A Note About Bitcoin

Yesterday I received an email from a reader who wanted to know why I was hyping my position in Bitcoin. It's a fair question and one that I feel like responding to publicly as well as privately.

USV does not own any Bitcoin. I don't know for sure, but I suspect my partners own very little, if any Bitcoin. I own a total of 7.39 Bitcoin spread between several hosts.

I own these Bitcoin to be able to use them when I want to try new things. I have purchased approximatly 175 Bitcoin over the years and have spent or given away almost all of it.

I don't have a view on what the ultimate value of a Bitcoin will be nor do I care. I am interested in Bitcoin plain and simply because I believe it can be and possibly will be the financial and transactional protocol for the global Internet. That's where my interest lies and that is where my positions will lie. We have one so far, which is Coinbase, and I hope and expect we will make other Bitcoin related investments.

My partner Albert's post on Bitcoin lays out where we are looking to make investments in this sector. Buying and speculating on Bitcoin is not one of them.

#hacking finance

Comments (Archived):

  1. Tom Labus

    The level of hype is very worrisome. BC would be much better off off the radar for awhile

    1. awaldstein

      Hype comes and goes. It will sort itself out. I’ll take the buzz as long as the discussion happens.

      1. Tom Labus

        my concern is that when there is this type of early hype the next thing you see is the smoldering heap on the side of the road

        1. awaldstein

          bitcoin is one of the most interesting discussions going on.it’s going to go on forever i hope as this kickstarts a discussion on currency that touch how we do business at its very core.I’m not concerned honestly.

      2. William Mougayar

        But in the meantime, the hype is scaring away the masses, and that’s not such a good thing.There is hype, and there is anarchy. Does BTC need to go through a hype and messy period before it stabilizes as a real currency that is adopted.I say Bullshit to that. Where is the thought leadership around Bitcoin? Who is pounding their fist on the table and saying ENOUGH SPECULATION? WE DON’T NEED IT.

        1. awaldstein

          I’m call BS on the idea that the mass market has any idea at all what this is about let alone be scared of it.But–of course you are absolutely right though in concept.I guess my response to you my friend is if you care enough to shout about it, jump in and change it.

          1. William Mougayar

            I’m going to write a post about this. I see parallels with the early days of the Internet. All I have is a voice in a sea of voices. I’m not a Bitcoin mover and shaker.

          2. awaldstein

            Just playing with you.I’ve never seen you use all caps before and I’m a big believer that your articulate stubbornness can indeed create change.

          3. William Mougayar

            I’m as frustrated as the next person about what Bitcoin is or is not. Brad Feld has a good write-up today on it via a guest post http://www.feld.com/wp/arch….The more I dig, the more I see more questions than answers.

          4. awaldstein

            Great link, just shared it.

        2. Aaron Klein

          Speculators make markets, my friend. Everybody deplores the speculators in the stock market. They forget that, before them, we had huge bid-ask spreads on many securities.Bitcoin will be fine. It’s just maturing into a real and stable market. Speculators are a part of that.

          1. William Mougayar

            So, what is the right balance between speculators and non-speculators? Is the balance titled towards speculators in this case?

          2. Aaron Klein

            It’s a very immature market. You’re seeing a more volatile version of what happened with Facebook stock at IPO. It will settle down.

          3. pointsnfigures

            there isn’t a balance. What’s the right balance between females and males on Facebook?

          4. William Mougayar

            I still maintain my opinion that if a market is driven by excessive speculation, that’s not such a good thing. A bit of speculation is OK for liquidity, but too much of it invites inflationary or artificial outcomes.

          5. pointsnfigures

            If they could short, you wouldn’t see the run up. Speculation is good for markets. We have a difference of opinion.

          6. fredwilson

            word. without speculators, there cannot be hedging. they provide a critical aspect of an efficient market.

          7. Guest

            Speculators also opportunistically address large market inefficiencies created by govt/political externalities (besides also taking the ‘inside spread’ and creating everyday liquidity). Those inefficiencies can be massive when there is a political compulsion to support an unsustainable position. Example: Britain joining the ERM in 1990 and the run on the British pound in 1992.

        3. WA

          I alluded to that to you in a recent chat…but didn’t pound my fist very hard. Volatility and currency status are not exactly a good complements.

          1. William Mougayar

            that’s what I thought too.

