost 20% of the average daily volume of USD-BTC exchanges on Mt. Gox the largest bitcoin exchange”The Paper:http://arxiv.org/pdf/1207.7…Summary from Forbes: http://www.forbes.com/sites…There is an offshoot site “The Armory” that sells assault rifles using Bitcoin as the only method of payment. From Gizmodo: http://gizmodo.com/5927379/…While the Bitcoin is a brilliant piece of crypto / distributed systems research, it is very hard to see its mass adoption. Lots of the existing transaction volume appears to be amongst speculators (speculating on the value of bitcoin and differences in prices between bitcoin exchanges) and bitcoin miners. The closest thing to a “killer app” that has real underlying commercial transactions at this point are marketplaces like Silk Road and The Armory. Bitcoin has tremendous instability as a store of value and is cumbersome as a medium of exchange (together the two main functions of a currency) which makes it most useful to those that value anonymity over all else, hence its attractiveness to black market use cases.

    1. wendover

      I think the exchange system is one of its strengths, it’s reasonably simple to change my Uk money into bitcoin, go to the US as a tourist and exchange my bitcoin into dollars using OTC, craigslist or localcoins for example. The volatility isn’t too bad over short periods, and the underlying trend *seems* to be a steady rise against the dollar.

    2. fredwilson

      This is super helpful to me. Thanks!!

      1. Prokofy

        Drugs and guns! All we need is religion! Oh, we have one, it’s the open-source cult!

        1. vruz

          Troll. Open source has a body of work, runs your smartphone, runs Google, your phone bill, and your electric co.Go back to your troll place.

          1. Prokofy

            It doesn’t matter if “we’re soaking in it” here on this blog and the Internet. We can use open source software but we can reject open source *culture* which is anaethema to freedom. One of the ways in which the open source cult manifests itself as a cult is by telling people who criticize it that they in fact “depend” on it because of “Apache servers” or “your phone bill” and call criticism “trolling”. That’s how you know. That’s why it needs fighting.

          2. vruz

            You make absolutely no sense. You acknowledge you would like to use open source, but you want to destroy the community which produces it?Also: There’s a body of work and sufficient proof that it works and in some regards it’s a superior choice.It’s not a religion, therefore you are indeed a troll, Sir.

      2. Eran Galperin

        Fred, you might find this discussion and the observations over at hacker news interesting as well – http://news.ycombinator.com

    3. paul gordon

      FYI, they closed The Armory down themselves, thankfully, due to lack of business

    4. matthughes

      Wow, fascinating.Thanks for sharing.

  16. Reuben Metcalfe

    Been monitoring the whole Bitcoin conversation for awhile – Military Theorist and fellow economics geek John Robb has some interesting things to day about it: http://ow.ly/cQuIP – I personally am looking to take it on as a payment system for my baby ‘I Dream of Space’… which will mean people will be officially able to buy fractional space-ticketing with a P2P currency… I’ll keep you in the loop with what it does to sales – but I have a hunch the early-adopter-profile of the Bitcoin hoarder fits our customer profile. We’ll see I guess!

    1. Gary Rowe

      Talk to the WikiSpeed guys, you might find you have much in common.

  17. Ivan Vecchiato

    Bitcoin is fascinating. Undoubtly they took the hard way. I mean, besides the usual hurdles, they have to face a cultural revolution, without taking advantage of the spaces left in the traditional markets.I’m glad to see that VCs are interested not only in projects taking the easy way.

    1. fredwilson

      Cultural revolution is one of my macro investing themes. I wrote about that last year

    2. cypherdoc

      traditional markets are broken. name a market that hasn’t been subject to manipulation by CB’s or govt’s. this is the beauty of Bitcoin; it can’t be manipulated by a special interest group. its thriving b/c ordinary people, whom govt’s and our banks have abandoned, recognize that it is purely democratic and driven by a majority vote. sheer numbers of the “common people” who will come to understand and love Bitcoin will overwhelm the self interested few.

  18. Carl Rahn Griffith

    I had a long discussion with one of the senior Bitcoin guys in London earlier this year, at a financial service event – very bright chap, great presentation (when one realigned one’s thinking re: money!) and some interesting (and very credible) theories re: the decline of Fiat Money. Must dig out his business card and ping him sometime.

    1. Anonymous

      Either that was a set up for some interesting conversation or else you must not be familiar with the London-centered drama since that event with Donald, Amir and company.Bitcoin is like dynamite — incredibly powerful, yet incredibly dangerous when holding more than trivial amounts. They probably now understand that.

  19. awaldstein

    Honestly…and I’m thinking about practical approaches to commerce online and at the local street level alot…it never enters the conversation.Not that I only look for the practical, it’s just not entering the discussion lately.

    1. fredwilson

      Its way too early as my friend Howard Morgan is fond of saying (and being)

    2. Gary Rowe

      Why not start making it part of the conversation. At the moment you can even buy a car with Bitcoin. See http://www.wikispeed.com/

      1. awaldstein

        It hasn’t grabbed me yet. Maybe it will over time.I’m all about building a new tomorrow, I’m also about using my time today to build solutions and businesses that can find markets now to grow as the world evolves.I don’t know how bitcoin would work for that in what I do.

        1. Gary Rowe

          Fair enough. The Bitcoin forums can help if you want to test the suitability of Bitcoin for a particular market or business model. Lot of trolls there, but also a lot of experience. For future reference the link is: https://bitcointalk.org/ind

          1. awaldstein

            Will do and I’ve bookmarked this discussion.If I was primarily an investor or full-time pundit, I love where this is going. I have a good friend who runs the Brixton Pound project in London so I’m not a stranger to this directional thinking.But with a focus on finding solutions that both push the present and define the future, I’m finding myself pragmatic in my time choices.Thanks!

  20. Guillaume

    Hi, to those saying that bitcoins are used by wrongdoers, please be reminded that it applies as well to Linux, Google, Facebook, electricity, printed paper, etc.The consequences of an untracable currency are abysmal. Suppose it works well enough and becomes mainstream: governments will not be able to monitor money transfers and therefore will have hard time taxing salaries. Then governments will have to pump money on what they really are usefull: police, roads, etc. In this context, people may have much more incentive to “vote with their feet” and move to places where the “service” is best. (Just like, by the way, population and therefore state strength was regulted during the Warring States period in China).So, dismissing bitcoin just because it currently serves porn and pirates is not a good reason enough to avoid thinking about our society and its assumptions (that such a tool may break apart).Dear Fred. Yesterday you said you read all comments. Thanks for that. I take this occasion to grab a little bit of your attention on one question I’d like to ask you: You seem very knowledgeable on many topics and open minded, transparent and all that. How come I have the feeling that China and its hot start-up scene is like a blind spot for you? You once asked us to tell you what we would like you to talk about. Sadly I did not catch the call, is it too late?

    1. ShanaC

      Quick answer while he is on the go: USV et al has decided they want to limit parts of their travel. So they don’t invest in anything further away than Israel (12? hr flight from NY/JFK) Getting to the rest of asia takes longer than that.

    2. paul gordon

      Seeing as Bitcoin, or its like, would probably be very difficult for Governments to kill per se, it may be something that they could come to embrace it and get it to work in their favour. Whilst outlawing Bitcoin itself could be very difficult, it could be easier just to outlaw the use of anything other than government supplied Bitcoin clients for businesses whereby all transactions, both sales and salaries, were taxed at source – something that would be very beneficial to The State. If they decided to set any taxes too high in order to suppress Bitcoin then they’d just run the risk of pushing it back towards the Black Market economy.

    3. fredwilson

      China’s startup sector is amazing. But I want to/need to be able to get quality face time with the teams we invest in and I do best in a small tight partnership located in a single office. Those two factors make China too hard for me. But others are making it happen. I have to focus on what I am good at.

    4. Chris Koss

      It is important to note that Bitcoins are only anonymous when used very careful, security-conscious way. Casual use of bitcoin leaves lots of trails.Also, many don’t realize that Bitcoins are also the first currency which allows voluntary complete transparency. Parties can provably demonstrate that they control an address, allowing them to prove that they are in control of funds or have sent funds to another. All of this information is in the public global ledger of Bitcoin transactions called the Blockchain. By publicizing which addresses you control, Bitcoin can be used in a way that is much more transparent than Dollars.

  21. DanielBrujis

    Despite what I may prefer, the world appears to be moving towards more currency manipulation (not really possible with Bitcoin). I am currently more interested to see what happens with mPesa and other “currencies” based on cell phone minutes. Feels like that has more potential to change the world in the short/medium term

    1. fredwilson

      Hmmmm

    2. cypherdoc

      mPesa requires cooperation with the banking system via the telecom providers. there is no mechanism to prevent debasement of mPesa as well since it’s really just an extension of the existing fiat system in Kenya via cellphones. it also requires payment kiosks scattered around Kenya and you can’t use it anywhere else. Bitcoin has ALREADY become global.

      1. Pseudonymous

        m-PESA grew because the agent network grew as it was a way to earn a living. The gov’t liked because it generated tax revenues. Because the software on mobiles comes from the subsidized phones, bitcoin may still be kept from competing against the state-sponsored moneychangers.

  22. Gonzague Grandval

    Paymium is a Paris-based startup focused with the idea that Bitcoins are money over IP. We seek to develop a payment network that operates on top of bitcoin. We are interested in talking with you about the possibility of securing an investment.http://paymium.com

    1. fredwilson

      Email me with bitcoin in the subject kine

      1. LE

        What does gotham girl think of bitcoin? I’d love to know.

        1. fredwilson

          She doesn’t think about it

  23. Chris Rechtsteiner

    Mass market adoption will require hooks via well-recognized partners. Should a major ecommerce player (or four) step up and validate Bitcoin as acceptable currency for transactions, it will be game on.It would be interesting to see organizations like Valve or Zynga take a step in this direction … but my guess is they have too much to lose and not enough to gain from such a decision.

    1. William Mougayar

      I agree. It does need a big partner or something like that.

      1. pointsnfigures

        why wouldn’t a FOREX shop partner, and make a market for them?

        1. William Mougayar

          Yup..They need a transactional ecosystem to support them.

          1. pointsnfigures

            They should contact $CME, $ICE, or $FXCM. I am happy to make an intro to $CME for them.

          2. pointsnfigures

            sent you an email at the above address.

          3. ShanaC

            I actually need to shoot you an email, is that ok?

          4. pointsnfigures

            sure, go through my blog at pointsandfigures dot com

          5. William Mougayar

            You can send him an Internal Message via Engagio too now. Just go to his profile or hover on his name and click on Send Internal Message. It will show-up in his Inbox, and we will notify him via email. http://www.engag.io/pointsn

          6. pointsnfigures

            That’s right. I like Engag.io. Trying to use it everyday.

  24. ZekeV

    BTC = system for uniquely signing transactions. It is not all that great as a currency (as Paul Krugman and others have observed), but can be used to communicate transactions in currency. I think of it as a public wall on which you can permanently post a statement and be forever identified as its author. The simplest app is literally a tool to permanently embed a short message in the BTC blockchain record (I think I wrote “Zeke was here” or something to that effect) .But there are more interesting conceptual apps. For example, I bought some “call options” from a Romanian gentleman, Mircea Popescu, where the denomination and expiry was encoded in the BTC transaction itself. I thought that was kind of neat. There was no need to communicate any private information whatsoever, though I did have to trust the central counter-party.I also bought BTC profits interest in the options exchange itself. After a couple months of small decimal “profits distributions” Mr. Popescu decided to move his “shares” to his new exchange, MPEx, where parties can trade shares using essentially the same secure, trustless system. I did not get around to registering my shares, so after ample notice, the issuer redeemed my shares (and those of other laggards) at the 30-day average share value (in BTC of course). I made a bit over 100% on the trade, in BTC terms, and about 150% in dollar terms given appreciation.The degree of innovation taking place using BTC as a network is remarkable. Certainly worth keeping an eye on this. Payment systems = ultimate social network.

  25. Antonio Gallippi

    Bitcoin is like SMTP back when AOL, Prodigy, and CompuServe were the walled gardens. The open-source innovation will win out in the end.By the way, I love Voicebunny! They are great to work with.

    1. sull

      its easy to pull that one out of a hat… but in this case, their is only a slight similarity, if any at all.

    2. Prokofy

      Um, right. Like the “open source innovation” won out in social media, which is why, um, Facebook and Twitter are open source, right?When will you guys stop re-living the year 2000?

      1. Kris Olhovsky

        Those are websites. Bitcoin is not a website.Android is open source. BitTorrent is open source. Chrome is open source. Notice that these are not websites.

        1. cypherdoc

          Linux, Apache, Firefox, and Wikipedia are also open source.

          1. Prokofy

            So….how does the app store at Android compare to Apple? It doesn’t. Innovation is all in the proprietary companies. What’s Chrome’s percentage of users on the Internet? It’s in the minority, even after Firefox. Linux? Linux?! You’re kidding, right? Do you realize that everybody else besides you and your friends are consumers, not geeks and they buy computers with Microsoft in them or buy gadgets from Apple.

          2. cypherdoc

            what’s wrong with the Android store? absolutely nothing. how do Android phone sales compare with the iPhone? oh yeah, they overtook and have blown away their sales in a short few years. Firefox? why that’s open source too? Linux, are you kidding? run on some of the most powerful and important gov’t institutions computers. no, i am not kidding.

          3. Prokofy

            The Android store has a fraction of the apps that the Apple store does because open source culture is ultimately not as innovative as proprietary culture. Fred knows that, but it irks him. Android sales occur because Verizon hawks it as a cheap phone, I know, because I’ve had two, and both of them were buggy and broke, and now I have an Apple i-phone. Firefox is buggy too. I use it, instead of Chrome — why give Google everything? But many institutions stick with IE because it’s more stable. Linux — are *you* kidding? It doesn’t matter if some institution uses Linux programs. The consumer cannot use Linux. The consumer matters ultimately more than big enterprises for the future of software, especially socialware.

          4. cypherdoc

            conceptually we disagree about innovation in closed vs open source. Apple may be an exception but i see cracks in the veneer. the iphone 4s has been a huge disappointment. they should’ve come out with a 4G iphone 5 right off the bat. the Android market has grabbed a big share of the 4G market as a result. think about it; how can a team of a dozen or so Apple developers compete with the worldwide community of developers that contribute to open source?and it does matter that large gov’t organizations have chosen Linux. its a great statement about the innovation and stability of the Linux system.i own an Android and its great. i prefer it greatly over the iphone as there are many more models with big screens and features that i like for my own tastes.IE is fraught with viral and malware vulnerabilities which is why you see so many ppl migrating to Firefox and Chrome.

      2. vruz

        You really don’t understand open source, or technology, for that matter, right?

        1. cypherdoc

          right

    3. Prokofy

      Actually, AOL survived and bought out Huffington Post and TechCrunch; Facebook and Twitter are giant walled gardens. This annoying persistence by geeks to say that the walled garden failed when in fact it survived in enormous forms is one of the hobbles to progress on web 3.0 There is nothing wrong with walled gardens. Something there is that doesn’t love a wall, but good fences make good neighbors.

  26. Jeremias Kangas

    Another bitcoin startup there: https://localbitcoins.com and https://easywallet.orgWe have been doing these services full-time for some time now, and believe strongly in bitcoin and its future. There could be lots of opportunities for startups.

  27. RichardF

    I have paid no attention to bitcoin whatsoever however it was interesting seeing how many types of business accept bitcoin, also how many apps on android there are on android.I’d use it if it gave me the ability to make small payments in a frictionless manner, ie 1 click.or no click! Everything about making and receiving small payments is a pain in the ass, so much regulation and security. If I just had $20 or so in bitcoin and it was somehow hacked or as a currency bitcoin blew up, it just wouldn’t matter.For bitcoin to be successful I think it needs to concentrate on making payments as simple as possible and concentrate on micropayments to start with. If it never went beyond that it could be massive.

    1. JimHirshfield

      Isn’t that like saying the US Treasury should focus on US Dollar micropayments? Bitcoin is the currency, not the transaction and not the buyer or seller in a transaction.Maybe I haven’t been keeping up. Am I missing something? (Seriously, it’s been a while since I read much about Bitcoin).

      1. RichardF

        You are right Jim but the point I’m trying to make is that where I see a competitive advantage in enabling bitcoin to be adopted is facilitating easy micropayments.

        1. JimHirshfield

          I’d agree where the currency is risky (e.g. bitcoin) I’d favor smaller transactions and accounts in that currency. So we’re probably on the same page here.

          1. cypherdoc

            as i said above, Bitcoin can be used for large or small tx’s.

