Bitcoin - Getting Past Store Of Value and Currency

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

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

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

I think there have been three phases to Bitcoin so far

1) Bitcoin emerges, community develops, mining, wallets

2) Bitcoin vice, silk road, etc

3) Speculation, trading, collecting, price spike

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

4) Commerce – real people buying real stuff with Bitcoin

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

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

#hacking finance#marketplaces

Comments (Archived):

  1. JimHirshfield

    By this you mean a product that aggregates data about the transactions that use Bitcoin? Somehow leverages this transaction meta data? Or do you mean something completely different; independent of transactions?

    1. Mark Essel

      I got the feeling completely independent or distinct from transactions

      1. JimHirshfield

        Sounds like different types of transactions, like title to property mentioned above

    2. fredwilson

      No. A service that uses bitcoin’s blockchain as the transactional record keeper for all activity in it

      1. JimHirshfield

        Yeah…starting to pick up on that from the rest of the comment thread. Interesting. So, let’s say it were used to record property ownership records, would the platform still require that some nominal exchange of BTC transpire (like 0.00001 coin) or can transactions happen on the BTC protocol with 0 coins…IOW, at a price of zero?

        1. LIAD

          sure a transaction needs to happen but can be a tiny fraction of a coin. alternatively, bitcoin could crash vis-a-vis fiat and we could transact in thousands of bitcoin. makes no difference to the asset ledger

        2. Ben Longstaff

          Once all of the coins are mined bitcoin transactions will have fees to cover the miners costs, mining new coins is the process of writing transactions to the blockchain. 0BTC is not a transaction as your not exchanging ownership of anything

      2. Ben Longstaff

        Not sure if the mastercoin protocol that is built on top of bitcoin does what you have in mind. “Smart properties and smart contracts are digitized property rights and contracts rights, which may be transferred amount individuals and business entities via a protocol facilitated by the Bitcoin network.” –

  2. Tom Labus

    That’s an accelerated cycle if it happens this year. I still feel there needs to be a bigger scandal to clear out some cos. And less noise!

    1. pointsnfigures

      Noise is part of innovation.

      1. Tom Labus

        Not comfortable at this stage with this kind of publicity and assumption that it’s the next big thing

      2. LE

        A juicy controversy, conspiracy, scandal, theft, train wreck, perversion is all a part of getting free media attention.I’d have a whole department working on that type of thing.”In other news a woman was arrested for trying to sell her children for drug money on “Craigslist” which is a site where…..”God knows I had no idea who Paul Walker was until he slammed into a pole.

  3. pointsnfigures

    The protocol is the true value in Bitcoin. One thing Coinbase has going for it is that Andreessen is an investor. Prediction 8, “the browser of Bitcoin will happen this year”. Andreessen and his team developed the first functional internet browser (at UIllinois). Wouldn’t it be cool if he did it again?Although, to mainstream it the “coin” part of BTC has to stabilize.

    1. William Mougayar

      Yes, there is a lot of “UI” missing in BTC apps. A BTC wallet is not for the general masses yet. So, definitely lots of room in improving the user experience which will lead to more adoption.

      1. awaldstein

        Is it a UI issue or integration one?What would it take for BitCoin through coinbase to be an option like PayPal on 100K shopify stores. If the coin instantly transfer to cash, would this work?

        1. William Mougayar

          I would say both are needed: easy integration with compelling UI on top.Here are easy ways to accept Bitcoin on a site (btw – Shopify does too)

          1. awaldstein

            Cool and thanks.Shopify has way bigger issues (and opportunity) than BitCoin integration.

          2. William Mougayar

            Mind you, some e-commerce sites can hold their Bitcoins because the currency is appreciating. So, over time, they are able to lower prices and be more competitive that way. Here’s an example from the Bitcoinstore, an exclusively BTC electronics e-commerce site, where their prices are even LOWER than Amazon for the same product.

          3. awaldstein

            Interesting..,I don’t think this is a hedge though to go after Amazon.A way in for something new potentially.

          4. LE

            I think they are most likely arbitraging the fact that some items sell on Amazon for higher than market price.So for example if I want to sell anything and I give the price on Amazon I am more likely to get the sale because Amazon is generally recognized as having good pricing. But I need a reason to distract you so I make something up. Literally.Further I can do what you are showing above (this is a total “as if” because I’d never do it) in real time buy buying and selling bitcoins at market price and adjusting the website price in real time. So you think what you are saying but it’s not the real reason.And people think they are getting a bargain. And they are (compared to amazon) but not for the reason they think.This is really similar in a way to affinity group marketing.Say I put up a website called “Acer laptops for Veterans”.Then I find Acer laptops that are on Amazon that I can buy and make a profit on.Now you think you are getting the special price because you are a veteran “the explanation”. In this case the explanation is bitcoin.I don’t know if I’ve explained it very well but the concept is crystal clear in my head.