          2. pointsnfigures

            Trade the Mexican peso

          3. WA

            From the perspective of users of BTC as consumers and providers. That is where stability is mandatory for ubiquitous use as a currency. At least for the masses as I perceive this conversation to be. I wouldn’t ask my grandmother to rely on her food purchasing ability to be tied to a Bitcoin. Or her savings on a digital currency platform. But hey-I am just a simple part of the masses. Though I do recall studying the Deutch Mark in the early days of the Weimar Republic.With all due respect you drive my point home with great significance. As long as the BTC is traded in order to determine value rather than hedge it’s value against other currencies I am not certain it will become psychologically acceptable to rhe public in its present form. And for the record I have traded for a few decades and don’t disagree with your comment. Perhaps my statement was not in proper context to the discussion as it was based on a longer previous note to William. Apologies for that.

        4. jason wright

          you can’t have leadership in a p2p environment.

        5. Guest

          Speculators seek out and reward value. They increase liquidity that help markets grow. They are rewarded when they are correct about value.Fist pounding on a table is exactly what we don’t need. That period of centrally managed money, and the Keynesian experiment, is officially over.

        6. pointsnfigures

          As a reformed speculator, I disagree with you in many ways.

          1. William Mougayar

            So speculation is good? But then, when the tide turns, what happens?

          2. pointsnfigures

            So what? We don’t really care. Markets move up and down. As soon as they get more information, it gets priced in. It’s not covert manipulation as far as I can tell. A bit of a mania, sure. But, more people are being exposed to Bitcoin which has increased demand with very little corresponding increase in supply. There is not depth or liquidity, nor derivative markets to add balance. So, it goes one way.

          3. William Mougayar

            i think our difference in opinion is in the “degree” of speculation that’s considered healthy vs. detrimental. pendulums swing, so let’s see how this one plays out. all i know is that $820 for a bitcoin that was $100 a few months ago is insane, unless someone tells me that its price increase is the only way to put it in the hands of many.

          4. ShanaC

            The funny thing about speculators:you need them for liquidity reasons

          5. William Mougayar

            to some extent, i agree.

    2. Anne Libby

      I actually think that the public needs to be educated about it. (Including me!)It was sort of terrifying that Congress is starting to take any position on Bitcoin.Having occasionally emailed my legislators — only to receive “answers” back months later — color me skeptical about their technology chops. If they can’t use the most basic technology to communicate, do they really understand Bitcoin? Who briefed them? What knowledge are they/will they be acting on?It would be great to have a bitcoin reading list. Hackpad anyone?https://hackpad.com/Bitcoin

      1. Joshua Cyr

        My may be interested that Senator Jerry Moran posted to reddit a couple days ago in an effort to educate himself. Even mentioned it at the committee hearing. http://www.reddit.com/r/Bit

        1. Anne Libby

          Thanks, Joshua. (Interesting thread!)

      2. Kirsten Lambertsen

        Well done 🙂

      3. Dale Allyn

        @fredwilson presented a great video recently on how Bitcoin works and a description of the network. Here’s the link: http://www.avc.com/a_vc/201…I’d have added it to your hackpad, but off the top of my head don’t recall my login creds at the moment. 🙂

        1. Anne Libby

          Thanks, Dale. Missed this one, in my (not always successful) effort to stay offline on Saturdays…I’ll add it!

      4. Matt Zagaja

        Many legislators rely on staff to handle these issues. It’s amazing how much of our government is run by underpaid men and women in their 20s.

        1. ShanaC

          Many in fact are unpaid….

      5. TwoBitIdiot

        Education is absolutely necessary and far behind. Bitcoin is still a computer science novelty at this point, not a well-understood potential industry disruptor. I recently started a blog and daily email digest geared towards educating investors and entrepreneurs on bitcoin, and will definitely include Hackpad!I try to curate and make sense of news within the bitcoin ecosystem and parse through ideas on Reddit, news from Coindesk and the MSM and my own opinions based on my own VC experience. I actually wrote about how Coinbase is on track to become a billion dollar company based on publicly available numbers, which made the front page of the reddit subgroup last week.http://two-bit-idiot.tumblr…Feel free to send an email to [email protected] if you would like my digest / reading list. Cheers.

    3. William Mougayar

      Will that solve the issues underlying? Where are the leaders that are managing how Bitcoin is supposed to grow?In 1995, CommerceNet emerged as the voice of reason that lubricated and facilitated the common understandings around Internet commerce, and worked to remove the barriers around it. And they succeeded.I don’t see that kind of leadership with Bitcoin today. It is very similar to the Internet’s messyness of 94-95.