        2. Erik Voorhees

          Check out FeedZeBirds.com, which utilizes the micropayment efficiencies of Bitcoin to pay fractions of pennies instantly around the world for twitter advertisements – which is impossible with USD. (disclaimer: this is one of my companies)

          1. RichardF

            will do Erik

    2. cypherdoc

      Bitcoin is extremely easy to use and it works for ALL payment sizes. transaction costs can be anywhere from zero to 0.0005 BTC. once i used it, the concept clicked immediately as i transferred a fraction of a Bitcoin around the world in about 5 seconds for free. the way to think of Bitcoin is that its an entirely self contained financial system free from the burden of excessive banking fees. the blockchain is a historical public ledger with each user holding the entire copy of all transactions ever made and the Bitcoins held by each address since it’s inception in Jan 2009. this “distribution” of all these copies of the blockchain worldwide on individual user’s computers guarantees that gov’t can never destroy it; too many copies. this blockchain “replaces” the banking system that skims fees off of every single transaction and is required in our current system to verify that each party is who they say they are and to keep track of the fiat as it moves from one acct to another. with Bitcoin, the “network” of computers that you and i have connected to the Internet with our blockchain records “verifies” each tx that hits the network to see if it matches our history and then moves the Bitcoin from the buyer’s address to that of the seller. this way no one can cheat. once this happens, the transaction is irreversible. the blockchain keeps a record of how the Bitcoins move from address to address anonymously if you want with the right precautions. moving Bitcoins across borders is effortless and anonymous. the advanced cryptography and hashing functions secure the blockchain and network via the laws of mathematics and cannot be hacked or broken even with all the world’s supercomputing power. THIS is going to blow the doors off of the current financial system.

      1. RichardF

        thanks for the summary, really useful

    3. Gary Rowe

      To make a payment in Bitcoin follows this process – assuming that you have bought or earned bitcoins so have some in your wallet.1) Go to a merchant site accepting bitcoin and select your items as normal2) At the checkout, you will be presented with a Bitcoin address and an amount usually as a clickable link3) Click the link and your Bitcoin client (could be built into the browser or an external app) will come into focus with a message asking to confirm this payment request (this is to avoid obvious browser takeover security issues)4) Click OK and you’re done.Notice that unless you’re requesting delivery of a physical item, the merchant does not need to know anything more about you than what I have posted above.

      1. RichardF

        thanks for the explanation Gary

  28. Anonymous

    Keep focusing on Bitcoin’s upcoming deflationary spiral, the unfair distribution of the money supply, the enormous amounts of electricity for mining, the online drug market, Bitcoin’s volatility and bubbles (we’re probably in one again now), the Ponzi schemers using bitcoins (there’s several, in total involving several million dollars), the fact that almost no restaurants, groceries, or other merchants take Bitcoin yet, and all the reasons why bitcoin will never be a real currency.Because while you are focusing on those, your competition will be bootstrapping its way using a payments system with advantages that will help them become formidable competitors. These advantages include merchant transaction fees under a penny (in most instances, no matter the amount transferred), no chargebacks, instant settlement (spend the money within an hour after receiving it), universal (bitcoins know no borders),Fred knows this. He invested in Dwolla, which is probably the only banking entity in the world thankful that Bitcoin exists.And please don’t pay any attention to the fact that over half the bitcoin transactions today are for an online gambling service (well, technically not web-based as the actual gambling part is only through Bitcoin’s P2P network) that beats the ever living snot out of Vegas (98.5% payout, provable by cryptography). With this available, Bitcoin will probably succeed wildly from this point on even if no additional good or service were offered in exchange for bitcoins.Don’t pay attention to how bitcoins are already being used to invest in an equity-based crowdfunding platform which has a built-in secondary market. This platform is accessible to anyone, anywhere in the world (including those from the U.S.). The SEC hasn’t finished their ruling on the JOBS act but this platform isn’t based out of the U.S. and isn’t trying to comply. Bitcoin is the currency used for investing, so there’s no identity. The crowdfunding platform takes no steps that would let it know from which country the investors are from. Oh, … and you can IPO for under $100. No, seriously.The list of things to not pay attention to is long but comments are to be short, so that’s all to share here. Do realize though that bitcoin is simply mass collaboration of an open platform in a space that has not yet been touched by the disruptive force of competition from the Internet. Pay it no mind though please.

    1. ShanaC

      I hate to say this: Bitcoins don’t prove very much. You read about drug busts in mexico which contain rooms full of dollars.Competition on the internet is great, except when it involved drug running or anything else illegal, semi legal, or large amounts of cash in general. And there are all sorts of reasons why people don’t want to leave records. Cash is much better than bitcoins. Bitcoins essentially disappear if your computer is off.

      1. Erik Voorhees

        False, you don’t need a computer to use Bitcoins. Can be done completely via cell phone. If the device is off, your money doesn’t disappear. 95% of your expenses already require the internet networks we rely on, Bitcoin is not so different.

        1. ShanaC

          I’ve been without a cellphone at points. I’ve also been without a bank account. And a large chunk of my budget is spent in cash.

          1. A. T.

            and your money supply chain also exists without banks for years, right?

          2. cypherdoc

            whether you’re talking about Bitcoin or the traditional money system, the recent push is towards mobile digital money localizing onto the smartphone.

          3. Jordan Arseno

            You also don’t need a cellphone. You can print out the private key onto a piece of paper or have it minted right into a coin and store it right in your physical wallet if you wish.

          4. Jordan Arseno

            I should add, that I don’t recommend doing this right away until services are produced which can do it reliably for you. Proof of tampering techniques would have to be considered — such as: a sticker peel, scratch seal, or (hopefully) a technique less susceptible to fraud, that would reveal the private key. Otherwise, the coins or bills would float around in the economy with no guarantee tied to their claimed value. But, it’s already here, and only going to get better see: http://printcoins.com/The reason for this proof of tampering technique is simple to understand. Joe has the coin created with the private key exposed. Joe copies the private key onto a notepad and then trades the coin. Uh oh.

      2. Monsanto ate my nana

        Saying bitcoins disappear if your computer is off is like saying your bank account disappears when you are not at the bank.

        1. ShanaC

          The bank is always on. I’ve also been without a bank account at one point of my life.

          1. cypherdoc

            the Internet is always on as is the Bitcoin Network. i can even send money on weekends. i can’t send wires or access my bank acct on weekends.

      3. vruz

        I hate to say this but you make no sense at all, basically out of fear of all the things you don’t like, at the expense of the potential benefit other people see to make good.A distributed system is inherently more safe and resilient than a central bank.Your paper money is worth nothing if your central bank defaults, which has not happened yet only because the rest of the world are still forced (literally) to use the US dollar as backup.So if we are to focus solely on worst case scenarios without considering the potential benefits I don’t know what we’re doing here really.

        1. cypherdoc

          that’s a good one. i thought we were on a Venture capital site?

          1. vruz

            emphasis on potential benefit. indeed.

          2. cypherdoc

            i think i’ve figured out what the problem is here from the detractors in a short coupla days posting. they simply think things will never change from the way they are currently. they think we can continue to run US fiscal policy without a budget, they think trillion dollar deficits are the norm, they think a 100% debt/GDP ratio is just fine (its not acc. to Reinhardt & Rogoff), they think that 5% ATM fees at visitor banks is tolerable, they think 4% CC fees levied on merchants is fine as long as the “buyer” pays 0, they think $50 wire transfer fees is nothing, they think 0% return on deposits is alot, they think a stock mkt that has gone nowhere in 14 yrs is ok, they think National Debt of $57 TRILLION is nothing, they think 8.3% unemployment (really in high teens acc. to Household report) is but a scratch, they think oil prices >$100 is cheap, they think grain prices at all time highs is temporary, they think Roman Candle increases in Fed Excess Reserves is but a blip http://research.stlouisfed…., they think heists of private accts at MFGlobal & PFG are just peachy, they think US banks caught money laundering is great for US commerce, they think that no one going to prison for all the fin crisis of 2008 is ok, etc, etc.Bitcoin involves looking AHEAD. looking around the corner at what’s coming. that isn’t easy for most ppl. is it a shining beacon of endless prosperity via debt accumulation or is it a train?

    2. fredwilson

      #investmentmemo

    3. Charlie Shrem

      I want to address one point: “isn’t based out of the U.S. and isn’t trying to comply. Bitcoin is the currency used for investing, so there’s no identity. The crowdfunding platform takes no steps that would let it know from which country the investors are from.”You are so far away from the truth here. Most bitcoin transactions take place within companies in the Bitcoin ecosystem. Mine included. We are fincen regulated and follow a legal and compliant standard. A standard within the gov’t will develop. The larger Bitcoin companies are very transparent and follow a strict AML and KYC program for their customers in addition to releasing company numbers and figures.Anyways, Bitcoin is a work in progress. In 1 year look how far we have come. In this monetary evolution, there will be good and bad. We will tame the bad and make the good flourish.

    4. Prokofy

      We had all these things — and more — in the Second Life virtual banking and stock exchange systems of around 2005-2008. They were all fueled by gambling, there were all kinds of IPOs by mysterious companies, the virtual currency was “strong” and “unstoppable”. All of this has been done already with anonymous people in the virtual world of Second Life, which prototypes many things on the Internet, deliberately or accidently, as the same rules apply.And it all collapsed, because human nature is not perfectible and tends toward crime and greed unless regulated.It collapsed also because of zealous do-gooders wanting credit for being the ones to clean everything up.It collapsed not only because of the US law against Internet gambling, which didn’t affect Europeans, it collapsed because virtual things not backed up by real things tend to collapse. All this propaganda about mass this and collaboration that and collective the other thing covers up this basic fact.

      1. Amincd

        The Second Life virtual currency was issued by a central party.

      2. Pseudonymous

        Much of this crowdfunding platform/stock market has real people using their real names (in many instances, but not mandatory), with real projects (in many instances, but not mandatory or audited), and … in many instances, real profits (which, when paid out as dividends, are real — especially since shares can be sold on the open market.)So please don’t confuse the situation that was the Second Life stock market with this crowdfunding platform/stock market that is available today.This platform/market has little to do with bitcoin. It is enabled by bitcoin, but other than that does not intersect with the Bitcoin project. But it is a “private itch” being scratched. All these independent projects are together building an ecosystem. That’s what mass collaboration means. Various projects with wide participation bringing forward this open technology called Bitcoin. This may move slower or faster than if it were driven from a central authority but the range of what is being built is wider than a private entity would be able to accomplish. So wide, that there is not a single platform/market but several now out or in the works.Call it propaganda if you wish, but what is happening before our very eyes is quite real.

        1. cypherdoc

          he doesn’t understand open source and the benefits of non regulation.

        2. Prokofy

          Yes, it is propaganda. I don’t believe you. I’d like to see statistics on how many real names are used and real tangible projects exist. They are probable some token percentage that enables this propagandistic statement. SL’s stockmarket in fact is exactly like BitCoin and prefigures it and prototypes it and the end is clear: like all collectivist dreams, it enables crime to enter — and it does. Human nature is not perfectable, even by technology. “Mass collaboration” is a fancy way of saying collectivism. The early pioneers of Soviet socialism were volunteers, too, you know? Open source cults lead to closed societies. It’s because I understand open source from the inside out all too well that I acknowledge its essential criminality.

      3. Rassah

        I was quite heavily involved in that SecondLife investments and stocks thing. It didn’t collapse because of greed or because virtual things were backed by nothing. It collapsed for one reason, which was that the people who controlled the game and the currency simply banned all gambling and investment activity. If the government banned charging interest and trading on Wall Street, the US Stock Market would collapse, too, and it likewise would have nothing to do with greed or what the dollars were being spent on.

      4. Krell Karu

        No, you did not have a currency free from central control.The issuance of L$ (or SLL) is and was totally at the whim of Philip Linden (the Philip Linden which is the anthropomorphism of Linden Lab – not necessarily Philip Rosedale). This issuance falls under a fiduciary duty to the shareholders of Linden Lab, and no other.This is categorically different from a currency that literally _cannot_ be controlled — in issuance, or any other manner — by some central authority. Which is how BTC currency operates.

  29. Alex Flint

    I would love to see bitcoin succeed as I would love to have see an alternative to the banking system. Perhaps a real competitor would lead to improvements in the banking system.

  30. Tereza

    I’d like to hear @cindygallop’s take on Bitcoin and the future of payments in general. I know in her buildout of her business she’s uncovered some significant service gaps in the wide area that falls between conventional business and piracy/porn.

    1. Cindy Gallop

      I left a comment on this post right after it went up last night about precisely that, and rather bizarrely it disappeared very shortly afterwards. Possibly censored due to mention of word ‘porn’? ๐Ÿ™‚

      1. Tereza

        I think they’ve had technical probs — the word appears elsewhere.

        1. Cindy Gallop

          I posted comment again an hour ago – and now it’s disappeared again. Giving up. ๐Ÿ™‚

          1. Tereza

            Ugh. It’s GOT to be technical as @fred is vehemently anti-censorship.BTW the downvote of your comment was my fat thumb slipping.

        2. ShanaC

          you may want to edit this, your cell number appears.

      2. Cam MacRae

        Seems like they had an issue — my comment disappeared and reappeared after a time.

      3. ShanaC

        It is technical problems – leave a message at [email protected] They’ve been having disappearing comments and nonexistent threads pop up on this site all the time

      4. fredwilson

        That should make it through on my whitelist ๐Ÿ˜‰

    2. Cindy Gallop

      Trying again now ๐Ÿ™‚

  31. JimHirshfield

    I think it’s very telling that SO many comments are anonymous. Hmm…what’s THAT tell you?I’m all for anon, pseudo, and real name identity choices, so don’t get me wrong on that front. I just find it interesting that this topic spikes on the anonymeter.

    1. Pseudonymous

      Is this better?

      1. JimHirshfield

        Ha ha ha. Like I said, I’m a fan of identity choice, even anonymous pseudonymouses.

    2. Dan Lewis

      What surprises me is the relatively large number of down votes on comments.

      1. JimHirshfield

        You think there’s a correlation?

        1. Cam MacRae

          It’s correlated. Causality is harder to fathom given Fred posted at an odd time.

          1. JimHirshfield

            re posting time: made it ideal for Europeans to be first posters. Perhaps something in that?

          2. Cam MacRae

            Possibly. Very hard to say with a sample size of 1.

        2. Dan Lewis

          Yes.

      2. Gary Rowe

        Many of the people involved with Bitcoin are technical and many use Q & A sites like Stack Exchange and Quora where downvoting poor quality or erroneous answers is commonplace and expected. As a result you may find that FUD about Bitcoin is downvoted to oblivion, but genuine concerns and objections are answered objectively.

        1. ShanaC

          I was heavily downvoted, very few people decided to respond. You can yell at me for not liking Austrian economics, I’m ok with that, just say something!

          1. Gary Rowe

            I have been. I treat everyone’s concerns with respect, but I don’t like to feed trolls and I find it annoying when someone espouses on a subject they have done no proper research in. That said, you are clearly neither and I value your input.

    3. LE

      Noticed also a bunch of new names. This was posted somewhere and people have come out of the woodwork to rah rah it. Either they don’t want to identify themselves or they don’t want to create disqus accounts or both.The downvotes are similar to what happens on news.ycombinator.com stories. If you make a statement that either someone doesn’t like or has a factual error you get downvoted quickly. @ShanaC:disqus comments are an example of this.(With the civility drop I was almost tempted to reply to something with atypical language in a knee jerk reaction.)

      1. cypherdoc

        you know why? b/c lots of us anonymous ppl have lots of money. we also recognize how disruptive Bitcoin will be to the establishment and that they will resist it. given how Obama and govt’s in general have handled things the last 4 yrs do you blame us?

        1. Gary Rowe

          Bitcoin does not care about politics.

          1. cypherdoc

            yes, but govt’s do. many of us who believe in Bitcoin are members of the 1% who are entrepreneurs, business owners, and have high profiles in our local communities and perhaps beyond. hell, i’ll even bet some of us are bankers! Uncle Sam has this nasty habit of auditing ppl they don’t like. i personally am not afraid of an audit but why open yourself up if you don’t have to. besides i believe in financial privacy which is not the same as secrecy btw.

      2. Cam MacRae

        Pretty disgusted with the way @ShanaC:disqus has been treated.

        1. ShanaC

          While I am nice in person, I have no expectation that everyone will like me or agree with me. Still I wish they had said something

          1. Cam MacRae

            Nor should you, but a lot of that was something apart from a robust exchange of ideas. I take exception to the patronising tone and second class undergraduate logic evident in some of the responses to you. (I think my position on drive-by down votes is pretty well established.).I hope you keep questioning and don’t take any of that rot to heart.