          5. William Mougayar

            I think that’s pure deflationary pricing that Bitcoin allows, if you hold your inventory in Bitcoins. It’s one of the “current” features of the currency (as long as it’s still appreciating).

    2. LE

      One thing Coinbase has going for it is that Andreessen is an investor. Prediction 8, “the browser of Bitcoin will happen this year”. Andreessen and his team developed the first functional internet browser (at UIllinois). Wouldn’t it be cool if he did it again?That is certainly something that the press (and bloggers) would be all over. They love stuff like that.But Andreessen isn’t a college kid eating pizza and coding anymore. He is an investor. So as far as “do it again” his link to this is a bit different.

  4. Mark Essel

    So the metadata acts as a unique channel associated with a coin? Can we get some ideas listed showing potential applications? Still a little am fog and my imagination cap needs a cup of coffee :DMaybe just thought of one, a global key value store with unique hashes. Not sure how this would be more valuable than the coin mining (already do this with sha and s3, but the distributed coin info may be an interesting spin, zero cost piggybacked storage)Embedded uri’s to resources – ads? Permanent digital real estate associated with each mined coinBuilt in transaction tax that requires a bit of extra digital work for each transfer (dividends)Time capsules requiring future coin decoding in chunks maintaining messages over potentially generations.

  5. William Mougayar

    Definitely Yessss. That’s part of the application layer stage of the Bitcoin evolution. These Apps may not need the Bitcoin currency itself, but they rely on the Bitcoin protocol and infrastructure. Several examples will include: Contracts, trust accounts, escrow, etc..I attempted to depict this landscape in this pic from my blog. But…we might need to walk before we can run with these. We’re probably still at the crawling stage, because many people don’t understand Bitcoin yet. And these Apps will need to become really easy to use, while hiding the inner complexities of Bitcoin.

    1. Mark Essel

      Excellent app ideas William, precisely what I was curious about

    2. Richard

      Not sure I agree that fitting bitcoin into the old currency memes is what will happen. Think of the major technological transitions like radio to TV to computer etc. the break throughs were entirely new services not possible but for the new technology.

      1. William Mougayar

        Well… Currency transfers is one of the Bitcoin applications, so you can’t totally dissociate the currency from the protocol. I agree that the protocol itself will bring a lot of innovation on top of it, but the most very basic one is money transfer. That’s a big issue across borders. Remittances is a multi-billion dollar market.

        1. pointsnfigures

          No one holds it unless it’s worth something. The other tech breakthroughs you mention only transfer information-and some were centrally planned one to many transfers. Bitcoin is peer to peer, many to many. A marketplace. Very different.

        2. Joe Wilkinson

          Waiting to see when currency transfers begins to happen with Bitcoin. Creates a whole new host of issues for countries (hot money inflows/outflows) But there is a HUGE need for being able to transfer/exchange your currency quickly, easily, and hopefully cheaply.

          1. pointsnfigures

            I have planted some seeds with an organization that could function to stabilize the market-but it’s a long haul

          2. William Mougayar

            It is already happening in Argentina, and some African nations.

          3. Joe Wilkinson

            Really interesting. Do you know which nations in Africa?

          4. Joe Wilkinson

            This is really great info! Thanks.

      2. SubstrateUndertow

        Sorry – I can’t help myself – Incoming Cliché ;-)”The content of a new medium is an old medium”that and currency is such a bedrock function ?

  6. Julien

    I’m actually convinced will soon see ‘ownership’ systems based on BTC, maybe something like DRMs.Bitcoin is a distributed protocol for ownership. It says who owns what and that’s the first time we have something like this for digital goods.

    1. Mark Essel

      Aha, titles! excellent Took 2 months to prove I could buy my home in 1998 and even then I had to buy insuranceso i could embed a proof of ownership over some property associated with a coin. how do prove I own something before coin association though – can see a business or middleware providing that – aka new bank

      1. pointsnfigures

        But why couldn’t they look at a W-2 and your bank account to prove it?

        1. Mark Essel

          they had to prove the seller owned it, and then protect my purchase in case a mysterious claim came out that trumped my ownership

      2. LE

        Are you talking about title insurance or mortgage insurance?Both are necessary but for different reasons.

        1. pointsnfigures

          ya, I don’t think the reason BTC exists is to solve the problem @VictusFate:disqus identified. I thought it was to close a loop in internet protocol that happened to be payment orientated. Peer to peer payments with zero transaction costs are the intriguing currency part of BTC in the short run. In the long run, it might be bigger. Won’t know for ten years or more.