      1. robertdesideri

        William, sharing the border, or the intersection if you prefer, of economics and tech happens well here at Fred’s place. If it were just one of the sides the conversations would be much less interesting. I’m comfortable in either territory however prefer having a leg in both, like you.Bitcoin’s got more than a few bugs, clearly imho the result of design flaws. Let’s review:Usability: Bitcoin is ‘command line’, until a Mac comes along any new currency that comes has limited appeal.Smell: The linkage between DPR and Satoshi is bound to be revealed, whether it’s the true relationship or not 🙂 Interpret this as you will, if the devil created Bitcoin to facilitate illicit trade, no contrition, even celebrity support, will remove the stain.Internet: There’s a lot of talk about the Bitcoin ‘protocol’ being the remedy for transactional friction. Sure, there’s friction, merchants don’t care much for the bite the credit card system extracts. Yet customers like it, they receive assurances from the system, keeps merchants honest. That’s not friction, that’s service. We could argue thinner the price, but the system works.Disruption value: The notion Bitcoin ‘can’ force the lessening of the credit card bite might well be true. If it’s solely for lessening the credit card bite then that’s the value. If you’re talking political disruption let’s add that value too, and the costs as well. Not every disruption is net positive, if Bitcoin justifies further monitoring / control / regulation is should that value be subtracted?Politics: Fiat money is not money. it’s a proxy for control. If you mess with that control, whether in side or outside the system, there will be blood. Last time I checked the system doesn’t like revolt, if Bitcoin is an online expression of ‘Occupy’ then there will be yet more blood.Expertise: First let’s talk expertise. Choosing to stewarding Bitcoin is a bit of a suicide mission, it’s a f’ing serious endeavour. Stewarding doesn’t not mean just getting a venture funded, it means making it happen. Best I can tell, there aren’t that many experts willing to take the leap, though as the valuations go up the numbers may pull a few gamblers. The point is it’s difficult enough finding folks who can pull anything big off, the unicorns or swans or whatever the moniker is this week. How big would the number have to be to get Tim G rather than yet another serial entrepreneur who previous launched an online service that exited to a big name for dismemberment? Why is Satoshi not standing up to defend Bitcoin, why is he / they hiding?It’s simple really, Bitcoin’s not like ‘like’ the internet, it will not self assemble, engineers coming together creating a new wonder. The state was behind the internet, Bitcoin’s parent(s) are ‘other’. It’s not a protocol, protocols don’t rise in price the crash like Miami condos in 2006 and after. It invites scrutiny, are you a terrorist, facilitating terrorism or engaged in illicit acts? Then why did you use Bitcoin, explain to the jury [of normals] why you trade in the underground economy.

  2. William Mougayar

    So, what are the existing barriers and challenges that BTC needs to overcome for it to become the financial protocol of the Internet?I’d like to see a comprehensive list here, from Fred and others. These will be a mix of real and perceived.If we clearly understand the challenges, they can be tackled.

    1. pointsnfigures

      I think I have a very good handle on the stability side of Bitcoin. Remember, there are 3 facets to BC. 1. pure currency play, medium of exchange 2. P2P transparent online ledger 3. Platform for developmentTo get to some sort of stability, it will take a clearinghouse. A clearinghouse takes away counterparty risk. A futures contract will also allow BC holders to manage holding risk. Counterparty and holding risk are very different.Trouble is, it’s expensive to build a clearinghouse. It’s not expensive to build a trade matching mechanism. Most of the “exchanges” I have seen are simply trade matching algo’s. Simple programming.Clearing is programming, operations, margining and banking

      1. Anne Libby

        If you’ve got reading matter that would help people (i.e. me, at least) to get this, would you post links to a hackpad?https://hackpad.com/Bitcoin

      2. William Mougayar

        Does the clearinghouse go against the P2P nature of BTC.But what I was looking for is to list the issues/challenges, before getting to the solutions. The clearinghouse idea is a possible solution. Does it solve the holding risk issue completely?