          2. ShanaC

            I’m not, just weirded out that a) no one seems to understand the relationship of hedonics to inflation (someone should have said something to me) and no one seems to want to talk about the velocity of money.b)Why everyone is hung up on the Austrians. Hayek did not model emotion very well. Keynes did a slightly better job, but the best is what is coming out of the UCs now + Hebrew U and Tel Aviv (sorry alma mater)c) No one responded to my post where I rewrote parts of the Cross of Gold speech and replaced gold for bitcoins!d) no one seems to know a lot about the history of the gold standard and how it related to commodity items, particularly food based commodity items (Hence why I rewrote parts of the cross of gold speech

      3. ShanaC

        I’m frankly not sure why that happened. What did I say that caused such a negative reaction

        1. LE

          My feeling is that it was this:”Cash is much better than bitcoins. Bitcoins essentially disappear if your computer is off.”

          1. ShanaC

            That is true, (or at least this is true for me, having slept on checks without my own bank account at some point in my life)And your phone is a computer at this point!

    4. fredwilson

      I see that as a positive

    5. cypherdoc

      Satoshi, who invented Bitcoin, is the ultimate example of this. but as i said below, its b/c Bitcoin has the potential to disrupt large segments of the banking system. if you don’t believe me, listen to these 2 clowns, one from JPM, and listen to the fear in their voices: http://www.youtube.com/watc

  32. kidmercury

    thumbs down for bitcoin, for the standard criticisms of it as a form of money. which are:1. dependent upon electricity. 2. satoshi nakamoto, the inventor of bitcoin, is an anonymous guy who owns the majority of them. what happens bitcoins soar in value and he decides to go to vegas?3. recognizability: try explaining bitcoin to your grandmother, or to a little kid. or to a cryptography expert, for that matter. 4. hasn’t been hacked — yet. i’m not so sure how anyone can say the whole verification system cannot be rigged.gold has none of these problems which is why a gold-backed digital currency, like liberty reserve gold, is far more promising than bitcoin. i also believe a monetary system that is completely decentralized will not be seen as advantageous, and that some form of centralization/governance over money supply is what most people want. put another way, bitcoin is too much anarchy, not enough governance.i know internet people like it because it is all fun and internet-y, although the economics of it are quite poor, in my opinion — which is why i don’t consider its prospects favorable.

    1. Tom Labus

      Weren’t some of those exchanges hacked or looted?

      1. Erik Voorhees

        Exchanges have been hacked (and will likely be hacked again), but the Bitcoin protocol has proven resistant to all manner of attack. Nothing is invincible, but Bitcoin might be pretty close.

      2. Wavelengths

        See the Wikipedia article on Bitcoin. I think you are right.

    2. falicon

      mostly agree. It’s an abstraction layer on top of another abstraction layer…that makes it *very* difficult for the average person to understand or use…That being said…I do continue to be fascinated by it though, and while I don’t use it myself I do actively watch/read about it…it has enough ‘interesting’ things about it to keep my interest so far…but not enough to get me actively engaged (yet)

    3. Erik Voorhees

      1) Everything you use is dependent upon electricity. It’s ironic you typed that criticism of Bitcoin using your computer on the internet. FYI – if electricity goes out, it’s not like the coins disappear.2) Satoshi doesn’t own a majority of the coins (probably not even a plurality). Please check your facts.3) Try explaining fractional reserve banking and quantitative easing to your grandmother. A money system can be as simple or complex as you describe it. You don’t need to know how a car engine works to drive a car, and you don’t need to know how Bitcoin works to use it. Grandmother never needs to understand cryptography nor the blockchain.4) One of your complaints is that Bitcoin hasn’t been hacked yet?Gold doesn’t have the above problems, true, but gold cannot be sent instantly in any quantity across the world without anyone knowing about it, either. Both gold and bitcoin are excellent monies, and it’s silly to dismiss one just for your love of the other.And the economics of Bitcoin are strikingly similar (though not identical) to that of gold… so if you are opposed to Bitcoin on economic grounds you ought to be largely uncomfortable with bullion as well.

      1. kidmercury

        i accept your beef and gladly counter:1. gold is not dependent upon electricity, neither is paper money. neither are 20% of the people in the world who don’t have a reliable source of electricity and burn wood and cow crap for energy.2. satoshi owns a lot, given how the algorithm works. maybe not a majority, but who knows? we don’t even know who the guy is. we know how the curve works, though, and so we know he is likely to be one of the largest holders.3. the monetary system does not need to be simple but the currency does. everyone recognizes US dollars. does everyone recognize bitcoin? does anyone recognize bitcoin?4. the complaint is that bitcoin strikes me as something that can very much be hacked.5. digitally-backed gold has “best of both worlds” elements.gold and bitcoin have very different economics. bitcoin tries to imitate gold but falls quite short, for the reasons outlined here.

        1. mckoss

          The Bitcoin system has been open since it’s introduction in 2009. Yes, the “early adopters” had year or so of this competition for earning Bitcoin – but this is a far larger distributed group of people than to claim that “Satoshi” has all of them.Being the inventor of the protocol gives Satoshi no special advantage, other than awareness. He would have had to deploy a large number of computing resources to continue to earn large numbers of Bitcoins for himself beyond the initial few months of startup time.

          1. kidmercury

            my concern is not whether or not satoshi or any early adopters have a special advantage, but rather since they are the primary holders — the proverbial “smart money” — their actions will have a significant impact on the value of the currency. so if bitcoin goes up 10X, can they sell without the market crashing? put another way, i am not confident in their confidence in bitcoin. or at least, i think there are markets where the smart money has a greater allegiance to the currency in question.

          2. Erik Voorhees

            A large holder of Bitcoin could only crash the market once, then becoming impotent afterward. Not a threat, but a blessing, to those wishing to buy up cheap coins.

          3. kidmercury

            if no one is committed and everyone views it as speculative, then it will be volatile and will always crash on rallies. it will be like silver.

          4. Erik Voorhees

            I think the resilience of the Bitcoin community after the price bubble last summer (which fell from $31 down to $2 by November) is good evidence of our commitment.

          5. kidmercury

            the issue is not that satoshi or whoever has a lot of bitcoin — i have no qualms with this. my concern is that there is a faction that owns a larger portion and what they do and how they think will impact the value of bitcoin. if bitcoin spike in value and they sell, what happens to bitcoin? currencies need a committed user base or an astute central bank to work consistently. bitcoin has neither.

          6. Erik Voorhees

            Again, a holder of large amounts of Bitcoins can only “dump” them on the market once. It’s a temporary disruption, and those who know the true value of the asset can profit from this. I fail to see how a large holder of Bitcoin can cause perpetual lasting damage… once they sell, their ammo is gone.

        2. Erik Voorhees

          1) Gold is not dependent upon electricity, true. However, storage, transportation, and assessment all are absolutely dependent – and without these you have no monetary system.2) It does not matter how much satoshi holds, nor who he is, but by the time he disappeared, it was fairly easy to determine that he could not have held more than a few hundred thousand BTC. Like any other person, he must buy or sell his coins on the market at market prices. He has no special privilege.3) The bitcoin currency is simple. Send digital units from one person to another. Pretty simple. The fact that not everyone recognizes it yet is a result of its newness, not a good indicator of its potential.4) The banks you use every day have been hacked more than Bitcoin. You’re using digital money right now, which can be hacked, and you give your credit card details out to hundreds of merchants, all of whom can (and are) hacked. To what standard are you comparing Bitcoin?5) Digitally-backed gold is better than USD, agreed. However, it is highly vulnerable to being shut down, as it relies on a central party. E-gold is the obvious example – the government shut it down easily. Peoples’ accounts were frozen indefinitely. GoldMoney, a year or two ago, had to cancel person-to-person payments because of government pressure. These are terrible vulnerabilities, which Bitcoin doesn’t share. Not having the “backing” of a central party is one of Bitcoin’s greatest achievements – that is what fundamentally makes it revolutionary.

          1. kidmercury

            1. no, storage, transportation, and assessment are not required. gold was used as money before electricity. also, 20% of the world does not have reliable electricity, and yet they still find a way to engage in commerce and survive. they will not be able to do this in a world dependent upon bitcoin.2. how can it be determined that nakamoto does not have a larger ownership? more to the point, though, the real issue is what type of allegiance the majority holders have. if the price goes up sharply, will they sell? what will that do to the price? these are key considerations and better forms of money will have greater loyalty from their primary shareholders.3. bitcoin is much more involved because of the banking and verification means, as well as how it is obtained. the proof is in this thread, look at how many people are confused by it, and lack confidence in it as a result. and this is on a tech blog.4. reliance on a central party is what i regard as advantageous. bitcoin displaces government and replaces it with nothing. i do not find this to be advantageous in terms of growing an economy or creating the type of usability people like (for better or worse). i am much more interested in alternate currency models that utilize a new central bank, government, treasury, etc.

          2. Pseudonymous

            > iam much more interested in alternate currency models that utilize a new central bank, government, treasury, etc.nuff said right there dude. bitcoin is a threat to you. central banks are a threat to me.

          3. Serge

            the dude needs his babysitter

          4. kidmercury

            lol here’s a question for you. what happens to the US dollar? to the US government? think deeply about that. not just “dollar gets hyperinflated and value goes away” but rather how does the sovereign debt crisis get resolved, and what comes next? think deeply about that and you may find the value in central banking.

          5. Erik Voorhees

            Think deeply about the problems caused by central banking and we may find the value in central banking?

          6. kidmercury

            you assume the problem is central banking — i do not. moreover, i believe that in today’s economy, any currency will be too volatile without a central bank capable of managing the currency’s value. currency needs to have minimal volatility for it to be a regularly used currency.

          7. Erik Voorhees

            In the 150 years before the Federal Reserve, the USD maintained its purchasing power almost perfectly (actually increased just slightly in purchasing power over this period). Then, in 1913, the Federal Reserve was created to “maintain the stability of the dollar” and in the 100 years since it has lost 98% of its purchasing power. This is an epic fail.To suggest that central banks are the solution to, as opposed to the cause of, the long-term volatility in currencies is simply incorrect. It is the printing and manipulation of currencies which causes volatility, and market-price mechanisms which bring stability. It’s a shame the Government has managed to convince most people of the opposite.

          8. kidmercury

            you are saying that because the federal reserve sucks, all central banking must suck. i don’t think that extrapolation is valid. more importantly, though, tell me what the monetary system and the economy of the future look like. are we all using bitcoin?

          9. Erik Voorhees

            The Federal Reserve doesn’t “suck”… it’s merely immoral and economically destructive. Central banking more broadly shares these characteristics, not because of the Fed, but alongside it. You cannot have proper capitalism when money itself – half of every trade – is centrally planned and price-fixed.The monetary system and “economy” of the future cannot be predicted. That’s why it should be left to individuals, not projected and planned by governments/central banks. If Bitcoin is the most efficient form of money available, then yes, it’s likely we will all be using it at some point, just as we all use the equally geeky-named “Internet” today whereas many observers believed it to be a fad, only to be used in tiny niche tech circles.

          10. kidmercury

            we’ll come to learn that without central bank management, a currency is too prone to coordinated attacks on its value and to volatility that makes it less than desirable as a transactional currency.the problems of central banking that you highlight are a function of central banking in the context of the nation-state system. the nation-state system is coming to an end and so i think there are limits to how we extrapolate the history of nation-state economics.

          11. ShanaC

            we also had politicians running around about crosses of gold, regular bank runs, and a whole host of other problems.I can’t say the dollar lost 98% of its purchasing power. $1 buys very different things than it bought in 1920. By percentage $1 probably buys more because of the way hedonics work.

          12. kidmercury

            bitcoin is not a threat to me — if it actually gets adoption i’ll use it, though i see no advantage in trying to lead the trend. you assume the concept of central banking is invalid, and i disagree; i think the anti-central bank people have not thought about what governance looks like in a world where nation-state currencies have inflated themselves away.

        3. Chris Koss

          1. The majority of US Dollars are digital too. I can’t find the exact figure, but less than 10% of the US money supply is in paper. These digital dollars are also dependent on electricity, and I think it is quite possible the ACH system, Visa’s datacenters, etc use more electricity per dollar transacted than Bitcoin does.4. There is a large profit motive to hack the Bitcoin protocol directly: doing so would be worth millions of dollars. This is not to say it can’t be hacked, but we can logically assume smart malicious people have tried.5. Digital gold has one big disadvantage: counterparty risk. If the issuer of digital receipts for gold could issue more than he has physical gold on deposit. Or, they could dilute their gold with other metals. Gold is very hard to audit, particularly from a distance over the internet. Bitcoin balances can be verified digitally with 8 decimal places of precision and you can hold and spend Bitcoins without any 3rd party depository needed.

          1. kidmercury

            yes but US dollars can be “physical-ized,” to make up a word. for instance one thing i consider reasonably plausible is a run on the dollar and folks go to ATMs to try to withdraw everything. what happens then? not enough dollars, ATMs shut down and rules get implemented on max withdrawals. but that is only until more dollars can be printed and delivered to the ATM. so US dollars can be physical-ized, bitcoin cannot.

          2. Erik Voorhees

            Bitcoins can be physicality. See Casascius coins – this is just one example. To make a Bitcoin physical, you merely store the private key on a physical item (etch it on a rock if you want) and then if the key is hidden on that object it becomes as good as one BTC in digital form. Most problems you can think up have already been solved by Bitcoiners months ago.

          3. kidmercury

            if the validation chain is digital, you’ll need to have digital bitcoins to spend them.

          4. Erik Voorhees

            You can spend Bitcoins without anything digital. You just hand a private key (a string of text) to someone. To validate that key, you’d need some digital connection to the internet, true, but as Casascius coins proved already, it can function without this validation if sufficient tamper-proofing is accomplished (he did this with a special hologram sticker). Don’t underestimate the creativity of entrepreneurs.

          5. kidmercury

            i’m not underestimating entrepreneurs, i’m just not underestimating electricity, and its role in the bitcoin system.

          6. Erik Voorhees

            If the world doesn’t have electricity, gold is a better money than Bitcoin, I’ll give you that.

          7. LE

            “it can function without this validation if sufficient tamper-proofing is accomplished”Isn’t that like central authority though? There are methods in place to prevent dollar bills from being counterfeited. Who is the central authority that would prevent and monitor the various hologram stickers (not saying I think this is a viable idea but I’m curious if we make the assumption that it is)?

          8. LE

            “you merely store the private key on a physical item (etch it on a rock if you want) and then if the key is hidden on that object it becomes as good as one BTC in digital form.”Paper money is hard to counterfeit and there is a system in place to ensure compliance and to attempt to prevent people from printing their own money. And the secret services of course.What is to prevent someone who etches on a physical object from doing the same thing to 20 physical objects thereby counterfeiting the private key and attempting to use the physical object to make purchases?

          9. Gary Rowe

            Public access to the blockchain.

    4. Dave Pinsen

      Anonymous digital gold — another idea predicted by Neal Stephenson (in Cryptonomicon). But then came 9/11, and the trend was away from anonymity and toward greater disclosure and government surveillance of payment systems.

      1. kidmercury

        stephenson’s latest book is apparently about gold farming (or so i’ve heard, haven’t read it) — that’s another important trend in my opinion related to new money stuff.

        1. Dave Pinsen

          His latest is set in the present, so it’s more of a thriller than an exercise in predicting the future, but gold farming plays a role in it.

          1. ShanaC

            was it worth the read?

          2. Dave Pinsen

            Sure, it’s very entertaining. Though it loses a little steam toward the end, which is typical of Stephenson novels.