          1. LE

            Peer to peer payments with zero transaction costs are the intriguing currency part of BTC in the short run.Ultimately you won’t have a system where someone doesn’t have a “taste” (got that from the Sopranos) or vig, a cut, or whatever you want to call it. So there will be (and there has to be) transaction costs.Why? Because it’s helpful to have someone in between to guarantee (in a sense) both sides of the transaction and make it all work for both parties.If you take credit cards as a merchant you are (in general) guaranteed that money unless a specific set of circumstances occurs.(The dreaded charge-back). As a company or person using a credit card you have a way to get your money back if there is something that doesn’t work the way it should in that transaction. And of course you have credit and the ability to pay out over time (almost forgot that one ..)The above has value to many people.Now arguing the other side I could say that there are transactions where the party that is paying doesn’t need that court of last resort or payment terms. For example if I am paying for car insurance to Insurance Co. then I can feel safe sending them money by a bitcoin esq method.To any particular individual this may or may not be important obviously. But it does have it’s place in the world of transactions.

          2. pointsnfigures

            Venmo, no transaction costs in a peer to peer transfer-unless I am using a credit card or making a purchase. I only transfer to my friends. My daughter bought a scooter on Venmo.

          3. LE

            Well are they stable and making money with that strategy?From crunchbase (all I have time for as I have to pickup a pizza) I’m seeing that they sold for a trivial (in the web world) 26 million in August 2012. And that’s with a nice roster of A grade investors. So what’s the deal with that?Next the site says:”Furthermore, we guarantee all user funds against any unauthorized transactions.”But if you click “more” it takes you to this page which says nothing about that in detail.Does have a typical bunch of “we got this security thing all figured out” boilerplate language. (I was doing that type of BS back in 1996..) OK, I’m glad you encrypt things. Wonderful. I guess Target wasn’t doing that!And provides no details on the guarantor or the limits for that. I’m sure there is a fair amount of stuff buried in the actual contract that limits their liability.…Noticing also that the “about” page links to the product page. I guess everyone left when they were acquired.Bottom line is (once again based upon a quick take) something isn’t gelling very well with this company.By the way did your daughter save money by using venmo to buy the scooter? Because to me I would have used my credit card and gotten worthless points or done so just so that I have (as I mentioned) a plan b if there was a problem.

          4. JamesHRH

            3P guarantees of transactions are the dark matter value that no one with Bitcoin flu seems to be able to feel.

        2. Mark Essel

          title insurance, proof of ownership & ownership transfer

    2. fredwilson


    3. Ben Longstaff

      I think Mastercoin has the functionality to do what your suggesting, it’s built on top of the bitcoin protocol for transferring assets “Smart properties and smart contracts are digitized property rights and contracts rights, which may be transferred amount individuals and business entities via a protocol facilitated by the Bitcoin network.” –

    1. William Mougayar

      Good insights and perspective. thx

    2. LE

      I wish when people posted videos they would summarize so that someone can decide if they want to watch or not.

      1. Twain Twain

        Thanks for the tip, I will summarize next time.

        1. LE

          I contemplated when writing that comment that I was possibly being to harsh in my wording.So I almost changed it to “hey – can you summarize?” but decided to throw myself under the bus for the benefit of the community. Apologize if I sounded nasty in my tone.

          1. Twain Twain

            No worries. Resilience and adaptability to online comments conditions us for the better, usually.

  7. LIAD

    the currency and store of value are smokescreens for what Bitcoin really is.they’re a side show where regulators and incumbents will mistakenly focus their attention whilst the real applications are being cooked up.a decentralised, scalable, non-hierarchical, globally agreed, incorruptible asset ledger which moves at warp speed and is accessible, readable and writable by anyone, anywhere on anything.(save for the miners incentives), the price could fall to $0.0000001 a coin and it wouldn’t change any of bitcoins real disruptive potential.

    1. William Mougayar

      I’ve heard Andreas Antonopoulos say that even if the Bitcoin currency were to totally collapse, they can “reboot” another currency the next day.So, one possible scenario is that the current currency is a training ground for the next one(s).

      1. LIAD

        distributed asset ledger works regardless of coin value. so no need to reboot even if coin price is obliterated.i think he refers to a collapse in the security via a crypto bug which hasn’t been found yet.

        1. ShanaC

          how do you rebuilt that ledger for all the currencies as they trade?

        2. William Mougayar

          The ledger would stay, but the currency could change. This is a theoretical scenario, of course.