        1. pointsnfigures

          Clearinghouses have a ledger. For example, when the stock market crash happened in 1987, the govt wanted to see a record of every trade. (the NY legislators wanted to blame Chicago futures mkts for the crash) CME could produce their trade register the next day because they had it. The NY exchanges don’t clear, and couldn’t produce it for months. Stock clearing is still +3 days when futures clearing is practically instantaneous. Has nothing to do with volume and everything to do with middlemen.Clearinghouses don’t publicize that ledger because it could compromise the trading strategies of market participants. However, Bitcoin is different. I haven’t checked-but if there is indeed a P2P transparent ledger of every BC transaction, you’d be able to count everyone’s money and know who has what. Makes it tough to corner a market, and if someone did you’d just start a new electronic currency. There will be plenty of online currencies in the future that have different goals.Clearinghouses don’t solve holding risk—they eliminate counterparty risk. I don’t have to worry if you will perform your end of the deal if we go through a clearinghouse. Over the counter derivatives have counterparty risk. It’s one of (but not the primary) reason we had a melt down in 2008.Holding risk is deferred through a futures contract. It allows people to hold the currency, and sell the futures against it. Then I am basically immune to price changes in the underlying instrument. Farmers have done this for centuries with their crops.Look at this chart: mjperry.blogspot.com/2012/0… Notice the price volatility difference between onions and oil? There are no futures on onions. Banned by the federal government.Looking at the BC ecosystem, I see a lot of similarities to the grain trade or other commodity ecosystems. Already, miners of BC are looking a lot like grain elevators. Coinbase is simply a currency exchange. There are exchanges-like Vaurum.com-but they are merely matching algos. Some have had a lot of problems (Mt.Gox) and are unsecure.Fred has mentioned swaps, and options as a stabilizing force for the underlying currency. They can be, but swaps and options need a functioning futures market to price off of. Cash options could start off the existing BC market; but they need a place to be cleared like the Options Clearing Corp. Without a clearinghouse, there is huge counterparty risk, which increases spreads and volatility.

          1. Guest

            I believe the counter-party risk problem is already being worked on by some anonymous developers. Essentially what they are designing is a peer to peer exchange platform that sits on top of the virtual currencies. The way it will reduce counter-party risk is mutual destruction – it requires both parties to put a specified amount in escrow. After their business outside of virtual currencies is complete both parties have to indicate they are satisfied that the business is complete and the escrowed amount will be released to them. If either party indicates they are no pleased with whatever business was transacted, the escrow will be destroyed.

          2. pointsnfigures

            what does “not pleased” mean? In futures, it’s purely based on price movement. SPAN takes into account volatility, concentration of risk among participants and other factors.

          3. Guest

            Ah. I think I misunderstood what you were proposing. I’m talking about a platform for exchanging digital currencies for transactions (services, assets) outside of digital currencies.I’m not clear on what counter-party risk you are proposing to be resolved. Example? The block-chain publishes all prices/transactions so I’m not sure the platforms that currently get used for futures will be necessary.

          4. pointsnfigures

            If you and I agree to trade Bitcoin at a pre-arranged price, there is counterparty risk between us. Say you want to buy Bitcoin at $900 and I agree to sell it. What if I can’t deliver? That’s the risk. Or, if it’s cash settled, what if I can’t pay? A clearinghouse steps inside of that transaction, takes the opposite side of both, nets it out, margins it and continuously pays and collects each side of the transaction until the transaction liquidates.Suppose you buy at $900, I agree to sell and the price goes to $1000 and I tell you to stick it? You are out $100. Or, I can’t pay because for some reason I went broke in the moments after we made the trade.Essentially that is what happened in the financial crisis in 2008. Tons of derivatives were written on mortgages. Counterparties were broke and couldn’t come up with margin, and there was no way to easily liquidate positions.

          5. LE

            Great explanation. Part of the reason people get involved in things like using bitcoin is that they haven’t experienced some of the things that you describe that are solved by a clearinghouse. So they don’t think downside or risk.There are many things like this that have developed over time because given enough transactions you are sure to have a bad outcome and need someone to provide a guarantee. (Title insurance in real estate [1], bonding in construction two other examples.)[1] I actually had a case where I had to make a claim and got paid by title insurance.

          6. Greg Kieser

            I think much of what you guys are talking about will be resolved by open source projects.The colored coins initiative comes to mind. Described as: “It’s a distributed asset management infrastructure that leverages the Bitcoin infrastructure, allowing individuals and companies to issue various asset classes”Check it out: http://www.coindesk.com/col

          7. pointsnfigures

            I wouldn’t rule anything out, but Clearinghouses have existed for centuries. The reason: they work.

          8. William Mougayar

            Have you invested in BTC Jeff? Where would you invest?

          9. pointsnfigures

            I have not. Looked at a couple. I want to invest in structure. Have talked to some people that are extremely experienced about forming structure. They think it’s a fraud (Fred’s rule on investments plays there)I’d want to own the clearinghouse/exchange where price discovery happens. Rip nickels and dimes off every transaction. It’s a lot of fun to own the casino rather than be a player in it.