    5. Fonzi

      Most bitcoiners come from IT, programming, or databasebackgrounds. There is a lack of modern financial, economic, or practicalbanking knowledge in the current community. This is changing … slowly. Ancient bankersknow the US dollar and Euro are the reserve currencies of the world as a resultof us winning the world wars; our prize – the ability to create trillions ofdollars on-demand – and instantly tax foreign banks and nations. Today, we maintainthis fiat monopoly via our military and our industry – in symphony. However,the world does get a return on this cost. How so?Post world-war 2, the fiatsystem was about peace, prosperity, and โ€ฆ authority. A strong father keeps thehouse in order (and it is *one house* post 1 billion people whether we like itor not). We privatized war and ascended to world police, globalizing the Ruleof Law and providing protection to countries that follow it. This has provided aframework for nations like India, Brasil, and others to pull 1 billion people intothe modern workforce without trade disputes erupting locally/globally. These countrieshave prospered without sending their children to war or spending massive GDP onmilitary (xChina).If you look back over the last70 years, all wars (xIraq) are insignificant compared to the devastation and sufferingof the two great wars. Nobody wants to return to that truly terrifying time. To date, itโ€™s been averted. If the US dollar fails, the world falls into chaos.We could hope the Chinese, then act benevolently, allowingpeople of all races, religions, and abilities to come together globally tobuild the future โ€“ like America did. If Bitcoin doesn’t provide a substitutionfor one of the true purposes of the fiat system, it doesn’t stand a chance to be *that* big. It will remain a brilliant idea.It could still grow to become10B+ plus market cap, without disrupting the status quo, and make some peoplerich, but itโ€™ll inevitably get capped by regulation or unnaturallyextinguished. With ever grander blow-ups (bitcoinica, plenty more)PS: Since 9/11, the last 11 years have seen a new *tone*for this country, and yeah, itโ€™s worrisome. Maybe the scale hasfinally tipped for America, weโ€™ll see.

  33. Joshua M L Davis

    As a futurist, I get to play in this “idea space” quite a lot. Looking at this as a first iteration of an alternative currency is valuable because it disrupts the existing system (systems, really). It makes intuitive sense that an upcoming generation would want to off-load systems that they don’t like, i.e.: government taxation on income and sales, etc. Escaping that system makes sociological, political, and economic sense.Moving a few years ahead, Bitcoin and its eventual competitors will gain more traction and in my opinion will drive a new global system that, though complex, will really resonate well with its then-growing user base. This also gives us a framework to look at more than one “alternative currency”–like time or reputation. As more adopters use these nationally-disjointed currency options, groups of like professionals will be able to roughly value their time in a global currency and trade it (plumbing services traded for legal services, etc.). Craigslist already does this by default. When I want to post an item for sale online, I look at similar items and post somewhere near their lists based on compared quality of my item, availability, and how fast I want to sell. An opportunity in the future then might be to essentially codify a standard and broker “time-dollars” for goods and services in a streamlined barter system–ultimately divorced from the actual dollar (or other national currency). By charging a fee for connecting, the owner/operators of these brokerage could actually accumulate time-dollars and buy user’s services using a currency that has never existed physically. We can imagine, then, that a broker might live quite comfortably while maintaining a part-time job at Starbucks to provide a little cash-on-hand. On his tax returns, the broker annually makes US$12K and yet owns his house, pays for professional services, gets car repairs, maybe even buys groceries using income generated via Bitcoin (or another currency).

    1. cypherdoc

      it especially makes sense when my Boomer generation bankers have had the audacity to offload all their debt responsibilities onto our kids via bailouts and the National Debt. the kids won’t stand for it and they’ll vote with their feet ala Bitcoin or just moving.

  34. William Mougayar

    I’m not sure if the groundswell approach is going to be enough to propel it forward. Maybe their future is to be a part of something else. They could get a boost from a big partner.

  35. jonathan hegranes

    The limiting factor with Bitcoin is that people will ultimately gain more value in hoarding the currency than transacting with it.It’s an interesting system, but not scalable.

    1. Pseudonymous

      Nobody goes there anymore because it’s too crowded. – Yogi BerraArgument makes just as much sense.

      1. jonathan hegranes

        The dynamics of currencies and restaurants seems a bit like apples and zebras, but curious to hear more…Essentially, I think the success of Bitcoin will be offset by people not wanting to spend it. Would you be spending dollars if their value was going up faster than your 401k?

        1. cypherdoc

          the price of Bitcoin is destined to rise to great levels. once it reaches it’s “fair value”, whatever that is, the hoarders will be more than happy to dishoard or spend it at that time. people hoard usually b/c govt’s step in and artificially suppress price.

    2. Erik Voorhees

      So Bitcoin will fail because it’s value will increase too much? ๐Ÿ™‚

  36. Tom Labus

    The Royal Mint of Canada has issued a digital currency and also a created a contest/challenge to developers to come up with a unique direction.http://mintchipchallenge.com/

    1. Pseudonymous

      That’s not a currency. It is a wallet. Each mintchip holds a certain amount of CADs or USDs, thus not a currency.

      1. Erik Voorhees

        Exactly. MintChip is not a currency, it’s a payment mechanism for fiat CAD currency.

  37. kpwriting.com

    Josh Jones, I agree with you! ๐Ÿ™‚

  38. Luke Chamberlin

    I think Bitcoin has already proven its central thesis: you can create currency without assets or a sovereign nation to back it up.That said, I think Bitcoin’s current function is closer to a security like a stock than a currency. People are buying and holding, or looking to flip for short term gains, rather than using for transactions.

    1. ShanaC

      Yes, but then why does it have to be like gold though!

      1. Luke Chamberlin

        Be like gold in what way?

        1. ShanaC

          relatively fixed amount so there is no inflation.

  39. Cindy Gallop

    Taking Bitcoin seriously and very interested in its progress. My team and I considered using it on https://www.makelovenotporn… given the very significant obstacles we have encountered with the old world order of finance related to putting a payments infrastructure in place for a startup deemed to be ‘adult content’. Ultimately decided it wasn’t the best option right out the gate but have it on the backburner and will look at using in the future. In the meantime we are very, very grateful to Ben Milne of Dwolla who has been hugely supportive, and when we take our beta live – um, hopefully in the next 48 hours – we’ll be featuring Dwolla as a payment option. (We are targeting an international, not just US-based, audience, and cannot wait to Dwolla to go global!)

  40. bcarroll1234

    Seems like a waste of society’s resource – why use all this electricity and CPU power on currency manufacturing? Hope it fails.

    1. Erik Voorhees

      So electricity and CPU power used to store and track your digital USD is a good use of resources, but if used for Bitcoin it is a waste? Do you have any idea how many resources are used to operate the currency monetary system? Bitcoin is vastly more efficient – far less costly in terms of resources. It’s like comparing the Postal Service to email.

      1. bcarroll1234

        manufacturing new bitcoin is CPU intensive. agreed that, vs. existing currency, there’s no marginal load imposed once the bitcoins are created. but if bitcoin became really popular, enterprising people would mis-allocate society’s resource to build ever bigger, faster server farms to mine more bitcoins. a waste. would rather use those server farms on other computational tasks.

    2. cypherdoc

      hmmm, why waste $29 TRILLION backstopping the banks during 2008-present? http://www.ritholtz.com/blo…. Hope it fails.

  41. Tereza

    Would love to hear Menekse Gencer’s (@mpayconnect) views on Bitcoin as well.

  42. Patrick Dugan

    We need to keep trying different algorithms. The artificial deflationary scarcity isn’t doing it any favors. Maybe I’ll test a currency out in a year or two, once I’ve built a transaction network to support it.

    1. Erik Voorhees

      You seem to prefer a currency that is not scarce?

      1. Patrick Dugan

        Debt-money isn’t scarce nominally, but its flows are made scarce by pre-emptive claims to it via interest. Scarcity, when it comes to an information system, is relative. I prefer a currency where money supply scales with the volume of transactions:http://beyondmoney.net/tag/

    2. cypherdoc

      the VERY REASON Bitcoin is becoming popular is b/c it promises a fixed supply and no more. supporters intuitively understand that this means at the very least it will retain its value.

  43. Craig Wohlfeil

    I think the same as I thought before which is that it has interesting technical elements but is a poorly designed currency. Because the number of bitcoins mined over time will slow down it has persistent deflation baked in. There is no mechanism to deal with the swings in demand for bitcoins.There are some counter intuitive things about money. In your post you note that the value of bitcoins is up and to you this seems good. Why is this a good thing? It seems like it would be good that the a bitcoin could buy more stuff tomorrow than it can today. But that is deflation and deflation is bad because it causes people to hold on to their money (why spend money when its value is rising?) and the economy grinds to a halt. A currency that doesn’t circulate isn’t good for much.

    1. Yossarian

      There are many legitimate concerns w/respect to Bitcoin but this is not one of them. I addressed this here: http://www.quora.com/Bitcoi

    2. BladeMcCool

      The price mechanism will deal with swings in demand. And why would anyone spend their bitcoins when merchants are willing to accept FRNs? Its greshams law. When the joke money disappears from the market because of hyperinflationary banking system collapse, then people will spend their silver/gold/bitcoins. As little as they need to spend to get the things they require, but they will spend. Remember Greshams law.

    3. cypherdoc

      i don’t think you understand deflation or inflation. if i owned the world’s printing press in my garage and i only used it for the benefit of me and my friends i’m sure you’d have a problem with that. but somehow you don’t feel the same way about central bankers even tho this is exactly what they do everyday.Bitcoin will be a “stable currency” with a fixed supply that NOBODY controls. what’s more democratic than that?

    1. AdvertAgg.com

      Precisely!

  44. ShanaC

    A) quantum computing would kill the cryptographic algorithm in an instance. And we’re inching closer to quantum computing, which personal guess should be reality by the time there is real liquidity among the normals.b) anyone will be able to make a killing on the differential between mining bitcoins and the energy it takes, even with the drop of energy used per processor. Liquidity of bitcoins will essentially be tied to the crude and coal markets, unless we all go super green tomorrow. (doubtful about the super green). You might be able to make a real return not on the coins themselves but on the cash needed to extract. So why not just make digital petrodollars currency instead?c) deflationary currencies are linked to lost decades. Bitcoin has yet to answer how they will work in an environment where money doesn’t have a stable velocity and its velocity can’t be propped up using inflationary measures. If you are in an overall deflationary spiral, and your money is inherently deflationary, what do you do? How do you get people to invest in it? How do you get people to invest with it?of course this gets back to the question of what money is. As I keep reminding people, cash, gold, and bitcoins all have the inherent same properties that define money. The difference is whether you think money is an idea (or a set of ideas) or a thing. If it is a thing, why is digizing the thingness a smart idea? If it is a set of ideas, why does digitizing it to the extent that bitcoins are help us understand what money is?I do think it points out that we need better systems of anonymizing cash and quick transfering of cash. Thank goodness for Dwolla (except for international issues, damned)

    1. Peter Vessenes

      Hey ShanaC, there are a few quantum computing-resistant schemes which could overlay the current SHA-256 approach for Bitcoin, e.g. NTRU. I don’t think QC is a significant threat as compared to others for Bitcoin right now.As to the deflationary spiral, and your question of getting people to invest in it, and also boosting Dwolla, so far many, many people have been extremely motivated to hold something that they control, rather than a FinTech corporation.Practically, Bitcoin volatility is well under most tech IPOs this year, and is in fact often less volatile than gold or silver (I recently lost a bitcoin betting that this was not so, in fact).Finally, ideas / things seems to me to be a false dichotomy, or just a strawman. Cash can’t easily be spent on the internet. Ergo Bitcoin is different than cash. It seems to me to be money, since it is fungible and traded for other things as an intermediate value store. People who use it, love it.

      1. ShanaC

        I think it is worth talking about cash, money, and bitcoins.Bitcoin’s closest real life analogy is gold. Gold has thingness. Bitcoins have digital thingness designed into them. They can be touched, felt, easily accounted for since there is only a small amount.Money at the end of the day is an idea, or a bunch of ideas. It is how we think about value in the world. There isn’t necessarily a relationship to accounting for value and the amount of thing you are accounting in. Hence why fiat currencies work.Cash is just a script at the end of the day, meant to resemble ideas or things.When it comes to the account aspect of money, why is having a relatively fixed amount helpful for us to understand the value of stuff? Especially since price is not perfectly elastic? It is much easier to say hedonically better things are higher in price in our own heads than hedonically worse things are lower price for looking at a demand curve (even if they are just true converses of each other mathematically)

    2. Maximian

      A) A practical quantum computer of the sort that could provide a general solution to cracking SHA-256 is many years off (to say the least), and its emergence would be seen a mile away. There would be plenty of time for the Bitcoin community to react and implement a different scheme. QC is also a problem that would be faced by all electronic financial systems and isn’t unique to Bitcoin.B) Block generation (mining) technology is rapidly developing (new specialized ASICs are on the way), and it’s not at all clear that merely having access to cheap electricity will give you a killer advantage.C) When is the deflationary spiral supposed to happen? Even though the exchange price of Bitcoins is steadily rising, people are still spending them in increasing amounts. Why are they acting irrationally and not just holding on to them?

      1. ShanaC

        a) 40 years away? 50 years? Aka enough time to turn the currency into a reserve currency.B) right now, it does. And electricity prices are not stable. c) there are any number of reasons for that. It does happen – see http://en.wikipedia.org/wik…It is a matter of time and member introduction. There still isn’t enough people using bitcoins to make how to use it as a unit of account matter when it comes to deflation.

  45. paul gordon

    I agree with most of what’s already been touched on below. From the start my interest in Bitcoin has focussed on its potential properties as a store of value and have assumed that its use as a medium of payment would have to wait until further down the line once some form of “comfort factor” has been achieved.First and foremost, Bitcoin needs to be making the storage of large numbers of Bitcoins extremely safe, extremely easy, extremely secure and extremely trustworthy. Until a real trusted “brand” materialises that users can be sure is backed by a bona fide entity, it’s gonna struggle to attract real investment. Trusted, secured and insured cold storage facilities will be needed if non-tech-savvy individuals are going to hold anything beyond a few thousand bucks worth of Bitcoin comfortably – most certainly if you want to convince serious investors of their value. Although this would be adding a cost to what is free on a small scale, it would still end up way cheaper than the existing equivalent of precious metal storage fees, for example.If that transpires then we may start building the comfort factor that would give people the confidence to start using Bitcoin for payment.I can see the appeal for online digital payments and the potential it has in that space but, for now, business owners are always going to be put off by exchange rate fluctuations -and rightly so. Bad enough to have that worry with relatively minor/steady fluctuations when dealing internationally with global fiat but why have that worry every day with your local economy? I know that existing payment gateways (such as Bitpay) provide instant exchange from Bitcoin to your local currency but is that really that useful? Consumers will still need to go through the long winded process of procuring more Bitcoins and that is where all transaction fee benefit is lost once BitInstant or the like have taken their cut. A functioning Bitcoin economy requires Bitcoins to stay in, and be recycled within, that economy. And for that to happen vendors need to feel relatively protected from sudden bursts of deflation as do consumers from sudden bursts of inflation which is going to be common place whilst Bitcoin’s market cap is still so small.Further more, because of the generally wide dispersion of Bitcoin supporters, adoption of Bitcoin as a method of payment in the physical world is going to be an even more convoluted process. Whether it can be made to happen or not is another question (maybe for a VC somewhere to answer!!!) but it would be good to see if it was possible to manufacture a physical-world micro-economy in a high density urban area based on Bitcoin to both gain awareness and just see what the hell happens.For example, I am based in the Old Street area of London which is its tech centre (being heavily promoted as such by the UK Government) and is also densely populated with bars, clubs, small independent businesses etc. i.e full of young, creative and relatively tech savvy people.Say a number of local business could be convinced to start accepting Bitcoins. 20 or so purchase ยฃ1000 of Bitcoin and they are centrally pooled. The vendors are provided with an EPOS and a smartphone wallet is made available for customer. The vendors can then sell Bitcoins directly to their customers from the pool for cash (instant and zero fees) and, seeing as they’d be pretty much the only place that their customers can spend their coins, most of the Bitcoins would be recycled within the economy as the vendors re-sell them from their central pool. Add on intra-business loyalty incentives and you have a nice little thing going for both parties.The one main barrier for the vendors (primarily) is the exchange rate risk. If the scheme doesn’t take off and then the BTC/GBP rate drops, it’s cost them to take part. As an incentive, if the payment gateway provider was prepared to offer it, the vendors could be offered a fixed term, fixed rate buy-back option so that if, in say 2 years, the scheme has failed they can sell their Bitcoins back for no GBP loss. A risk for the provider but relatively small in real terms should the scheme succeed.On the other hand, if it is successful and the BTC/GBP rate increases over time the businesses gain. Also, if successful, and assuming Bitcoin continues to gain wider use online, the customers will gain a real world perception of the benefits of an inherently deflationary monetary system as the price of their coffee or beer falls in Bitcoin terms over time. The customers would be less at risk of inflationary falls in the BTC/GBP rate as you’d expect them to only store relatively small amounts for short periods for day to day spending anyway.Well, that’s all I have to say on the subject for now Fred. Great to hear your views on the subject. Something will grow out of this, I’m sure. I wait patiently for others to nail it.

    1. Erik Voorhees

      Really well said, all of it.