      2. JamesHRH

        That would cause a massive credibility hit. So many recent tech innovations are at the nice to have level – i.e., social. If FB, Twitter & Tumblr all went dark tomorrow, people would be bummed but there would not be armed insurrection.Rebooting my 401(k)? That might be a different story.I know, I know, I know, its a protocol not a currency. I remind you of the sage words of HL Mencken – ‘no one ever went broke underestimating the intelligence of the American public’.While most people take that to mean that Joe Q Public can be led astray by the promise of easy money, it should be noted that he & Jill Q tend to stay away from complicated things that could cause them harm, too.That being said, it sounds like it has tons of back office potential in the FinServ industry. And, back office efficiency is something the net does in its sleep……

        1. William Mougayar

          It’s early days.

    2. Andy Orr

      I would like a technical discussion of the scaleability of its architecture. It doesn’t seem scaleable to me.

      1. Ben Longstaff

        “Once the latest transaction in a coin is buried under enough blocks, the spent transactions before it can be discarded to save disk space.””A block header with no transactions would be about 80 bytes. If we suppose blocks are generated every 10 minutes, 80 bytes * 6 * 24 * 365 = 4.2MB per year. With computer systems typically selling with 2GB of RAM as of 2008, and Moore’s Law predicting current growth of 1.2GB per year, storage should not be a problem even if the block headers must be kept in memory.”- original bitcoin paperwhy doesn’t it seem scaleable?

        1. Andy Orr

          I will be the first to admit that I am a little far afield of my expertise, but section 6, Incentive, of the original paper discusses a “greedy attacker choosing between stealing back payments or generating new coins. The paper does not mention how the incentives play out once coins have stopped being generated.Also, and maybe this is answered by your previous reply, I would like to understand in greater detail the economics after the system transitions to rewarding “miners” (name makes no sense at this point) solely with transaction fees.

          1. Ben Longstaff

            At the moment miners gets rewarded with bitcoin for completing blocks.In the future after all the coins are mined a transaction fee would be attached (resulting in transactions with larger fees being processed first) all of the transactions fees that are written to a block would be provided to the miner as the reward for doing the work.As a point of reference transactions done on exchanges take a fee of between 0.1% – 2% on the exchanges I use.

          2. Andy Orr

            Thanks for continuing this discussion. My questions are more about what resources are required to validate transactions. Do these change over time (and do their real costs go up, down or stay relatively the same over time — i.e. resources relative to costs of computing power), and is that model tenable?I assume the reward of new coins is worth more than transaction fees which gets back to the “greedy attacker” and his or her incentives after coins stop being generated.

          3. Ben Longstaff

            Mining is done with ASIC’s (application specific integrated circuits), the difficulty to mine increases proportionally to the mining power of the network, however the amount of coins that are mined slowly decreased over time, see…As there is a fixed supply of bitcoin the value increases rapidly as the interest increases, interestingly when looking at the price of bitcoin on a log scale it has been somewhat linear to date…bitcoin (SHA256 algorithm) Mining hardware that was profitable 12 months ago is now little more than a paperweight due to the ASIC arms race, litecoin (scrypt algorithm) mining hardware remains profitable as it usually a bunch of GPU’s in high end video cards.if you put some of the hardware specs into… using difficulty values from different points in time from you can see how the return on mining hardware drops quickly

          4. Ben Longstaff

            seems my reply got lost.The hash rate is constantly increasing so the mining difficulty also increases. The number of coins mined reduces over time. However the price is almost linear when viewed on a log scale due to the finite amount of bitcoin…From a mining perspective hardware that was profitable 12 months ago is worthless now. If you plug some hardware numbers into…you can see how quickly it becomes unprofitable, you can get the mining difficulty from there are no transactions fees outside of exchanges. The greedy attacker would need to hack one or more mining pools to get enough hashing power to do double spend and the bitcoin community is watching closely for it.

          5. Andy Orr

            I apologize as I must not be clearly stating my question. The mining difficulty that you refer to is really the difficulty of validating transactions. Mining, or receiving coins is a by-product of this activity. Transactions must always be validated even after no more coins will be mined (or rewarded in return for valdiating the transaction). I am trying to understand the costs of validating transactions over time as this will obviously be the main reason for transaction fees (maybe many others as well). i.e. when no more coins are rewarded what will the economics of “mining” (in quotes as they no longer are mining, only validating) be?