          10. ShanaC

            how about a scripted ledger like the one used by bitcoin

    2. Guest

      I believe stability will come from, not just new software companies on top of the protocol, but also alternative coins – such as peercoin and primecoin (yes, talking up my own book). So, while Fred and team focus on innovation on top of the coins, the rest of us, who don’t wish to spend all that time getting into an equity stake, can focus on seeking out innovation in alt coins by simply buying them.In the end, there is little doubt that there will be multiple dominant coins allowing a system of digital currencies to evolve. And, as we know, systems environments are much more stable than mono-cultured environments.So, my advice to anybody and everybody; focus on the system; find out which alternative coins add some differentiation to the system and you will be doing the world a favor and you can profit from it.Here is a full list of alternative currencies – you can click through and see 30-day and 90-day charts, as well as click into see what they offer above and beyond btc: http://coinmarketcap.com/

      1. William Mougayar

        Who are the real leaders that are making sense out of this Bitcoin mess we’re in?

        1. Guest

          Free markets don’t need leaders. They need market participants that act in their own interest and a system to ensure they don’t unfairly hurt others in doing so.What bitcoin and the digital currencies are doing is vastly changing the monetary system of the world from one that requires heavy governance to one in which mathematics does the governance job. People/governments/companies are corruptible when given such power as overseeing a monetary system. Mathematics is incorruptible.In our lifetimes we will never see changes to the power structures of the world as significant as those that will be brought on by the replacement of fiat currencies with digital currencies.

          1. William Mougayar

            “Free markets don’t need leaders”. I don’t buy that.Let’s not confuse anarchy with openness.

          2. Guest

            Perhaps my statement was a bit too general. Of course, we don’t want anarchy.But I don’t see how leaders will be helpful in sorting things out. What’s happening is a free market at it’s very best. Risk capital is flowing into these alternative currencies based on potential future value of each to the world economy. As such, innovation is being rewarded. Developers who create a coin that solves a problem will be rewarded by folks buying the currency. Folks who buy the currency that eventually has the most positive impact will be rewarded for doing so.Of course, there are scam coins, which have made no changes from the bitcoin codebase, and I believe in time those will fail.

    3. Matt Zagaja

      If I buy something with VISA or MasterCard I know that they’ll stand behind me and I can chargeback the merchant if they fraud me. If I see a weird charge since my number is stolen or card is skimmed all it takes is a call to the bank to freeze/cancel the card and have a new one overnighted, at no charge to me. I can then give Mint my logins and get all sorts of fancy charts/analysis about my financial habits, alerts on my phone, and advice on how to save money customized to my financial habits. If I need to transfer money to a friend fast I can use square cash. The government insures my money while it sits in my bank account. Bitcoins are not insured.Bitcoin looks like the fixie of the financial world. People say they want anonymity but I actually feel much more confident with the current system.

    4. Sari Louis

      My issue as a consumer is that I don’t see the benefit of using BC. Decentralization and anonymity, while beautifully implemented, are a detriment for me since I have no recourse if something “bad” happens. I’ve had fraudulent charges on my credit card and ATM withdrawals on my checking account taken care of by a simple call to my bank. So at least from a consumer perspective, the price I pay for centralization and non-anonymity are actually worthwhile in the protection I’m getting.

      1. William Mougayar

        The only way BTC will aspire to become what it’s meant to become is if we see more consumer transactions. Convenience is also another feature of BTC as it gets embedded natively into the payment fabric of the Internet.

  3. jason wright

    people are buying bitcoin and not buying with bitcoin.this really is tulip time, but it’s all bulbs and no flowers.

  4. Richard

    There continues to be a lot of confusion about bitcoin as an investment, as a currency, as a hedging tool, as a speculative trading asset, and as a political / social movement.

    1. kidmercury


  5. AlexBangash

    It is not the new that is over-hyped, but the traditional, the incumbents–IBM, New York Times, JcPenny, Visa, Bloomberg–not the Amazon, twitter, kickstarter, and coinbase. The media and reporters are relentlessly promoting the incumbents and dismissing the upstarts.

    1. LE

      The media and reporters are relentlessly promoting the incumbents and dismissing the upstarts.Not true. Not to mention the fact that the media essentially made the internet with all the free coverage and hype back in the mid to late 90’s. Without that the internet wouldn’t be what it is.

    2. Guest

      Concur! Jeez, in times like these you can really see how much of a barrier these incumbent institutions can be to positive change and innovation.