      1. paul gordon

        Thanks Erik. I hope you didn’t take the BitInstant comment the wrong way. Love what you guys are doing and it’s a great service for where we are now. I hope that you’ll evolve along with Bitcoin as and when needs require.

    2. Peter Vessenes

      I like this very-long-term paired put strategy for merchants; I think it makes sense. Nice idea!

      1. cypherdoc

        anytime you introduce a “put” strategy that creates all sorts of distortions into hoped for results. consider the Greenspan or Bernanke Put.

    3. Gary Rowe

      I love this idea of building small islands of adoption in local communities. I am based in the UK and would be interested in helping you make this a reality. I can provide funding and technical expertise.

      1. Jim Burton

        Hi Paul, this is a very interesting approach to create small Bitcoin friendly neighbourhoods. I am based in the SE of England and the lead developer on MultiBit so let me know if there is anything I can do to help.

  46. baba12

    Bitcoin replaces the Euro ๐Ÿ™‚

  47. Abdallah Al-Hakim

    I must say that this is a completely new topic to me. However, from my limited knowledge – I do share the suspicion that many of the regular AVC users have mentioned. I know a bit more about virtual currency which to my understanding was critical to Zynga’s success.

    1. Gary Rowe

      Why not spend some time looking into it some more? I’ll be glad to answer your questions.

  48. kirklove

    I like to consider myself “tech-savvy” and have even read several articles and papers on bitcoin. The Pros, Cons, mechanics, etc and frankly I just don’t get it. Not saying it won’t be successful I just can’t wrap my head ahead the concept.

    1. Erik Voorhees

      Try this one… it’s long but I think you’ll “get it” after reading ๐Ÿ™‚ http://evoorhees.blogspot.c

      1. kirklove

        Thank Erik. Def helpful and follows info I’ve read here: https://en.bitcoin.it/wiki/…To clarify I get the general concept. Still fuzzy on the “mining” part. Interesting stuff though that I should spend more time checking out.

        1. cypherdoc

          think of miners as transaction verifiers. you could become a miner by leaving your computer on with Bitcoin software installed and connected to the network. a copy of the blockchain would be stored on your computer and as new transactions get broadcast onto the network, your computer would check to see that the new transactions jive with the blockchain or public ledger to assure that someone isn’t double spending. from time to time your computer will be sent a payment in Bitcoins for having performed this valuable work for the rest of us.

      2. Techman

        Ah, good post. Can I suggest something to you though? The font on that article looks sorta stale and it makes it very hard to read. I suggest something like Arial would suit better, yes?

  49. Nitin Khanna

    Bitcoin, flaky currency, prone to hacking and other security leaks. But a rave for those who want to stay off the radar or just use something different… One thing I cannot understand is the massive fluctuation it goes through…

    1. Erik Voorhees

      Bitcoin has never been hacked. Websites that are involved in Bitcoin have been hacked, but so have bank websites (and far more often). The price fluctuation is easy to explain – it’s a shallow, immature market. Volatility will fall over time as the market matures, and indeed it’s far less volatile now than a year ago.

      1. Nitin Khanna

        You’re right, bitcoin has never been hacked. It has pretty good encryption. But while banks seem to have a lot of incentive to prevent getting hacked, I wonder if the same huge incentive is available to the bitcoin websites that you’re talking about.Also, true that the bitcoin market should be more stable as it matures and that’s exactly what this post is about. However, note that the currency is more prone to cyclical fluctuations than other currencies. That’s probably because of it’s association with negative use. What can be done about that (short of bitcoin making a deal with facebook to use it as their official currency! :P) ?

        1. Maximian

          As Erik pointed out, the exchange price fluctuations are due to Bitcoin being very thinly traded. In a stock trading context, Bitcoin is a microcap stock (worth approx. $300M USD or less), and microcaps are notoriously volatile.Any one person with a decent amount of cash or BTC can move the market significantly, and that’s why it appears to be more prone to price fluctuations than other currencies.As Fred said in an earlier comment, “these are early days.”

  50. LE

    “I am curious what the AVC community thinks about Bitcoin these days.”I find the idea of bitcoin hilarious. Have I made myself clear?If you try to read about what it is all you find is a bunch of mumbo jumbo concentrating on technical details, money supply, academic economic arguments, and things that have aren’t understood by regular folks or even Wharton Graduates with degrees in economics. In general use of these techniques is what makes a successful scam [1]. Since it is people’s tendency to not ask questions, and to make assumptions about legitimacy, when they read something they don’t understand they impart some kind of benefit to the same. They don’t want to appear stupid.Almost all of the information out there on bitcoin avoids the most important point which is “where can I spend my bitcoins?”. And the answer to that is the most important thing to consider which is “practically nowhere”.Also, what problem does this solve for regular people?It doesn’t. There problem is having enough money to buy things not the currency used.I don’t have any problem with the US dollar and I spend time working to make more US dollars backed by the US government which seems to be a safe bet to me. Not crap like this.Most importantly, Bitcoin in a sense is like a trade exchange which I know quite a bit about. In a trade exchange you provide goods or services and get trade credits which are spendable at anybody else on the same trade exchange. You pay a monthly fee or a percentage to be a member of the trade exchange. In general you don’t cash out trade credits for dollars and you don’t buy trade credits although it can be done (like with frequent flyer miles you can buy them or sometimes sell them). So the problem with a trade exchange is similar to bitcoins. What can I use my trade credits for? In general trade credits are good for high margin or perishable products (food, hotel rooms, legal fees, consulting) and bad for things that are low margin (plasma tv’s, computers etc.). By “good for” I mean more easy to find on a trade exchange if you could you’d love to trade printing that your company did for low margin products because of the fixed overhead of that type of business.The chance of getting a large enough percentage of the world of goods and services to convert to bitcoins can’t be understated. Slim to none. Will this ever hit a tipping point? No. If Oprah talks about it on her talk show? No. Because in the end any business accepting bitcoins will still have to spend bitcoins.By the way all the “central control” arguments and the like. People buying cigarettes and liquor at the corner store or the attorney buying a beach house don’t care about that shit. It’s a non-issue.Here is apparently as clear of an explanation of bitcoins that I was able to find, fromhttp://www.weusecoins.com/q…What is a good way to concisely explain Bitcoin?Bitcoin is a new kind of money. It’s the first decentralized electronic currency not controlled by a single organization or government. It’s an open source project, and it is used by more than 100,000 people. All over the world people are trading hundreds of thousands of dollars worth of bitcoin every day with no middle man and no credit card companies. It’s a startup currency which has never happened before.Bitcoin is the first digital currency that is completely distributed. The network is made up of users like yourself so no bank or payment processor is required between you and whoever you’re trading with. This decentralization is the basis for Bitcoin’s security and freedom.Email let us send letters for free, anywhere in the world. Skype lets us make phone and video calls for free, anywhere in the world. Now there’s bitcoin. Bitcoin lets you send money to anyone online, anywhere in the world for less than a cent per transaction!Bitcoin is a community run system not controlled by any bank or government. There’s no wallstreet banker getting rich by standing between you and the people you want to send and receive money from.Bitcoin is more efficient than all competing currencies. This will drive its adoption in the same way computers were adopted, in that computers made people more efficient in competing in the marketplace. Of course the early adopters will become rich, and I think they deserve it for having played a key role in the development of Bitcoin. A currency has value by it being widely used. Bitcoin is a startup currency with a deflationary bootstrapping economy. Its use spreads by providing the speculator incentive. Bitcoin is going to be the biggest opportunity for innovation that the world has seen since the industrial revolution. An idea whose time has come.I particularly like the use of the email and skype comparison two things that most people can understand. Seriously. [1] – Endorsement by some respected people and professors, even sound bites, would take in even more people of course.

    1. BladeMcCool

      I like how no central bank can devalue my bitcoins. Also I like how no tax authority can prove I control any bitcoins, nor can they steal them by force. These things give me warm fuzzy feelings.

      1. LE

        “I like how no central bank can devalue my bitcoins”Hmm. Interesting considering that bitcoins have so little value to begin with as there is next to nothing that you can use them for today. I prefer USD which is accepted everywhere in the world. Even if it devalues I can still buy everything I need with it.”Also I like how no tax authority can prove I control any bitcoins”They don’t need to. Just like the RICO act gives them ammo with criminality. Besides how is this different that cash that is hidden, or cash transactions in terms of the governments ability to prove that you have actual money? Let’s pretend you break into a house and are able to steal cash. Then you hide that cash and you spend that cash. Or you do work for someone “under the table”. The government, if it wants, can figure out ways to find out about those transactions (by looking at how you live or how you spend as only two possibilities).”nor can they steal them by force.”If you don’t pay taxes and you are living the high life they actually can and do have ways to force you to pay taxes (TCMP audit). So they can’t take the bitcoins perhaps but they can take things that you own regardless of how you obtained them.

        1. cypherdoc

          considering that it takes 11.5 USD just to buy 1 BTC i’d have to say you’re wrong. Bitcoin are also accepted round the world and can be sent there in 5 sec or less. sure it can’t buy as many diff things as USD’s but it’s very impressive what it can buy and it’s only 3.5 yrs old.as for RICO, etc. you actually sound as if you’re proud that our gov’t could inflict such misery on a private citizen and deny them their privacy. sure they could do all those nasty things you outline but the last i checked this still is somewhat of a democracy where the gov’t would have to have probable cause.you sure you don’t work for our gov’t?

    2. Ben Davenport

      E-mail was pretty hilarious when it was invented too. What was it possibly good for? You could only communicate with, what, maybe 500 people in the world with it. And yet…Metcalfe’s law applies to bitcoin equally as well as it does to e-mail and the rest of the internet. Each new participant in the system derives (and adds) more value than each one before him.

    3. ShanaC

      Always worth mentioning in the course of your comment- the Capitol Hill Babysitting Coop had both booms and busts when it came to scripts.http://en.wikipedia.org/wik

  51. terrycojones

    Hi Fred. I think bitcoin is brilliant.

    1. fredwilson

      Me too Terry

  52. unlisted

    Good concept. We need more decentralized currency. How the system is setup could be better. There’s a maximum of X Bitcoin once it maxes out, and it has .00000000 decimal places. The encryption system is good, as well as the concept of “mining”Eventually someone will come up with a more optimized approach. As long as the banks and government can’t touch it, it will succeed.

  53. terrycojones

    BTW, you might find this “A Brief History of Money” article interesting. http://spectrum.ieee.org/at… (via @kevinmarks)

  54. Eran Galperin

    I don’t have any actual experience with bitcoin, all I know about it is from reading articles here and there. When I published an article on online fraud prevention a few days ago, one of the comments was that “at least bitcoin doesn’t have chargebacks”.My current impression of bitcoin that if it matures to the point of being a viable alternative for digital payments, it can be a much safer way to pay compared to credit-card payments – for both sides of the transaction.

    1. Erik Voorhees

      Absolutely safer. With Bitcoin it’s unnecessary to give private financial details to every merchant with whom one shops. Credit cards (and banking networks) were designed decades ago, long before the internet. Bitcoin was purposefully engineered amid the internet.

      1. Eran Galperin

        Well, that’s what Paypal tried to do as well. In the end, fraud is as rampant with Paypal as it is with credit-cards (and I know, having been on the wrong end of those frauds too many times).As someone who receives digital payments – If bitcoin can somehow prove more secure than competing solutions, that should be its #1 selling point to merchants.

        1. Erik Voorhees

          Paypal didn’t do anything new. They require your private info to be stored with them, so the hacker just goes to Paypal instead of the company. What you are missing is that with Bitcoin there is no private info attached to the transaction. A Bitcoin payment is fundamentally superior to current payment methods, because it does not require proof of identity in order to confirm a payment – it is using public key cryptography instead of personal info.If you’re someone who receives digital payments, you should learn about Bitcoin. No chargeback risk, and no sensitive customer details to store/process/protect. It is vastly superior.

          1. LE

            “If you’re someone who receives digital payments, you should learn about Bitcoin. No chargeback risk,”And practically nowhere to use the bitcoins either that can’t be charged back.Please address that point specifically.

          2. BitcoinStarter

            there are no chargebacks with bitcoins is this what you wanted to know?

          3. cypherdoc

            there are plenty of places to use Bitcoins: https://en.bitcoin.it/wiki/…once a buyer sends his Bitcoin to a merchant’s address the transaction cannot be reversed. thus no chargebacks.also the most compelling reason to “invest” in Bitcoin is the limited supply that will ever be issued, 21 M. thus it will act similar to gold as a “store of value”.

          4. Eran Galperin

            I think you missed the point – Paypal frauds are done by hijacking Paypal accounts. At some point in a transaction you have to identify yourself to the service that holds your funds, whether it’s dollars or bitcoins. It doesn’t matter if it holds private information or not – if an attacker can hijack your account he can make false payments with someone else’s credit. Paypal Express Checkout uses a similar process with public tokens, but if the account itself is hijacked, it doesn’t matter.

      2. LE

        “to give private financial details to every merchant with whom one shops”What do you define as “private financial details” exactly?And what is “safer”?We accept credit cards and we pay by credit card. The only details we release, or are required, are name and credit card number which isn’t even held in a database the info is passed directly (for PCI compliance) to the processor. (And even if it was and was stolen there is zero liability..)The name and contact info is necessary, for, I would say the majority of transactions over the internet where payment is required.Lastly, bitcoins won’t stop identity fraud. And credit card liability if one is used (or stolen) is de facto, if not de jure, ZERO.If you are a credit card merchant you are well aware that all a person has to do is cough and the card processor will immediately charge back your account AND tack on a $25 approx. fee as well as punishment.

        1. cypherdoc

          my CC processor requires all my vitals to get one which can be hacked and used by someone else. its called “CC fraud”. in fact, for over a year now i’ve been harrassed by this collection agency masquerading as a law firm for a CC taken out by someone using my name and other vitals at Sears for $500 of merchandise bought supposedly by me. what a hassle! plus every merchant that you use that CC at is charged anywhere from 2-4% to allow you to use that CC. you’re right about getting tx’s reversed in the case of fraud on your existing card but the system is rife with waste while Bitcoin has little to no overhead costs.

          1. borg

            Credit cards need fraud to stay in business this is how they can charge 2-4% fee’s otherwise they couldn’t do it . Merchants pay the fee’s to offset fraud. Bitcoin is a direct threat to them.

          2. Sam

            Poor Logic. If the fee is needed to offset fraud, then they don’t actually pocket most of it now do they. Credit card companies do not need fraud to stay in business in any way shape or form. A high amount of fraud makes high fees likely as a kind of form of insurance. Credit card companies offer a service so you don’t have to carry around cash and can spend more money than you currently have. They could charge a small fee for these services alone if fraud didn’t exist in addition to the interest they receive from people who don’t pay off bills in full.

      3. ShanaC

        why, there is no risk to me because of the deal my credit card company cut. I’m not liable…

        1. borg

          Ah yes but people forget credit card company’s make more money off the data they collect on you ( purchase history…etc.,) and sell it to 3rd parties for huge $$ ….. with bitcoin there is no “selling of your data off” to anyone complete privacy . This is a HUGE difference between bitcoins and what credit cards company’s do.

          1. ShanaC

            So does existing on the web. At the end of the day, all money is a form of information. Price signaling and all that jazz.

          2. Gary Rowe

            There is a big difference in value between knowing what sites you visited and what you spend your money on. Marketing companies pay a lot to know the latter.

  55. Peter Vessenes

    Hi Fred!Bitcoins seem to be at an inflection point, from my perspective. We are just hitting a new wave of interesting things being built with it.It turns out that a permissive international payment network, not controlled by a corporation, or possibly even a government, has some really compelling uses.The popular ones to talk about are cash-like transactions on the Internet, as made famous by Silk Road. I think of transactors like this as people who *need* such a system, they don’t have access to traditional banking systems. However, many of those who use such a system find that they like it, and wish to use it more.Being able to pay someone without needing to trust any other party or corporation, even the one you paid is fundamentally compelling. It is not a service that a corporation can easily provide. It is, however, a service that can be leveraged.Probably the most interesting thing about Bitcoin these days is SatoshiDice.com, made by Erik Vorhees, who posted farther down. It’s a gambling site built off the Bitcoin Network. It allows instant, in-your-room gambling without creating an account at a casino. It’s super simple, and to my mind, brilliant. It also has commanded a giant volume of transactions since launch based on its simple use case.So, knowing Bitcoins are good for in-home gambling is interesting. It also imputes a giant follow-on economy for ‘winners’ who might wish to keep using the same payment system for purchases.At any rate, watch this space. I think the next two years are going to be very, very interesting.