          6. Ben Longstaff

            Currently the global hash rate is around 15 Peta Hash/secondif you look at the hash rate on a log scale…×pan=&scale=1&address=its increased roughly 3 orders of magnitude in 12 monthshttps://products.butterflyl… looking at hardware that is currently available lets say 1 GH / s = $50 to purchase and has a profitable lifespan of around 3 – 6 monthsthen the value of the current hardware to run the network is in the ball park of $750M needing to be replaced with new ASIC’s in 3 – 6 months.The electricity costs + cooling hardware + space etc to run the hardware i’m not sure.What the hash rate would need to be if all transactions on a global basis where done on bitcoin?if visa does 150M transactions a day… assuming including the other processors there is say 500M a day, roughly half of the world is unbanked…but with bitcoin and mobile devices you dont need a bank account so say 1B transactions a day is the upper limit, what hash rate would you need?Not sure I will ask at the next bitcoin hackathon

          7. agustinf

            The main cost behind the “validation” of transactions is the proof of work algorithm, which regulates the difficulty according to the total capacity of the network. If many miners quit, difficulty will drop, making it more attractive for miners, even if their only gain is the transaction fees.

    3. Kevin

      The big challenge I’d like to understand is how do we get BTC to move at warp speed. The network currently maxes out at seven transactions per second, and the next obvious barrier is the network bandwidth required by miners if it’s to support the innovation that we’re all striving for.The BTC FAQ hand waves around this stating that 2k tps means miners need 10mbps, but how can it support truly high volumes? Or is that a problem that demands an alternate (be it an out-of-chain or entirely orthogonal) solution.I’d also love to gain a better understanding of the issues that will occur when transaction rates start bursting above the network capacity of individual nodes and networks.

    4. Ben Longstaff

      bitcoin is not incorruptible. Section 11 of the original bitcoin paper outlines how a malicious mining pool could do double spending. has been getting close to the 51% mining capacity required to do this recently.

      1. LIAD

        people don’t see the 51% attack as a real issue.The cost is more than the reward and thus far the market has regulated itself.Andreas goes into his rationale behind discounting the 51% in the Q&A at the end of his talk last week –

        1. Ben Longstaff

          this is one of the best talks ive seen on bitcoin, thanks for the link

  8. JamesHRH

    It has a bad name and a bad PR agent, if it is an infrastructure for ownership.

  9. Alexander Ainslie (@AAinslie)

    +1 Fred and for your readers who haven’t already done so, go check out: @bhorowitz de-codes #Bitcoin see comments for more on #BlockchainProtocol with a link to @AlbertWenger’s post on the “#BCP”.

  10. Brandon Burns

    so much bitcoin…

  11. awaldstein

    To clarify for the novice–this is a currency of secure transfer value, not a proxy for something else of value? Correct or no?

    1. LE

      My novice understanding (because the opinions of normally informed novices is important, right?) is that it is a proxy for something else of value.The bitcoin (currently $911 right now) means at this moment in time I can use that bitcoin to buy things that I need with that bitcoin or buy another proxy (us dollar) that I can then use to buy something else that I need.And on the liquidity scale it is close to the dollar as opposed to your coop which is not liquid. Or your wine collection.

      1. awaldstein

        @wmoug:disqus You agree?

      2. awaldstein

        My wine is most certainly liquid!

    2. Derek Kaknes

      Correct: Bitcoin is not a bank note that serves as proof of deposit (like the gold standard was). Instead it is purely a token that proves the holder performed some valuable service – in this case, mined the blockchain. That service is not reversible, so the token is not convertible in the way bank notes were.

      1. awaldstein

        When you strip away all the obfuscation, this is a concept that will be grasped by a large percent of the population.Thanks.

  12. Twain Twain

    Austrian Mises school of argument against Bitcoin: (1) it has no intrinsic value like gold; and (2) it fails to satisfy Mises’ regression theorem of primary use value prior to becoming money.I’d argue:(1.) Everything has intrinsic value. There is external explicit market value measured by Price. There is internal implicit personal value known as Perceptions, e.g. “The prices and features being equal and equivalent, apple-for-apple comparison, I believe this item satiates an emotional need the other item doesn’t.”Just because Perception is a subjective entity and the Austrian economists including Hayek couldn’t create tools to measure Perceptions, doesn’t mean that things don’t have intrinsic value.It’s like what happened with external energy (explicit value) and latent energy (intrinsic value). Scientists had no notion of latent energy until 1884 and Joule published about it.(2.) In modern AI, regression theorems get applied to structured data (data is mathematically treated as deterministic 0, 1 outcomes and mapped with linear processes and graphs on 2D x-y axis). This process is known as Supervised Learning.Meanwhile, Matrix theorems get applied to unstructured data (data is treated as probabilistic and mapped as topographic contours on the plane x-y-z). This is Unsupervised Learning.What does this mean for the Austrian school of economics?They need to get up the curve with where the world and maths has already moved and is moving.Linear, simplex => probabilistic, complex => QuantumMEASURING PERCEPTIONS=======================Eric Ries talked about, “If you have no hypothesis, all the science in the world can’t help you.”Actually, up to this point, the science in the world has not enabled us to measure subjective matter; this would include the value of Bitcoins — even abstracted from its external price fluctuations.We have accelerometers, gyroscopes, barometers, G, ammeters, rulers, scales etc to measure all manner of physical, inorganic phenomena.We have click through rates, funnels, a whole raft of accounting ratios IRR, EPS, etc to measure physical tangible activity (human behavior) in business and across the Web.However, no economist or mathematician in history has successfully constructed a hypothesis for measuring Perceptions and then tried to build a system to do so.And it’s the Perceptions which refute the Austrian school of thought of “nothing has intrinsic value.”Anyway, I have both a hypothesis and a patent-pending scientific tool to measure perceptions (intrinsic value).