  6. jason wright

    i wonder if GOV has taken a secret stake in bitcoin (via offshore corporations and accounts controlled by you know who) to destroy it by leaving blood on the floor when they pull the value?faith in bitcoin smashed, and faith in fiat restored.

    1. Guest

      More than likely I imagine all of the lawmakers on the panel last week are hoarding their own bevy of coins. That is what makes digital currencies unstoppable. All parties involved can secretly take a stake, and in doing so, suddenly have a reason to see the coins succeed.

    2. Aaron Klein

      No, politicians would never turn down that kind of windfall by destroying the value. They’d spend it on new programs. 🙂

      1. jason wright

        politicians are never kept in the information loop. Clapper & Co see to that.

  7. Guest

    Thanks Fred. I have a theory that a system of competing digital currencies is a necessity for long-term stability of bitcoin and its pals – and an inevitability, given the monetary incentives for many involved people to support the survival of alt-coins. I’m curious if you have an opinion on that, and if you see coinbase becoming a multi-coin servicing tool?



      1. Guest

        Concur. Competing digital formats do make point of sale more complicated, but fairly easy to resolve with companies like coinbase. In fact, they make companies like coinbase more necessary, than a world with just one digital currency would.

  8. SD

    This is fascinating. I’m new to bitcoin so I’m trying to understand it better- could bitcoin and other crypto currencies lead to a new framework for organizing economic activity?Unlike floating exchange rates which are based on fiscal and monetary policy at the central government level, it seems as though these currencies seem to be purely driven by the actual activity of buyers and sellers.Instead of central banks, backed by military power, could you have big economic engines like google or GE decide to organize their own systems for valuing transacting goods and services? And instead of exchange rates between countries, you start to have exchange rates across companies?I’m new to this stuff so maybe these are naive questions.

  9. Jon Michael Miles

    When it comes to Bitcoin I’m always reminded of the adage that during the california gold rush – the people making the real money were the ones selling the shovels.

  10. Salt Shaker

    The hype is driven by curiosity, though anything this speculative is way too rich for my investment blood. Commodity trading isn’t for the faint of heart. Plus, I don’t have confidence sharing my banking info w/ banks let alone currency exchange start-ups like Coinbase, etc.

  11. William Mougayar

    The current uncertainties and speculation around BTC are scaring away the majority of users who will need to get on-board for BTC to become successful.Those that are already early adopters have a responsibility to taper down the hype.BTC speculators should be jailed, in my opinion. They are messing with something that has real potential to become something important. BTC’s success will not come from the speculators and B2B traders. It will come from the average person that starts to transact with it, as a (stable) currency to buy real things they need.

    1. SubstrateUndertow

      Thank god traditional banks don’t do leveraged speculation at public expenseOh wait . . . .

      1. William Mougayar

        Let’s not go that far. I don’t care for the big banks antics either.

    2. ZekeV

      There’s a big difference between speculation and hype. Speculating is fine. Hyping, assuming with fraudulent intent, is arguably criminal in nature (or should be). Was just reading Alan Greenspan’s new book, where he tries to explain why he got it wrong in 2008. He sidesteps the issue of fraud entirely when it comes to regulation. His rationale, which I find partially satisfying, is that fraud = crime and is a subject for law enforcement. Regulation is a separate matter, and involves risk control.

      1. William Mougayar

        Am all for risk control when it comes to preventing people from losing their hard earned money.

        1. ZekeV

          Of course, we have to be careful that attempts to regulate do not in fact create distortions that pool hidden risk in places that we don’t intend…

  12. hardaway

    Of course as a currency Bitcoin has promise. But currency arbitrage (which is kind of what this is) has always been a place for the experts. And there are, as yet, no real experts in Bitcoin. Trying it is the right thing to do, just as you’d try any other new product to see if it’s viable. Fred, you’re a smart guy:-)

  13. george

    Now that you have cleared the air on that point, could you provide some structural analysis, I’m fascinated by the hype and outlook. Who or how will regulators play a role, or will they?

  14. Matt A. Myers

    If everyone starts buying 7 Bitcoin in hopes they reach $100,000 per Bitcoin value, eventually they will …

    1. Biss

      The easier it becomes to purchase… the greater value it will hold. Most people are too clueless right now to get in, and those that do understand, have waiting periods for verification

      1. Matt A. Myers

        Not sure that’s fully true. Accessibility is inherently important to the success of anything. I agree that people need education and awareness related to it – and as that grows, then there will be easier ways of accessing and reaching the purchase points, and more transaction points will exist.I still can’t figure out why any businesses would start taking Bitcoin, except for if they’re trying to ride the wave to a 100x return or increase on its value.