    1. Steve Winn

      it is also wildly illegal from a federal and state perspective

      1. David Wright

        Because everybody here is american and cares only what US law says, right Steve?

  56. Max Yoder

    Before this thread, I knew nothing about Bitcoin. Now, I know more than enough to be thoroughly confused and extremely intrigued. This is great discussion. Thanks, all.

    1. Max Yoder

      Also, when I saw the title of this post, I knew @kidmercury:disqus was in for a busy day.

      1. kidmercury

        lol indeed!

    2. matthughes

      I’m with you.I knew next-to-nothing and now I’m amazed, impressed and somewhat frightened. ;)Fascinating stuff.

      1. Max Yoder

        Ha, LE, I respect your perspective immensely. I’ll go back to my knitting. Thanks!

      2. cypherdoc

        you’ll regret it immensely

    3. Gary Rowe

      If you would like to know more – or even give it a go, let me know and I’ll answer any questions you have.

  57. David Petersen

    It seems to me that the United States government is strongly against an independent currency and will work to legislate against it. This doesn’t mean the currency can’t grow offshore, but it’s going to be an uphill battle.I dream of the day I can store money in a currency that our government can’t inflate away to deal with their own problems. If enough people feel that way, change will eventually come.

  58. Wavelengths

    As LE mentions elsewhere in this discussion, I think what is missing for real traction is a compelling context, and the ability to relate bitcoins to our individual lives.When I traveled in Malaysia, I knew the Ringgit was the Malaysian dollar, and I could get 4 Ringgit for my US dollar. I met some schoolteachers in Kinabalu and, in the course of our conversation, I asked them how much they made per month. The answer — $2500. In the context of their community, they made about what a US schoolteacher in a similar town would make. As long as they remained within their contexts, the teachers in the US and the teachers in Borneo were making the same.I never cared about the concept of virtual currency until I went off to live in Farmville for awhile. (This was after Fred made a widely reported comment about the environmentally friendly footprint of Farmville tractors.)I came to appreciate the value of Farmville coins and dollars as they related to my time spent in the game and what the Farmville cash could buy me in further entertainment. (When cash went on deep discount (!! HAHHAH !!) it was even more enticing.) This was during a time in my life when I was searching for the next fork in the road of life, and Farmville gave me a lot of time to muse, while I got to understand the demographics of those who played, the addictive nature of those types of games, and how virtual currency might fit into everyday lives.While waiting to go into surgery, I jokingly asked the nurse in the waiting area if I could use the PC next to me to check my Farmville farm. He looked startled and then laughed. He said the hospital had had to redo their computer system to prevent employees from playing Farmville on hospital time. Talk about addictive!We accept poker chips at the casino, and even matchsticks for the poker game at home on Saturday night. Some people clip coupons. I think people will accept any alternative currency if the context is persuasive.

    1. cypherdoc

      try this for context. central banks worldwide printing literally trillions of fiat currency for the benefit of a select few bondholders leading to inflation and debasement of national currencies on an unprecedented basis in history. this is exactly why gold has increased from $250 in 2000 to what it is now. the only problem for gold is that Bitcoin is better.

      1. ShanaC

        Hi, your grandma is likely a bondholder. Hell;, I’m a bondholder. And I want inflation. Not for the sake of my bond, but because deflating money tends to prevent me from buying stuff. And at the end of the day, money is useless compared to the stuff I buy (especially if said stuff involves food)

        1. Pseudonymous

          You are free to use your currency that inflates. Others should be free to use their currency which doesn’t. Bitcoin, technically is still in hyperinflationary phase. The money stock is increasing at about a 28% annual rate yet.

        2. cypherdoc

          USD’s are an inflating currency as the supply ever increases and thus debases in value. A currency that is decreasing in supply is deflationary and thus increases in value. Bitcoin is set to have a stable supply thus I call it a “stable currency”. Which is exactly what the world needs. Money is the lifeblood of the financial system and has to have a stable supply to prevent the volatility of the business cycle. When a few select elites get ahold of the “printing press” they manipulate the supply of money to their own advantage, either up or down w/o others knowing. This is manipulation at its best solely for the benefit of the few.

        3. Gary Rowe

          Does this mean that you won’t buy an iPad2 today because the iPad3 next month will be better? And the iPad4 after that? At what point does the utility of the product outweigh the savings cost? This is the nature of the deflationary economy. Bitcoin’s principle advantage is that the rate of issue of new currency is publicly known throughout the life of the currency.

          1. ShanaC

            There is a difference in Purchasing Power Parity (with hedonics implied) and inflation.>At what point does the utility of the product outweigh the savings cost?because of the way hedonics works, within a short to medium term it actually makes sense to have inflation.Prices in our heads do adjust over time. However, in the short/medium term it is very hard for us to adjust. Saying that the Ipad2 is less good than the Ipad3 makes sense to us. Keeping the price of the Ipad2 the same and creating a higher price for the Ipad3 higher makes sense to us when it comes to our internal understanding of how accounting for things work. In order for this to work, we need to have inflation, since in reality the values for these objects have changed in terms of their equilibrium price, even if we can’t numerically name the percent.However, if the currency in question doesn’t inflate at all (the way bitcoins can’t, the way gold can’t), we would have to figure out how to force people to make internal adjustments about price much faster than their brains are used to. It also makes it hard for us to understand hedonics in that maybe the price for the Ipad3 should be much higher than Ipad2 as we reset equilibrium.This problem is why the US moved off the Gold Standard. The ability for our brains to set price is more important than the currency being enternally set. (It is also the reason Hyperinflation is bad, you can’t internally set the price and know the value)I’m a paternalistic liberatarian. I think mucking around too much with the way people think is a recipe for disaster and riots if you aren’t careful. Having a small amount of very predictable inflation to match basic economic growth just makes sense to me so I can value the stuff and services I use.

          2. Gary Rowe

            I’m not sure I agree with your linking of the hedonic pricing mechanism with a requirement for an inflationary currency. So long as you are able to make a consistent comparison with other markets in the same currency, then you can make a hedonic judgement. The internet is full of price comparison sites that can facilitate this process much faster than ever before.I think that people will rapidly adjust to expecting their goods to get ever cheaper in real terms and to see that reflected in the actual cost in a currency that is not affected by the same economic concerns as fiat currencies.In fact, by making it obvious that a product (such as food) is much cheaper to produce today than it was 30 years ago then the population is alerted to both technological progress, and possible quality issues from corner cutting. Hiding this behind inflation might be construed as a little disingenuous.

        4. cypherdoc

          so you’re ok that a candybar that cost $0.05 when i was a kid now costs $1.50? or that a house that cost $25K when i was a kid now costs $350K? seriously?with a fixed “stable currency” like Bitcoin your costs will stay the same or even decrease as society continues to innovate or grow. nothing wrong with that.and it won’t stop growth. its the human nature to grow, innovate and be more efficient over time. it’s not dependent on building up unsustainable debt bubbles that then have to be monetized to prevent a disaster.

          1. ShanaC

            as long as I know the time frame of which we are talking about and the rate of inflation (so I can say I am generating a return above inflation), why wouldn’t I be? At the end of the day, what we’re talking about is the % of income, not really dollars and cents. Maybe for that average home economicus kid a $1.50 candy bar is much less for his income because of video games. In a sense, that candy bar is now cheaper, even if nominally the dollar amount is much higher.

          2. cypherdoc

            its impossible to win the game. you forget that the Fed and the banksters are the sole manipulators of when they choose to inflate or not. you’re not privy to that information b/c you’re not one of the “club”. so you might make an investment in a house right now believing that QE3 is right around the corner. it actually was expected in the Spring but hasn’t yet come and doesn’t look likely. thus if home prices start dropping again you could be screwed by further dropping prices. this is exactly why Bitcoin is changing the game; NO ONE SPECIAL INTEREST GROUP CAN MANIPULATE THE MONEY SUPPLY TO THEIR OWN BENEFIT.

          3. ShanaC

            also, why would I invest in growth if I can’t see the growth in prices? I’m not sold that being innovative is part of human nature. I rather be a lazy bum.

          4. cypherdoc

            surely you are smarter than this. look here at your purchasing power and how its deteriorated over the years: http://www.coinnews.net/too…Bitcoin has been increasing in price have you not noticed? its even outperforming gold and silver substantially since it bottomed in November. get on the train.

        5. cypherdoc

          do you have any idea what inflation eventually does to bonds?Bitcoin is not a deflationary currency. It’s a stable fixed supply currency. there’s a difference.

      2. Wavelengths

        Yes, that’s a context. But it’s an abstract. It isn’t visceral, like “grandma is a bondholder … money is useless compared to the stuff [we] buy.”Grandma won’t understand bitcoin. Grandma might understand Farm cash — because it’s tied to something she can understand on an emotional/visceral level.

        1. cypherdoc

          what’s not abstract is the fact that gold has gone from $250 in 2000 to $1900, the best performing asset the past 12 yr. if you didn’t catch or understand that wave it will be hard for you to understand Bitcoin. but somehow i think you’re smarter than that.Grandma doesn’t need to understand Bitcoin. tell me, does she understand fractional reserve lending or the lack thereof given relaxation of supposed rules on overnight sweep accts at banks?with Bitcoin she just needs her Android to enter in the amount she wants to pay and click Send.

          1. ShanaC

            But money shouldn’t be an asset.And actually, if my paternal grandmother was alive, I bet she would have explained fractional reserve lending to me ๐Ÿ™‚

          2. cypherdoc

            this is true. which is exactly why i dumped 99% of my gold/silver ASSET stash in exchange for Bitcoin last year.no, your GM wouldn’t have been able to explain it. trust me ๐Ÿ˜‰

  59. Anonymous

    I actually made a few angel fundings in May with another round in middle of July. So far using a USD base we have realized a 43% cash on cash return and a 143% ROI, about $300,000 profit, in about 90 days. Not bad for a little joke. There are some good Bitcoin businesses out there and the economy is a lot more developed than one may assume; you just have to know where to find them.

    1. Maximian

      Don’t worry, once you realize that you’re dealing with a currency that is in a deflationary spiral, unfairly benefits the early adopters, is just a bunch of ones and zeros, fails to satisfy Mises’ Regression Theorem, is just a nerdy hobby for anarchist lunatics, can’t be understood by grandma, and can’t be traded by tribesmen after the apocalypse, your profits will instantly vanish and you’ll come to your senses.

        1. Maximian

          I agree, I was just alluding to the view of some very rigid Regressionists, like this guy: http://smilingdavesblog.blo

      1. ShanaC

        and who says Mises is right?

        1. Maximian

          Not me (I was being sarcastic), but there are some Austrian School fundamentalists who say that Bitcoin couldn’t ever rise to the status of money since it violates the Regression Theorem. Example: http://smilingdavesblog.blo

          1. ShanaC

            I don’t get why a lot of the bit coin people are hung up on Mises. Austrians don’t describe human emotional behavior and its relationship to economics well. And they aren’t so helpful in explaining the links between macro and micro….

          2. Ameriwas

            Most bitcoiners come from IT, programming, ordatabase backgrounds. There is a lack of modern financial, economic, orpractical banking knowledge in the current community. This is changing. Ancientbankers know theUS dollar and Euro are the reserve currencies of the world as a result of uswinning the world wars; our prize – the ability to create trillions of dollarson-demand – and instantly tax foreign banksand nations. Today, we maintain this fiat monopoly via our military and ourindustry – in symphony. However, the world does get areturn on this price. How so?Post world-war 2, the fiat system wasabout peace, prosperity, and โ€ฆ authority. A strong father keeps the house inorder (and it is *one house* post 1 billion people whether we like it or not). We privatized war and ascended to world police, globalizing theRule of Law and providing protection to countries that follow it. This has provideda framework for nations like India, Brasil, and others to pull 1 billion peopleinto the modern workforce without trade disputes erupting locally/globally. Thesecountries have prospered without sending their children to war or spendingmassive GDP on military (xChina).If you look back over the last 70 years, allwars (xIraq) are insignificant compared to the devastation andsuffering of the two great wars. Nobody wants to return to that truly terrifyingtime. To date, itโ€™s been averted. If the US dollar fails, the world falls intochaos. We could hope the Chinese (or the French J), then actbenevolently, allowing people of all races, religions, and abilities to come together globally to build the future โ€“ like America did. If Bitcoin doesn’t provide a substitution for the true purpose of the fiat system, it doesn’t stand a chance tobe that big, and will remain a brilliant, useful, technology.It could still grow to become 10B+ plus market cap, withoutdisrupting the status quo, and make some people rich, but itโ€™ll inevitably getcapped by regulation or unnaturally extinguished. The tech could be institutionally adopted, evolved, or modified to fit the establishment though.I also agree with your inflationary/deflationaryviews โ€“ the psychology of returns matter.PS: Since 9/11, the last 11 years have seen a new *tone*for this country, and yeah, itโ€™s worrisome. Maybe the scale hasfinally tipped for America, weโ€™ll see.

      2. cypherdoc

        like i said above, i think its wrong to label Bitcoin as a deflationary currency. i prefer “stable currency”. a deflationary currency is one that decreases in supply, the opposite of an inflationary currency that increases in supply like all fiat.money needs to be the constant in the financial system (meaning supply) which it is not currently. it’s supply is controlled by a few self interested bankers who only feed the zero percent cost of that money to their buddies.

  60. neilwlevine

    I think Bitcoin continues to retain interest because of its ambition and values. Peer-to-peer, decentralised and exclusively online, it’s what many of who think big, radical and experimental want to see work. Its architectural complexity and lack of mainstream adoption will mean it remains niche, but hopefully it will spur others to try and improve upon it (although the question is why haven’t we seen competitors yet?). Hopefully, Bitcoin will be like the GNU project: ideological, incomprehensible to the layman, and producing geeky tools but a spring board for a more commercially successful industry. Or, it will just be another technological curiosity for us to reminisce about in 20 years.

  61. Druce

    There are non-state-sponsored currencies… casino chips, amusement park ride tokens, subway tokens, stamps, frequent flier miles.Of course, they are state-backed, in the sense that the sponsor can call on the state to punish any shenanigans with them.For legitimate use cases, a currency with a sponsor would be usually have an advantage over Bitcoin, a currency without a sponsor.I don’t think there’s any currency system that didn’t at some point evolve, change rules, have people exchange coins for better technology etc.Seems to me unless Bitcoin gets state backing and a state-backed authority that can make rules, use case is for situations where absence of state authority is a plus, ie black markets.Dangerous ground for a reputable VC lol…

    1. fredwilson

      I like dangerous bets

      1. Druce

        ha, a loose cannon VC who doesn’t play by the rules…bitcoin is a potential hedge against the collapse of the financial system…for same reason bitcoin going up against some entrenched interests. look at StanChart/Iran. If bitcoin gets big and used to evade controls, hide from taxes, do you think the establishment puts up with that? bitcoin is going to be in bed with some colorful characters. wonder how those guys react if they can’t get their money from some startup that got hacked lol. reputational risk seems scarier than investing in porn sites or online gambling, would look for ways to participate but be at arms length, not positioned as enabler of narcotics/smuggling/money laundering/terrorism. sometimes bets look dangerous because they are LOL… a lot of stuff that looks nifty to anarcho-libertarian technology folks looks like Dr. Evil to Main Street, especially when livelihoods and powerful interests are threatened.

        1. cypherdoc

          you sound like you’re captured by those very same interests.actually gold may be a hedge against economic collapse. and i’m not convinced of that.Bitcoin is a hedge against economic collapse but also has a real economy growing up around it. you just need to look. you can’t say that about gold.

          1. cypherdoc

            ad hominem attack? lol. go back and read critically the ad hominem FUD you wrote. all Bitcoin is really is a software protocol. just like USD’s are cash. which currency is used more for drug running? which banking system, StanChart excluded, is used most for money laundering? http://blip.tv/stratfor/the… are you afraid of which one citizens would choose in a free and open market? who said the majority of Bitcoin users would hide from taxes? that’s an assumption steeped in FUD. associating Dr. Evil with Bitcoin is an ad hominem.