  13. Shripriya

    Today? Here you go –…”Posts are handled through the BitTorrent protocol. This lets the system distribute a large number of posts through the network quickly and efficiently, and it lets users receive near-instant notifications about new posts and messages — all without the need for central servers.”

  14. hypermark

    Bitcoin has the potential to emerge as the great GL (General Ledger) in the sky.

    1. Derek Kaknes

      100% agree. Do you think individuals will balk at the idea of having their financial ledger publicly accessible – even in a pseudonymous fashion?

      1. hypermark

        I guess it depends how we define “publicly accessible.” Needless to say, there is tremendous amounts of financial data that are already accessible to banks, credit card companies and rating agencies.One angle on this is that it becomes less about central providers and gatekeepers, and more about transparency and shared networks.The other angle is that having such a network opens the door to alternative underwriting networks, where new players can participate on everything from lending to factoring to bidding on business based on verifiable revenue flows.On the pure “publicly accessible” side, even though one transparent social commerce service failed in the current model – Blippy (… – one can easily see categories where like minds might want to connect based on verified transaction data.In other words, financial transaction data is a central anchor to a verified identity that can manifest a bunch of different ways.

        1. Derek Kaknes

          Yep, Blippy is a great example: there was no utility in sharing personal financial data on that site. I see the General Ledger (I have been calling it the “Public Ledger”) as a great tool for consumers, particularly considering that modern credit bureaus wield immense influence but maintain strict control over their proprietary databases. Your GL would ask individuals to sacrifice some amount of centralized “privacy” in exchange for ownership of their public creditworthiness. I think that is a very compelling proposition, especially for the developing world and/or immigrants.Are you working on implementing something like this?

          1. hypermark

            Not at the present. Just wrapping my head around this and constructive a narrative about the layer beyond currency and store of value.

  15. falicon

    Bitcoin’s magic seems to lay in consumer – to – consumer transactions (vs b2c or b2b) and so far that has been a VERY elusive thing for techies to figure out. The real world on a local llevel does this all day and every day…so it does feel like it’s coming…but I think you underestimate the speed of paradigm shift that we aare just starting

  16. JaredMermey

    Is there a way to de-bundle the protocol from the currency? Can you have a bitcoin protocol with the dollar?

    1. Ben Longstaff

      I dont think so as the process of mining new coins is actually the process of writing transactions to the blockchain. Without the reward of mining (or after all the coins are mining mining fees) miners would stop doing so

      1. JaredMermey

        Is the mining essential? From the novice perspective it just seems like a fair way to initially distribute the currency. Could you not keep the open blockchain for all other transactions? A list of every transaction ever on the internet……PS — if the whole blockchain is connected to each transaction, how does it scale when it goes mainstream?

        1. Ben Longstaff

          without mining no transactions would be written to the blockchain, so yes it is essential.Section 7 of explains how the protocol scales.

  17. Elia Freedman

    I don’t understand something about Bitcoin and I’m hoping someone can explain it. If the maximum amount of Bitcoin that can ever be created is 21,000,000 units, how is that supposed to replace any world currencies? What are there, trillions of US Dollars alone? How is Bitcoin US Dollars and not jade or diamonds?

    1. William Mougayar

      It’s not supposed to “replace” the world’s currencies. It’s an alternative currency. Mind you, it’s a “better” currency than probably around 30-40 countries’ currencies. That’s why its adoption is happening in less developed countries or ones with a weak monetary system.

      1. Elia Freedman

        Is there/will there ever be enough Bitcoin to reasonably do that though? What are there, 11 million Bitcoin and it will take the next 130 years to create the remaining 10 million?