  15. Andy

    Bitcoin is dead IMO (long live Bitcoin) – I am trying to take a 10 year ‘big pic’ view here, and I can’t help but think that the HUGE wipsaw in the currencies daily price will help usher in it’s demise. Having said that, I believe that Bitcoin has, and will continue to open the door to where all currencies will ultimately evolve to.I fully expect that when we look back five years from now, American Express, Visa and Mastercard will all have their own ‘bitcoins’ ….additionally, there will be an independant winner in this space, just not Bitcoin20 years from now, I would hope to see the USD, and other major curencies adopt much of what the Bitcoin ‘experiment’ did to jumpstart the space.None of my conjecture has any bearing on how the exchanges USV and other’s are investing on will do…I expect that the smart ones will thrive, and conquer despite what today’s Bitcoin does….

  16. sigmaalgebra

    > Buying and speculating on Bitcoin is not one of them.Cruel! How CRUEL! HOW can you be so CRUEL?I mean, thousands, millions of people are talking intensely with their friends, watching Bitcoin valuesseveral times a day, about ready to put a down payment on an Aspen ski lodge planningto pay it off with gains from high frequency orday trading of Bitcoins, e,g,, drawing graphs,watching for ‘head and shoulders’ patterns, printing out plots of the prices and borrowingtheir child’s ruler to extrapolate values, lookingup Markov processes on Wikipedia, etc., andyou and USV, well-known and successfulinvestors, come along and pour cold water,gallons of it, on all the dreams, aspirations, hopes, plans, and activities of the Bitcoinspeculators. Don’t you know how that willmake them FEEL? And if their girlfriend,so far so impressed with his Bitcoin speculativeexpertise, read what you wrote, the poor guymight suddenly be sleeping alone for weeks ormore! Thanksgiving dinner at McDonald’s,too! How CRUEL!!!!!! 🙂

  17. Steve Robins

    Very interesting perspective. While the media coverage has focused on the volatility in the value, the value of a single BTC is irrelevant to its use as a transaction protocol. BTC can be used as the “api” underlying payments, without posting prices in bitcoin, e.g., making an international purchase a service could transfer USD–>BTC–>EUR without exposing the purchaser, the seller or the middleman to volatility in the bitcoin price. These businesses are viable whether a Bitcoin is worth $1, or $100K, so long as that transaction costs fall below costs for banks and the ACH system

  18. Prokofy

    When I saw Virwox, my favourite virtual currency exchange that used to exchange Lindens from Second Life, decided to stop offering BitCoin, I knew that it was dodgy. I just couldn’t justify spending even $10 on it because ever dollar counts for groceries and rent in my house. If I had an extra dime to spend, it wouldn’t be on ephemeral currencies. I’ve seen what happens even with very controlled and tethered currencies like the Linden when they crash or get undermined.

  19. Carl Rahn Griffith

    Love that clarity in differentiating between the speculating of the ‘currency’ and the belief in the infrastructure implications. Great credo. Wish you could get together with @maxkeiser and discuss Bitcoin – and SWFC! – would be a very cool show.Anyway, I need that clarity this week – need to decide leaving IT/business for good if I take a job that looks like being offered to me. Whatever, I digress…

  20. Antonis Polemitis

    “I don’t have a view on what the ultimate value of a Bitcoin will be nor do I care”Perfectly correct technical and intellectual answer, but, practically, BTC is probably much better served with higher prices relative to today rather than with lower prices.(1) Security: Bitcoin mining power provides security to the integrity of the bitcoin ledger in the form of the amount of processing power needed to hijack it. If the economic rewards were trivial, computing capacity would leave, and the network would be more vulnerable, not less vulnerable. At the level of rewards now available (due to the higher price), you need a nation-state level attack (or maybe Google/Amazon/MSFT) to have a chance at implementing the infamous 51% attack on the blockchain. And the higher the rewards get (and the more computing power in place), the more secure the blockchain becomes. This is an unambiguous good thing.(2) Volatility/Spreads: The money supply in Bitcoin is still trivial relative to the money supply in the financial systems it interacts with. For spreads and volatility to be reduced, Bitcoin needs more liquidity. More liquidity means more people buying into BTC relative to today which means price will go up.If this is not clear, take it to an extreme and imagine everyone dumps their BTC and the price fell to $0.000000001 per BTC and someone could manipulate the market with a few thousands of dollars. There is no version of that world where businesses are more likely to adopt BTC-the-protocol; in fact, they would be less likely to do so. Since BTC are divisible, the alternative (high prices) presents no new problems relative to today.To be clear what I mean — the price of an individual BTC is irrelevant to being able to transact in BTC (I think this is Fred’s point).However the total money supply of BTC is not irrelevant to system stability. So that should lead to BTC being more stable/likely to be adopted with a larger money supply vs. today rather than with a smaller one.TL;DR:(1) It is correct that the protocol is more interesting than the price and one should be much more excited about that than the price on any given day/month/year(2) In practice, over the long-term, BTC is more stable, more secure, less volatile with a higher [price/hash rate/money supply] than with a lower [price/hash rate/money supply] so someone who hopes the protocol is adopted, probably should have a preference for the former.