          2. Druce

            if there are 2 information protocols, one protocol backed by a sponsor armed with sweeping powers to enforce transactions in those protocols, to make transactions (say with Iran) illegal, and put financial institutions out of business (say Standard Chartered), not to mention nuclear aircraft carriers – and one protocol that isn’t backed by anyone…then in that ‘free and open market’, most people are going to go with the former. Not a value judgment, just a prediction.of course, you may not think that’s a free and open market, if your version is one where state power protects bitcoin users from theft and fraud, but doesn’t protect the government’s ability to run its own currency, extract seignorage and bestow rents. if the establishment is bringing out the big guns on StanChart and UBS secret accounts as supporting money laundering, tax evasion, drugs and terror, it’s not a hard prediction they would bring those same guns against bitcoin if it became significant. if I were a reputable investor, I would consider that a reputational risk. the current imperfect market is going to be persistent. Not a value judgment, just a prediction.Subject: [avc] Re: Bitcoin Update

          3. cypherdoc

            sigh, where do i begin?i’m going to assume for a moment that you read the news everyday, digest every economic piece of data that comes out, are familiar with capital markets and how to trade within them, and are familiar with monetary science and its historical facts. in case you hadn’t noticed, we have a wee bit of a problem going on worldwide. it can be distilled down to 3 words IMO: fiat currency crisis. the way i see it, when Nixon depegged us from the gold std in 1971, what was unleashed was the greatest monetary experiment the world has ever seen in the form of unlimited debt issuance with subsequent unlimited money printing to cover up the occasional bubble bursts that resulted. Result: its coming apart at the seams. what started in 2007 has not finished; we never cleared the bad debt. instead it has been foisted onto the backs of the taxpayers whom you claim will willingly submit to violence and austerity to pay those unpayable claims to wealthy bondholders, who just happen to be those same banks you referred to above like StanChart, UBS, and the rest of them. its clear that isn’t going to work as the interest pmts overwhelm the capacity of the system to pay them off. Europe is evidence of this. China’s bubble is coming to an end. we are actually sliding down the slope of crushing deflation and ppl like you assume the Fed will print like mad to fill the debt hole. perhaps they will, perhaps not, either way, its a huge problem for the Keynesian economic assumptions that have been in place since the Fed was born in 1913. and its all due to the fact that somehow we have let a few elitist bankers gain control of the printing press which they have used for their own benefit.why do you think gold has been the single best asset to invest in since 2000? the muppets you describe above are “voting” with their feet and fiat money to invest in an armageddon play. it doesn’t matter how many nuclear aircraft carriers, guns, or financial repressive techniques the gov’t uses on the ppl or other nations. investors who do care about reputational risk are buying gold and stashing it away in accts overseas, safes at home, post office boxes, safe deposit boxes, under the mattress, you name it. and Wall St is feeling it: http://finance.fortune.cnn….. investors are fleeing the stock mkt and have lost trust in our financial mkts. that’s key. the corruption stories coming out of Wall St. weekly are astounding. do you really think the John Corzine’s of the world are going to be able to continue stealing directly from client’s accts? can banks continue to manipulate Libor at the expense of municipalities, hedge funds, pension funds, and literally everyone on the planet? are these few elitist bankers really going to be able to keep their few thumbs clamped down on the majority? i am an optimist in this regard and say “NO”.which brings me to the Internet. the last 10 years have seen the disruptive growth of the greatest means of communication the world has ever seen. the fact that you and i can sit here and brainstorm over worldwide events, strategies, and ideas is transformative. these types of blogs and sites like the Bitcoin Forum have become the new thinktanks of the world. places where literally hundreds or thousands of ppl can put forth ideas simultaneously with zero delay. what it has allowed is a “pulling back of the curtain” and has revealed a financial system that is corrupt to its core. in case you hadn’t noticed, consumer sentiment is still at all time lows, retail sales have been dropping once again for the last 3 mo, and there is compelling data indicating we are going into another recession. how could we not with Europe’s economy in shambles and Asia slowing significantly. will the US be an oasis in a sea of recession/depression? i think not, just like in 2008-9.lets finish with this; nothing can stop Bitcoin by my best estimation. its the internets version of whack a mole. StanChart, UBS, even the country of Switzerland itself were central points of failure. that’s what happened to Megaupload. yet the free dissemination of songs continues via Bittorrent. how have the guns and violence from Hollywood to crush this phenomenon worked out? you’ll then say “the US will declare Bitcoin illegal within our borders”. US users then would route their tx’s outside the US while the rest of world could continue using Bitcoin. then you’ll say, “why, ALL govt’s round the world will ban Bitcoin!” they won’t, but lets say they were able to. well, it’ll just shove Bitcoin underground then. the only way for them to destroy Bitcoin would be to shut down the Internet. how’d that work out in Egypt when Mubarak did that for 3d last year Spring during it’s revolution? why, it was the banks that cried Uncle! they couldn’t continue their financial transaction system w/o it. LOL! whodathunk? so the Twitterers and Facebookers got right back online and thru the bum out in the end.lets just not focus on the bad things that might happen to Bitcoin, either. what are the potential positives. as i said above, the worlds financial problems can be distilled down to the 3 words: fiat currency crisis. Keynesian economics is failing us. the way i see, and i like to think big which i would’ve thought many of the VC investors on this site would think, Bitcoin could become the basis for an alternative gold standard. in other words, instead of using gold like it was used over history, the world could use Bitcoin. if you understand the intricacies of how the gold std worked, like i do, you can see that it was very cumbersome in that gold would every once in a while be moved around by sea to settle international balance of payments btwn nations. fodder for pirates. but overall the gold std did keep govt’s from overinflating their currencies or issuing too much debt. unlike today’s Keynesian system where it seems the apparatchiks in charge think that solving a debt problem involves issuing even more debt. one day we, as a global financial system, are going to have to stop this and most likely go back on some sort of system that has a backing for fiat. will it be gold? i doubt it. it needs to adapt to the speed and seamlessness of the Internet flow which is where financial institutions reside. that’s where Bitcoin can come in via instantaneously allowing balance of payment settlements btwn nations every nite or even realtime.Bitcoin is not easy to understand. it took me a month of constant studying, analyzing, verifying, interviewing and conceptualizing to understand what i was dealing with and its implications.the world is changing. personally, i do not wish to suffer from linear thinking. by that i mean that i don’t think things can go up forever, that there are limits, and that the majority will be heard and eventually will regain control.

          4. Druce

            bitcoin is a fiat currency in the sense that it’s backed by nothing productive or tangible, but not in the sense that it has a state sponsor, so it seems like the worst of both worlds.it has the further disadvantages- takes a month of study to figure it out, people who can’t back up baby photos will struggle to keep their bitcoin secure- evolving bitcoin will be a challenge without central authority and there is no tech that doesn’t need to adapt to changing environment- even if it takes off beyond hardcore techies, even if the tech stays secure, the ecosystem is always vulnerable: will attract competition and organized attack by hackers/fraudsters, but most critically the powers that benefit from status quo, which is every government everywhere forevergreat tech concept, could find a niche in black markets, tech could be of use for currency systems with state or private sponsors. if the Fed and other central banks really screw up and we go Zimbabwe and the dollar and paper currencies become worthless, then the world goes to currencies like gold and bitcoin.the mere existence of bitcoin, like the mere existence of gold, is not sufficient to make that happen. that is where we seem to differ. you may wish to consider what real world developments would change your view, or at least make it a reality in someone else’s lifetime. the absence of global economic/environmental/geopolitical catastrophe, and an enlightened sense of self-preservation on the part of monetary authorities might suffice. Also consider the eventual size of the bitcoin economy that is already priced in at the current exchange rate.if nothing in reality can change your view, then it is not based on reality.Misfortune awaits those who presume to believe that the future is revealed to them. – j-k galbraithSubject: [avc] Re: Bitcoin Update

          5. cypherdoc

            the fiat currency experiment that you’re referring to has only been in existence for 40 years. that’s a blink of an eye in the long history of the gold standard. and mind you, i’m not a gold bug or an advocate of returning to it. what backed fiat prior to 1971 was not govt’s but gold; a commodity. seemed to work pretty well back then. Bitcoin possibly, not likely i admit, might serve as a gold equivalent for a new std. but even if not, the trajectory of golds price the last 12 years could be projected onto Bitcoin as a store of value. that alone makes me bullish on its prospects from an investment perspective.it took ME a month to understand all the intricacies, math, and technicalities behind Bitcoin as an investor. everyday users don’t need or would want to know all those things that i dug into; they’ll just be happy it works.hacking hasn’t proved to be a problem whatsoever with the protocol itself and we know for a fact that its been tried and has failed. each day that goes by brings increasing confidence to those who find Bitcoin intriguing and its been over 3.5 yrs now.i think you should realize that all of the fear and power about govt’s and vested interests that you have injected into this conversation comes from the fact that they have control of the printing press. that b/c they have essentially unlimited amounts of money they will be able to suppress competition and innovation to the point where ordinary citizens are forced to capitulate. i wonder how many here would actually say they’ve fairly executed their fiduciary responsibilities.but you’re right in that i think it will take a crisis to really get society to move in a different direction from that of the current financial system. but the setup is here, front and center.

  62. Doug Gibbs

    Bitcoin is interesting sure, I do wonder if the illegal activities will get it shut down/banned or scapegoated by government powers.More interesting is the technology it is built on. A distributed cryptography system, that allows free exchange of artifacts is brilliant.Could it be used for other things. I will get flamed, I know, but is it a useful DRM for ebooks and music? What else could a bitcoin model of validated exchanges, without reuse be used for?How about limited generation of artifacts?

    1. Gary Rowe

      DRM is largely anathema to the Internet community, but you should look into Namecoin which uses the Bitcoin protocol to manage an alternative implementation of DNS. This protects against someone taking over or taking down your website through ICANN.See http://dot-bit.org/Main_Page

    2. Gary Rowe

      You could also consider smart property, but it is a bit fringe even for Bitcoin. See here for more details: https://en.bitcoin.it/wiki/

  63. Zooko

    I predict that powers that be in the West, especially in the USA, are going to attack Bitcoin next year. It turns out that Silk Road (the marketplace for illegal drugs) really is the mainstay of the current Bitcoin economy, facilitating the sale of about $100K worth of illegal drugs per *day*, and that most of its sellers and buyers are located in the US (http://bitcoinmagazine.net/… ). Also, it looks like Bitcoin is perceived as a competitive threat by USA banks — here is a recent talk by some Chase Bank folks floating the idea of attacking Bitcoin with a combination of cyberattack and financial regulation (and smears and FUD about “crack houses of the Internet where you don’t want to do business”):http://www.youtube.com/watc…The hilarious part of this talk is that the only evidence for “dark alleys and crack houses of the Internet” that they show is that Mtgox is hosted by Prolexic, and this guy’s “cyber threat intelligence software” shows that Prolexic is associated in some way with spam, scams, and other illicit behavior. This is hilarious! According to their techcrunch blurb (http://www.crunchbase.com/c… ), Prolexic also hosts ten of the world’s largest banks.Context for that talk: it was given at this event: http://info-summit.appspot…. keynoted by Eric Schmidt: https://www.youtube.com/wat… . Schmidt’s keynote mentions a monetary payment as part of his vision. Schmidt is on the record as saying interesting things about Google and Bitcoin a few months ago: http://money.cnn.com/2012/0… .Other context, also amusing: two days ago I walked into Chase Bank branch with $1000 in cash, deposited it into the account of https://bitfloor.com converted it to about โ“‘100 and spent it on an Ultralap 410 from https://zareason.com .But, while those powers that be can do a great deal of damage within their own borders and in affiliated countries where they wield power, they won’t succeed in stamping out Bitcoin entirely from their own domains, much less from the globe. Bitcoin is like a cockroach infestation: killing part of it — even 90% of it — isn’t going to gain you much respite.Bitcoin is already well-established in Germany, Russia, Poland, the Netherlands, elsewhere in Eastern Europe, appears to be growing in China (http://bitcoincharts.com/ch… ), and it might soon also spread into other places such as Africa (http://bitcoinmagazine.net/… ). There are twenty countries listed on (http://bitcoinstatus.rowit…. ) as hosting more than 100 Bitcoin servers each (scroll down to the bottom of the page), and dozens more countries hosting between 1 and 100 Bitcoin servers.

  64. davideous

    The answer on this page (http://www.quora.com/Bitcoi… by Adam Cohen is well thought out and convinced me that Bitcoin can’t work.

    1. ShanaC

      sorry about that, it got caught in spam. I think your comment should be rescued now.

  65. Henry Glover

    I want to see Bitcoin succeed and I would agree with Fred’s previous point posted in his original post – “i think the investment opportunities are in services around the new currency.”With that being said, there are very few jobs that pay in Bitcoin (mostly programming jobs). If someone does not have money or assets but is able to work then he or she can find a job or start a company that earns US dollars – a form of payment that is accepted. Same logic applies to Bitcoin very few people have them but you can’t ‘earn a living’ with Bitcoins nor can you pay your daily/monthly expenses and luxuries with Bitcoin.I think that if Bitcoin is to succeed there needs to be job creation around Bitcoins – then more companies will be willing to accept Bitcoin as a form of payment.While credit cards are not currency but only a means of currency exchange – it would be silly to start a business that only accepts American Express as payment – unless your business only wanted to accept the typical client that carries American Express. So the average company accepts Visa, Mastercard, American Express cash, check etc. Again same logic applies to Bitcoin – companies would need to accept USD or Bitcoin as a form of payment – giving the average person the incentive to earn a living in Bitcoins. Not to mention you would not have to depend on exchanges for Bitcoins.I have been reading this blog for a while – first time posting ๐Ÿ™‚

    1. fredwilson

      Great comment. Well played.

    2. ShanaC

      a) great comment, and welcomeB) Diner’s Club had an incredibly hard time convincing enough stores to take credit. It was a huge headache. How is bitcoin supposed to repeat that trick.

      1. Prokofy

        For an excellent history of how credit cards were invented and foisted on conservative bankers, read Dee Hock’s “Birth of the Chaordic Age”. It’s fascinating. But in fact a lot of what is wrong with our society today was wrought by the creation of those “never-never” charge plans.

  66. Stanislas Marion

    I bought a few thousands usd worth of bitcoins little more than a year ago because I’m a huge fan of the idea and I really think this can be an investment that pays off exponentially. I am well aware of the high risk that I lose it all, but I’m pretty excited about its recent come back, and very optimistic about its future.

  67. BitcoinStarter

    Umm….As I’ve stated before Bitcoin changes everything. You’re either going to be left behind or benefit from it. Which camp do you want to be in?

  68. John Revay

    “Square will do with Starbucks”I was surprised that USV did not invest in Square re: Jack

    1. fredwilson

      Mistake

  69. Ben Davenport

    Hi Fred,To me, bitcoin essentially has the potential to be a better gold than gold. Let’s compare the attributes of a good money, and see whether bitcoin or gold comes out on top for each.Rare: Bitcoin wins. There is an exactly known maximum fixed quantity of bitcoin, while someone may yet find a way to extract gold efficiently from seawater, or bring an asteroid back to earth.Uncounterfeitable: Slight edge for bitcoin. Gold is highly recognizable, but fake gold bars have been made with tungsten.Fungible: Tie.Easily divisible: Bitcoin wins. Hard to deal with gold amounts smaller than a gram, which is about $50. Bitcoin is divisible down to 8 decimal places. If all the bitcoin had the same value as all the gold ($7T), then the smallest unit (1e-8 bitcoin) would be worth less than a penny.Compact: Bitcoin wins. $1M of gold weighs 44 lbs. Bitcoin weighs zero, and in fact you can store your wealth in your head by remembering a passphrase that generates your private key. Refugees fleeing a tyrannical regime could potentially do so with their wealth intact.Anonymous: Gold wins, but with proper address management, bitcoin can be mostly anonymous.Secure from loss: Bitcoin can be backed up. Gold can’t. With proper technical understanding it is trivial to managePayment at a distance: Bitcoin, obviously. I sent some bitcoins irreversibly to my friend living in Senegal in about 10 seconds with zero risk or expense to either of us. Actually moving gold is risky and expensive (robbery, boats sink, etc.), which is why it mostly just sits in vaults. Yes, an electronic currency backed by gold can be issued, but then you still have to trust the issuer.Universal acceptance: Gold wins hand down, with a 2000+ year history as a recognized item of value among several billion people. Bitcoin has about 4 years of price history to date and probably only a few million people are even aware of it yet. On the other hand, the upside potential for bitcoin is clearly a lot higher than gold, since the market cap of gold is ~$7T, while the market cap for bitcoin is about $100M currently, smaller than a single moderately successful startup.Yes, there are plenty of stumbling blocks to overcome, but the risk/reward ratio is attractive at present.