        1. Barabare

          Bitcoins can be subdivided up to what’s called a “Satoshi”: 0.00000001 BTC. So we could, for example, switch from BTC to mBTC, and then you’re looked at 21 billion units.

        2. William Mougayar

          They will be available via fractional distribution of the bitcoin. Actually, that is known as a Satoshi which is 0.00000001 BTC or 1/100,000,000 of a Bitcoin.

    2. Derek Kaknes

      Actually, until recently the amount of true dollars in the world was very limited. Most of the currency in circulation is in the form of bank deposits at the Fed, which are not currency strictly speaking.

  18. Boris Wertz

    One of the more interesting ideas I have seen lately is to combine the concept of time banks (… with Bitcoin to enable more efficient, local service exchanges. Might be too utopian but still an interesting concept.

    1. William Mougayar

      With Bitcoin, any one can become a bank. Both scary and interesting.

      1. ZekeV

        I suspect some crypto exchanges are in effect running on fractional reserve, but without announcing it to the depositing public. More conservative folks such as myself tend to frown on the practice, since btc-denominated liabilities could easily outstrip one’s ability to repay if not exceedingly careful / lucky.

        1. William Mougayar

          Good point, but I’m not sure to what degree % though.

  19. John Swords

    Fred, I’m an avid Bitcoin enthusiast but have some reservations about the limits of Bitcoin’s ability to take on more of the world financial system. What is your take on Bitcoin’s inability to be leveraged like the U.S. dollar is with fractional reserve lending?

    1. Derek Kaknes

      Bitcoin can be leveraged in a fractional reserve system the same way the gold standard was leveraged – you just need a separate ledger of credit. For example, Coinbase could very easily start making loans in bitcoin using client funds with the expectation that not everyone is going to liquidate their Coinbase accounts at once (obviously if there was a run on Coinbase then it would collapse like any other fractional reserve bank). I think the more likely scenario is that you abandon the old banking model and only use capital markets: someone creates a LendingClub platform for BTC and you get leverage in a direct P2P fashion.

      1. ZekeV

        It would be suicidal to borrow in BTC at the moment. The effective interest rate could be stratospheric, or at least hard to predict. However, it does make sense in a narrow circumstance: companies with significant BTC profits and a desire to hedge against fluctuation vs. government-issued currencies. Today most such companies are happy to concentrate currency risk in BTC and ride the wave. At some time in the future, however, the crypto markets will mature and companies will need to hedge against the possible decline of BTC. And borrowing in BTC denominations to offset real BTC holdings is a time-honored method of doing that, copied from conventional corporate finance. Probably a better method than automatically converting profits back to dollars via middlemen.

        1. Derek Kaknes

          Exactly: if you are someone like BitPay or Coinbase who is in a land grab, then it would make a ton of sense to borrow BTC to train more sales rep with the expectation that you will repay the debt by collecting your fees in BTC. You still have a little currency risk, but probably not significant.

          1. ZekeV

            That’s not quite what I mean. I don’t recommend anyone borrow in bitcoin to finance growth. That is some potentially very expensive financing! However, if you are coinbase 5 years from now and sitting on say 100,000 btc in profits that have not been dollarized, then taking out a btc-denominated loan could be a viable hedging strategy.

  20. Barabare

    Recommended reading on the topic of how flexible the BTC protocol can be:Nick Szabo’s essay on smart contracts:…(Note that Nick has been rumored to be Satoshi. Even if he’s not, Satoshi definitely read Szabo’s work, as his BitGold system is almost exactly BitCoin.)Colored Coins:…Arbitration:

  21. Joe Lazarus

    Fred, which types of marketplaces do you think are most likely to get early traction using Bitcoin as infrastructure? Will it be a replacement to offline, potentially expensive systems like contracts, escrow, etc? Will it replace DRM and similar systems for digital files? Virtual goods? Will it be for low price point goods or big ticket items? Heavily regulated industries or more fluid ones? I can see how Bitcoin infrastructure could be applied to many marketplaces. I’m curious which broad categories you see working first.

    1. LE

      Will it be a replacement to offline, potentially expensive systems like contracts, escrow, etc?Will be many years before attorneys or others entrusted and working on someone else’s dime embrace something like this. Because they are spending other people’s money and have so much to lose and literally nothing to gain. It’s the “nobody got fired for choosing IBM” thinking.

  22. Pete Griffiths

    Any application that requires network assured trust is a potential application.We may well also see applications that do include a currency but one that is not a general purpose currency but a medium of exchange with what may seem to be bizarre properties that are tailored for a specific application. E.g. a coin that must be spent within X hours (days…) or it becomes worthless.