  21. Wesley Black

    By 2016, Bitcoin will be the most valuable currency in the world. If my post remains here for that long, it will be impossible to argue against the fact that I called it ahead of time. – 2016 blocks solved # SatoshiNakamoto#Lives on

  22. ZekeV

    I wouldn’t worry about the impact of mispricing in bitcoin *at the moment*. Even if a fundamental flaw is discovered that renders the btc network useless (eg, SHA-2 is compromised) the total impact on the economy will be negligible. Only a few people / companies hold enough of their assets in btc to be wiped out by such a failure, and the level of interconnection with the rest of the economy is still almost zilch (though growing). You should not hold more of your wealth in crypto assets than you can afford to lose.

  23. Mark Simmer

    I’m not sure if this argument has been made on this board before, but since learning about bitcoin a year ago I have advocated holding bitcoins rather than investing in a bitcoin enterprise. Even after the recent run-up the economics and risk/reward seem skewed towards holding bitcoin rather than investing in a bitcoin enterprise. I’m curious to hear people’s thoughts:The way I see it bitcoin value is determine by a formula where(Total Value of a Currency in Circulation) x (velocity) = total amount of commerce transacted in that currency.If you divide it out and assume your currency is Bitcoins:(Total Amount of Commerce in Bitcoins) / Velocity = Total Value of BitcoinsIf bitcoin becomes the ‘medium of exchange’ for the internet, that implies an enormous amount of commerce occurring via bitcoin. Unless velocity is off the charts, the value of bitcoins in circulation has to rise to support that level of commerce.Let’s compare this with USD.Approx $30 trillion of USD support global USD-denominated commerce. If we assume similar velocities for USD and bitcoins (I can make arguments for higher and lower), then if bitcoin is to support 1% of the commerce that USD currently supports then that would imply that the monetary bitcoin base will have to be worth about $3 trillion.If we get to 15mm bitcoins in circulation, each bitcoin would be worth $200,000. Even from the current level of ~800-900 that’s 200x your investment. Regardless of who has a great idea or what platform becomes the great bitcoin platform.Meanwhile, if you invest in an enterprise based on bitcoins…if bitcoins fail you go to zero. Even if bitcoins succeed you have a high probability of going to zero anyway. If the enterprise you chose succeeds maybe you make 20x, 50x, 100x your money.It seems to me this is one of those cases where the asset is better than the business. But very interested to hear people’s thoughts.

  24. Mark Simmer

    edit…math was off, i meant to say 10% of USD commerce…

  25. David Haber

    Sorry for the delayed comment here. But hoping to get some clarity.What I find most fascinating about Bitcoin is not the prospect of an alternate currency (nor one that isn’t backed by a centralized government entity). What intrigues me most is the ability to anonymously transfer money anywhere in the world, without cost.Money is the one of the few remaining forms of information that is still taxed like a physical good.What I don’t yet understand is whether or not Bitcoin can become that protocol (or alternate infrastructure) for money transfer on the web without needing to become a ubiquitous currency. In fact, I don’t really care to transact in Bitcoin at all… I’d much prefer to send dollars to my family in Israel or Mexico without fees. Does Bitcoin, the currency, ever get entirely abstracted? Or do we have to believe in a future where merchants everywhere need to accept Bitcoin for my vision to become reality?Curious to hear how you think this plays out.

    1. fredwilson

      for now, the currency and the protocol are joined at the hipi don’t have a crystal ball on the future anymore than you do, but i do think that merchants will start accepting bitcoin in larger and larger volumes in the coming years

  26. leapy

    What difference would it make to BTC if “Satoshi” is identified? At least we would know where the crypto-currency came from.https://likeinamirror.wordp

  27. paramendra

    A global currency in whose creation no government participated. No wonder governments are miffed and would like to go on spying hyper drives.