    1. LE

      “To me, bitcoin essentially has the potential to be a better gold than gold.”Wow. Potentially better than gold.You see gold actually has many useful purposes separate from what it isn’t even used for anymore – the gold standard.http://en.wikipedia.org/wik

      1. Ben Davenport

        Gold is not valued at $1600/oz because it’s good at conducting electrons and looks pretty in earlobes. Most of the price of gold represents a monetization premium, due to it being the commodity most suited to being money, and its long history as such. Were the central banks (and other store-of-wealth holders) to dump all their gold, the price would likely be under $100/oz. Conversely, just because gold happens to have other uses besides as money, does not mean if it did not have those uses, that it would be valued substantially less. Say the laws of physics changed and it stopped conducting electricity one day, and everyone simultaneously decided that yellow was the ugliest color of all time. Would the price of gold change much? I don’t think so.There is no such thing as intrinsic value. Gold is valuable because other people value it. The same is true for bitcoin.

        1. ShanaC

          I don’t value it.

          1. Gary Rowe

            Gold or bitcoins? If you don’t value bitcoins then sell me any in your possession for $0.1 – I don’t mind going out of way to assist you in getting rid of them.Seriously, it might be worth having a read of this if you think Bitcoin is just Monopoly Money: https://en.bitcoin.it/wiki/

          2. ShanaC

            At least the gold I can figure out how to melt and insert into a lost wax sculpture object with enough time and practice.And sure – I’ll sell you half of my favorite pencil for $.1 – 6b carbon no wood casing half unwrapped. It is very black, but not the blackest pencil you can get. The no wood means you can invest in trying some new drawing techniques.

          3. Gary Rowe

            Not interested in your pencil, just those bitcoins you’ve got stashed away in the invisible aether. Gold will do, too, I’m not fussy. ๐Ÿ™‚

          4. Monsanto ate my nana

            So if someone donated a 20kg bar of gold to you, you’d think it was just heavy trash and throw it out? You’re a troll.

          5. ShanaC

            No, I’d take out an acetylene torch, hammer, crucible, and anvil* or sell it to a friend of mine who makes microwire for microchip manufacture.What am I going to do with a 20kg bar of gold otherwise? It isn’t like I can eat it. I can’t use it as a way of accounting for what I eat. It stores value, but only if I can find some way to sell it later. I mean, beyond having a very big, heavy paperweight, what can I do with it by myself?*yes, I know how to work an acetylene torch. Not as well as I like, but I can – maybe when I retire I’ll return to the torch.

          6. vruz

            Are you sure you can safely say you don’t value something that you probably don’t yet understand?

          7. cypherdoc

            what about all the other ppl in the world who’ve driven the price from $250 in 2000 to $1620 where it is now? the best performing asset in those years.

        2. vruz

          Guns! Drugs! Be very afraid! That’s only for the monopoly to profit from, and make everybody else afraid. Monopolies hate competition.Does any reasonable person think that Bitcoin will create more drugs and more guns?Exhibit: All the drugs and guns in the world exist without help from Bitcoin.As for intrinsic value:Gold is not valuable because other people value it.Gold is valuable because *you* *trust* that other people will value it.It comes down to trust, not inherent value of any sort, not even social value.

    2. ShanaC

      I can only imagine the cross of bitcoin you wish to place on my back, and hope to the highest heights it never happens.

      1. Pseudonymous

        Relax, Nobody is gonig to force you to use bitcoin.

        1. ShanaC

          I am relaxed. However, that line was used purposely. Bitcoins have the same problems that the Gold Standard had. Which was why Williams Jenning Bryant was able to make the cross of gold speech.

          1. Pseudonymous

            I hadn’t caught the reference, and only vaguely knew of this bit of history. But if you liked that would lessen the power of gold with a bimetallic standard then you should like that bitcoins as a commodity compete against gold and silver. (I know you would prefer fiat only, but I’m hoping you see bitcoin’s silver lining, … pun intended.)

      2. Gary Rowe

        PayPal, Mastercard, Visa and others are not going to disappear because of Bitcoin. However, Bitcoin gives people and merchants a choice was not possible before.

        1. ShanaC

          True, though I don’t understand that choice.

          1. Gary Rowe

            Why not give it a go? I’ll even send you the equivalent of $5 in BTC for you to try it out. This is a one-off repeat of my earlier offer from the previous article way back in the day: http://www.avc.com/a_vc/201

          2. smeg4brains

            I’ll .5 btc as well.. Just post an address.

  70. keith

    I had an opportunity to learn about bitcoin over beers with a bunch of guys running an exchange down in Chile. I think it is a fascinating experiment!If I were to venture into this space it would be to create maketplaces where bitcoins could be used. That way I could side-step most of the speculative aspects of the currency.But, I’ll likely just watch from the side-lines.

  71. Megan Arend

    Hey Fred,In your November post, you said that you were “quite taken with the idea of a currency that is not controlled by governments and central bankers and that is based on faith in an algorithm and a network instead of the ‘full faith and credit’ of a country.”The Canadian government is actually working on a hybrid of these two: a currency that operates digitally, but that is backed by an already existing currencyโ€”the Royal Canadian Mint. They’re calling it MintChip. It works much like BitCoin in that no personal data is exchanged in the transaction, and that it operates like cash and enables micropayments.Don’t know if you’re turned off by the fact that it’s government-run, but the Mint already has some really cool stuff in the works, despite still being in R&D phase. You should check it out if you are (were) a fan of BitCoin.-Megan

    1. ShanaC

      I like what they are doing – I think they understand the power of fiat currency!

      1. Gary Rowe

        The number 1 and 2 top voted applications for MintChip were to buy bitcoins more easily, and to pay musicians more easily (which is already done in bitcoins).

  72. Vitaliy Levit

    If the black market alone were to power Bitcoin, it would prosper.Take into consideration the $10 trillion Shadow economy (System D) that’s currently operating entirely on cash. It’s inevitable that digital transactions will replace cash in our lifetimes. People will flock to the most open, decentralized, and uncontrolled currency.More on this hidden economy –http://www.forbes.com/sites… http://www.foreignpolicy.cohttp://www.wired.com/magazi…Don’t underestimate humanity’s deep-seeded aversion to supervision and control.

  73. Terry Stratoudakis

    I think that bitcoins are going to be interesting if you run them on faster and more energy efficient hardware such as Field Programmable Gate Arrays (FPGAs) which are currently used to accelerate lots of applications.

  74. FAKE GRIMLOCK

    CRAZY PEOPLE IMPORTANT.THEM DISTRACT WOLVES WHILE NOT-CRAZIES DECIDE IF WILDERNESS WORTH TAMING.

    1. Wavelengths

      Are they multipliers or dividers?

      1. FAKE GRIMLOCK

        OUTLIERS.

  75. Wisest Man in Thread.

    MintChip.

    1. Wisest Man in Thread

      This is to say, any reason you give for saying BitCoin will win the future is also reason why it will draw n competitors and have its value drawn to 0 in the long term.

  76. ShanaC

    We go forth confident that we shall win. Why? Because upon the paramount issue in this campaign there is not a spot of ground upon which the enemy will dare to challenge battle. Why, if they tell us that <del>the gold standard</del> [bitcoin] is a good thing, we point to their platform and tell them that their platform pledges the party to get rid of a <del>gold standard</del> [bitcoin] and substitute <del>bimetallism</del> [fiat currency]. If <del>the gold standard</del> [bitcoin] is a good thing, why try to get rid of it? If <del>the gold standard</del> [bitcoin], and I might call your attention to the fact that some of the very people who are in this convention today and who tell you that we ought to declare in favor of international <del>bimetallism</del> [fiat currency] and thereby declare that <del>the gold standard</del> [bitcoin] is wrong and that the principles of <del>bimetallism</del> [fiat currency] are betterโ€”these very people four months ago were open and avowed advocates of <del>the gold standard</del> [bitcoin] and telling us that we could not legislate <del>two metals together</del> [currency] even with all the world.I want to suggest this truth, that if <del>the gold standard</del> [bitcoin] is a good thing we ought to declare in favor of its retention and not in favor of abandoning it; and if <del>the gold standard</del> [bitcoin] is a bad thing, why should we wait until some other nations are willing to help us to let it go?Here is the line of battle. We care not upon which issue they force the fight. We are prepared to meet them on either issue or on both. If they tell us that <del>the gold standard</del> [bitcoin] is the standard of civilization, we reply to them that this, the most enlightened of all nations of the earth, has never declared for <del>a gold standard</del> [bitcoin]….You come to us and tell us that the great <del>cities</del> [technologists] are in favor of <del>the gold standard</del> [bitcoin]. I tell you that the great <del>cities</del> [technologists] rest upon these <del>broad and fertile prairies</del> [small and medium sized businesses]. Burn down your <del>cities</del> [servers] and leave our <del>farms</del> [small and medium sized businesses], and your <del>cities</del> [servers] will spring up again as if by magic. But destroy our <del>farms</del> [small and medium sized businesses] and the grass will grow in <del>the streets of every city</del> [the great datacenters] in the country…..If they dare to come out in the open field and defend <del>the gold standard</del> [bitcoin] as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for <del>a gold standard</del> [bitcoin] by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of <del>gold.</del> [bitcoin].William Jennings Bryant, Chicago Convention for the Democrats, 1896, slightly rewritten.And yes, you really can rewrite most of the “Cross of Gold” speech to match bitcoins. Someone probably will do something similar if they get adopted instead of fiat currency.

    1. ShanaC

      this does not look right, I don’t know why ๐Ÿ™

  77. James Ferguson @kWIQly

    Fred – Interesting BBC article with tangential implication”American law: How non-US companies are affected”http://www.bbc.co.uk/news/1…The US patent system and the The Dodd-Frank act are both referred to in the article.It seems, if you trade in US Dollars, then you are “deemed” to be subject to US jurisdiction because your activity impinges the Federal Reserve Bank – however absurd that may be.This is why the UK bank Standard Chartered has “reportedly” violated US law – though not through activity in the US.An interesting correlation is that if you were to deface a 100 Swiss Franc note (but then why would you they are a pretty blue and quite valuable ? ) – the Swiss could trump up some charges, figuratively invade US soil (with US authority) and arrest you.There are three simple solutions – (for the limited financial issue)Anonymous trading like bitcoin.US federal bodies could “wind their neck in” instead of maintaining untenable expansionist policies that sicken the rest of the world.The rest of the world could (and eventually must) tell the US to “piss-off and get its own house in order”.Two of these make the dollar less attractive as a global reserve currency – carrying a whole bunch of domestic implications into the bargain.

    1. fredwilson

      hmm

  78. Prokofy

    Bitcoin still appears to trade with the Linden dollar, the virtual currency for Second Life on Virwox.com, which is a virtual currency exchange.I will never buy or trade Bitcoins. That’s because it’s associated with Silk Road, the site to purchase illegal drugs, and I don’t want to feed that.Furthermore, Bitcoin comes out of the whole technocommunist cult that imagines that anonymous collectives create value instead of identity, individual rights and property rights. No thanks!

    1. cypherdoc

      can we please have a little more objectivity here? after 6mo, there is no $100 bill that doesn’t have drugs on it. what currency is most used in the world by drug dealers? why USD’s of course!. don’t feed that.no one knows who Satoshi is; some have even thought it could’ve originated from the CIA. au contraire, there are no more proponents of individual or property rights than those involved in Bitcoin. its a big part of what Bitcoin is about.

      1. Prokofy

        The *system* of the dollar is not based on communism or drag sales. The *system* of BitCoin is based on technocommunism and substantiated largely by drug sales. Difference. It runs like the Soviet Union’s cashless system or the Taliban. BitCoin is about the group’s rights and the rights of the groupthink individuals. Difference. I understand from this discussion now that BitCoins are merely totems, symbols of the collectivist technocommunist society which Fred and others aspire to and which is a bane of real liberal democracy and freedoms.

        1. cypherdoc

          Not true. The Bitcoin system is populated more by honest users looking to preserve the value of their money from constant debasement by central bankers who only print money to hand out to their fellow bankers. This fact is undeniable and trying to obfuscate the facts of the last 4 years only substantiates your bias. Why do you think the value of gold is skyrocketing? Why do George Soros and John Paulson disagree with you?

          1. Prokofy

            Er, how do you know all those anonymous drug-buyers are “honest”?! Central bankers have laws to follow and are subject to regulation by liberal democratic states, whatever their flaws; Bitcoin is not. Um, what does gold-buying have to do with your argument for BitCoin? It’s the same thing? And maybe they are getting in and out just before the widows and orphans…

          2. cypherdoc

            Drug buyers are a small % of the Bitcoin community.US banks appear to make their own laws: http://rense.com/general28/…Central bankers are unelected and broke all sorts of laws and contracts in the bailouts, not to mention changing the laws to protect bond holders. What planet have you been living on? http://seekingalpha.com/art

          3. cypherdoc

            “all those”? lol. how bout all those drug dealers using USD’s? way more significant i’d say. don’t blame the money they say, blame the users of the money.the only laws the CB’s follow are their own. and then it’s just about money printing to hand out to their crony bankers. absolutely no dispute about that fact. they debase our money as a result and dump the bad debts onto the US taxpayer at large. what a racket.Bitcoin is digital gold. fixed, secure suppy, and has many other beneficial attributes.

        2. ShanaC

          I keep meaning to ask thisWhat exactly is technocommunism? I mean, what is it underlying ideologies, philosophies? Who are its great thinkers?

    1. fredwilson

      i saw that. it felt like getting a lecture when i was 14 years old from my dad

      1. Jon Matonis

        Well….I guess that’s kind of a compliment. Your interest in / knowledge of bitcoin is well-respected. You inspired me to write something for the VCs that think it’s just another payment ‘app’.

        1. fredwilson

          Its way more than that. It is one of the most divisive topics in tech these days

  79. Alex B

    Projects are built every day on bitcoin, and they take advantage of its unique features, like the low fee micropayments for example. We just launched Rugatu.com this year, which is a community where you can ask or answer questions for bitcoin rewards. Check it out, maybe ask a few questions and the community would be glad to help, cheers

  80. CasualReader

    It’s too bad that so many people are putting all kinds of crazy labels on Bitcoin and thus polarizing opinions. Bitcoin is a nifty tool for payments that could be more useful – and more promising – than many other tools.It’s also too bad that it doesn’t have the backing of a corporate giant for micro payments or mobile payments, because some things can only be accomplished with large capital outlays.My greatest concern as a VC would be the question if bitcoin was securely, publicly scalable by orders of magnitude in a distributed computing environment due to the increasing size of its block chain and storage requirements.If I were a VC, I would research good projects for mobile payments with Bitcoin and invest 3% to 7% of a portfolio in at least one such project.

    1. fredwilson

      i agree with everything you say in this comment

  81. csantiago702

    Fred:In my view, Bitcoin is likely to gain wide adoption worldwide in the long run — that is, over a period of many years or even decades. I laid out my reasoning in detail here:http://cs702.wordpress.com/

    1. fredwilson

      Thanks

      1. csantiago702

        Wow, that was fast, thanks. You may also be interested in this recent HN discussion about Bitcoin — prompted by its exchange rate passing 10 USD per BTC:http://news.ycombinator.com…There’s a lot of noise in this thread, but it should give you a rough idea as to how the HN community feels about Bitcoin.

  82. cduggi

    The basic conditions for bit coin to succeed have to be:1. It has to be a medium of exchange. This is based on network effects. The larger the accepting group of traders, the more valuable the bit coin will be to anyone. Even unrelated phenomena can sometimes tip the scales towards larger acceptance and critical mass. But not in case of bit coin. It is competing with the FIAT currencies and gold, the medium of exchange for thousands of years. Negative predictor.2. It has to be a store of value. This is largely determined by historic performance and people’s expectation of how it will be valued, based largely on how it has been valued in the past. So far, the history is not very reassuring. Also, depends on how amenable to inflation this currency is. It appears to be protected against inflation due to algorithmic limitation on the issue of bit coins.3. Very divisible. This it is.4. It is portable.5. Intrinsic value: Only commodity currencies have this. In the absence of government force to use them, history does not validate any non-commodity, purely fiat currency surviving. Negative predictor.

  83. AdvertAgg.com

    Whether you know it or not, and this may be unfortunate to you, but y-combinator is investing in a company bulit on top of the bitcoin ecosystem.

    1. fredwilson

      That’s what prompted this post

  84. AdvertAgg.com

    There is an elaborate write up on this and how bitcoin users are not doing so much speculating any more. An actual market has been born.http://www.htconeclub.com/b

  85. Jim

    I was surprised to hear an ad for bitcoins on our local radio station a few days ago. Admittedly, they’re being marketed to the libertarian crowd at this point on there. I’m a bit confused though; are bitcoins a commercial enterprise, or an attempt at idealism in the realm of currency?