  23. Derek Kaknes

    It would be great if someone would implement a public ledger of credit; essentially replicate the credit bureaus except make it public, global and verifiable through the blockchain. I think that would go a long way to facilitate lending/investing on the protocol.

  24. Peter

    How about decentralizing DNS using bitcoin instead?Or serving apps, content and sites in a P2P-model (great for some mobile apps I am sure)

    1. Derek Kaknes

      This looks awesome – decentralizing the internet would be a huge step forward.

    2. Ben Longstaff

      “Namecoin (sign: ℕ; code: NMC) is a cryptocurrency which also acts as an alternative, decentralized DNS, which would avoid domain name censorship by making a new top level domain outside of ICANN control, and in turn, make internet censorship much more difficult, as well as reduce outages” –

  25. Ben Longstaff

    I think the biggest hinderance to 4 being achieved is big retailers figuring out how to handle returns while the price is so volatile. If they return the users bitcoin they could take a significant loss when the price of bitcoin increases (which i’m sure would be exploited, nothing like free money), if they return the USD equivalent amount of bitcoin the customers are unlikely to be happy with their percieved”loss” of coin.

  26. markslater

    twitter has now been built on top of the protocol

  27. Semil Shah

    I also think #7 will come soon. From afar, this whole thing seems to be bringing out some of the most creative computer scientists. Lord only knows what they will build.

  28. Brian Foster

    Fred: As a corollary to #7, how about “Consortium of Big Banks Consider Bitcoin Alternative to Centralized Clearing?” Clearing and settlement have to be some of the most vulnerable dinosaurs on Wall St. Here’s a piece on the subject:…This is another good read on Bitcoin’s application-layer potential:

  29. ZekeV

    There are all sorts of cool services being built right now on top of BTC. Thinking of apps like bitrated (online dispute resolution), bitnotar, bitmessage, twister (distributed twitter)…None of these is tied to a VC-investable company as far as I can determine, but at least they are working on cool stuff that is not just another iteration of the basic payments app.

  30. Eric Friedman

    I have heard a few folks using each transaction to “officially” timestamp certain data. This is interesting to think about as a similar hack when people mail themselves something so that it goes through the US Gov’t system to make it “official”. This feels the same, but is not tied to the US which makes it a globally acceptable means of tracking.I would also like to know what interesting things are being built on top of the protocol.

    1. LE

      This is interesting to think about as a similar hack when people mail themselves something so that it goes through the US Gov’t system to make it “official”.A postmark on an envelope doesn’t prove the contents of the envelope. I guess in theory you could take it to the post office and film the clerk mailing it and taking payment.Of course you could say that a certified letter sent doesn’t prove the contents of the letter either. But in that case there are two parties and in general the court decides “ie trier of fact” whether something seems legit given the totally of the facts.

      1. Eric Friedman

        I agree which I why I call this type of thing a hack.

  31. ShanaC

    IS there a way to take the bitcoin out of bitcoin so you can take advantage of the ledger without worrying about the “is this money” bit

    1. fredwilson

      Yes. Use bitcoin as a payload for dollars

      1. Ben Longstaff

        The ledger on its own can track claims to ownership but it can’t enforce them. Bitcoin as a currency removes the counter party risk in using Bitcoin as a protocol so that claims can be enforced, how could that be done with USD and the ledger?

  32. Maninder Gulati

    Thanks for sharing your viewpoint on my post Fred. Encouragingly, the experiments related to point no. 7 are already happening. A lot of them point to eliminating middlemen such as lawyers, stock and real estate brokers. Amos Meiri ran one by coloring Bitcoins with stock trading information. Mike hearn has developed Payfile, which allows users to make micro-payments based on file downloads. Look forward to more innovation and hope to be a part of it at Lightspeed.

  33. Mike.R

    Just bough my wife a box of chocolate w/ BTC on Thanks Coinbase!

  34. Steve Goldenberg

    I’m surprised there is not more talk of bitcoin as a distributed authentication system; authentication both for people but also for items. Imagine an identity system that verifies identity through an upfront payment that isn’t cheap (say $100) and once you are authenticated you can “spend” your identity one micro bitcoin at a time. It could be attached to all manner of functions – and you could be verifiably anonymous too; you could prove you’re the same person without actually identifying who you are.Or I think of data that benefits from verification. Imagine a university that delivers your degree, transcript and learning data with a bitcoin payload at completion. You could then “spend” your BTC when using your degree to validate your expertise.That last one is particularly interesting, so I’m working on something in that vein…

  35. Steve Goldenberg

    Saw this in the news this morning, a project to build an application stack on top of the bitcoin protocol:

  36. vnbitcoin

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