A Letter To Senator Manchin

Senator Joe Manchin wrote a public letter to financial regulators asking them to “take appropriate action to limit the abilities of this highly unstable currency.” The letter in its entirety is here.

What follows is a letter from me to the Senator.

Bitcoin is a powerful new technology platform that, like the Internet itself, is not controlled by anyone or any company. It is a globally distributed network of computers that allow financial transactions to flow seamlessly and at a much greater efficiency than current methods. A bitcoin is the store of value in the system and it acts a bit like a currency or a commodity. This store of value is actively traded for fiat currency at a number of exchanges around the world.

Bitcoin is already regulated in the US and it is becoming more regulated every day. And the regulatory environment in the US has dampened the amount of innovation around Bitcoin that has developed here in the US. All the major Bitcoin exchanges have been built outside of the US and a significant amount of the venture capital investment in the Bitcoin ecosystem is happening outside of the US. This is a direct response to the stricter regulatory oversight and requirements here in the US versus other countries.

The volatility of Bitcoin relative to fiat currencies should be expected in a nascent and emerging technology. What is amazing, however, is its resiliency in the face of massive scrutiny, company failures, fraud, theft, and a host of other challenges it faces as it becomes mainstream and mature. The value of a Bitcoin at this stage of its development should move up and down more like a hot technology stock than a stable currency. In time, as Bitcoin’s market value grows and transactional activity  and liquidity develops, the value will stabilize and act more like a traditional currency.

When something as new and as different as Bitcoin emerges, it is tempting to want to “put the Genie back into the bottle” and protect ourselves from it. But thankfully the US did not do that with the Internet. The impact of the commercial Internet on the US economy and our society as a whole has been massive and overwhelmingly positive over the past twenty years. We should approach Bitcoin in exactly the same way and if we do, I expect the benefits we will see will be equally important, impactful, and beneficial to our economy and our society.

#hacking finance

Comments (Archived):

  1. William Mougayar

    That knee-jerk reaction is so mis-informed.The failure of Mt. Gox doesn’t mean failure of Bitcoin. It’s like when 1 bank failed, they didn’t call for a change in the banking system. They went and bailed them out.Such hypocrisy and ignorance!

    1. awaldstein

      I think it is more ignorance than hypocrisy William.And I thinking railing against the machine is a natural inclination for niche groups.But–I believe that Bitcoin has legs, long ones.I also think that Fred’s letter is intelligent, helpful and explanatory. And he is giving space to the debate. I see little of this level and intelligent information, little of people in the know doing the same. Bitcoin enthusiast like yourself would be wise to address the concerns of machine and the lay person in terms they can understand.The more Bitcoin remains a club of the few, the more misunderstood it will remain and the more it will be pushed into the corner out of fear.

      1. William Mougayar

        Yup…Cool headedness prevails. The knee-jerking is on both sides.Fred’s educational undertone is the right approach.

        1. pointsnfigures

          I know folks that would categorize Fred’s letter as knee jerk as well, or “talking his book”. There are legions in the financial services industry that see Bitcoin as a scam. (I don’t agree with them…yet)

        2. awaldstein

          I have no less than 30 requests from people in my networks asking WTF is this?I point them here to watch the discussion. I point them to my buddy Mark Jeffry’s ebook.You are an expert my friend–write something today that speaks to the concerns not of me, but of people who put stuff in 401ks and worry about it a lot, who have online stores and want to know why they should bother. It is sorely needed.Amazing that communicating to the mass market is more and more a lost art for the tech sector.

      2. fredwilson

        I agree Arnold. What we face is fear and ignorance and education is the answer to both

        1. markslater

          you missed out corruption. Unfortunately this must be part of the discussion.

        2. JamesHRH

          I don’t know.You go to a surgeon, he cuts you.You go to a naturopath, he herbs you.You tell a Senator not to regulate BTC because its volatility merely resembles a high growth tech startup, he starts thinking about regulating startups……..

      3. Fernando Gutierrez

        I agree, at this moment it is mostly ignorance. Most politicians don’t understand economy or money in general, you can’t expect them to understand bitcoin 🙂

        1. awaldstein

          It’s not trivial to understand AND with politicians and government in general, you need to educate and have calls to action that are approachable.

        2. pointsnfigures

          Perhaps on the part of politicians, but not finance execs. They either fear the competition-or they don’t think Bitcoin is necessary. There are good points each way-especially when viewed through the singular lens of currency. Most people see the currency aspect, not the rest. Currency is the easiest to understand. All currency is a commodity by the way.

          1. Dave

            An attribute of real money is that the value it contains cannot be destroyed. Credit is a money substitute that is created and can be retired and that produces its own effects on a marketplace.(skip the larger thoughts here and go to this) Since bits are mined individually, why can’t the stolen credits be identified just like currency serial numbers? This seems like a positive opportunity to pivot when more are interested & watching. Use the transparency as the positive that it is…and sorry if I am missing why that is not possible.

      4. Girish Mehta

        Money is a very, very difficult subject to understand. Over the past several years I have realized how little I understand it. Now, add technology to that…

        1. awaldstein

          Agree completely.There is nothing too complex to explain if you truly understand it and the quirks of the mass market.

          1. awaldstein

            Einstein saying what I said somehow has more impact!

          2. Girish Mehta


          3. JamesHRH

            Charlie Chaplin, when quizzed on his fear during the complex stunts that fuelled his fame: ‘its easy when you know what you are doing.’

      5. LE

        I also think that Fred’s letter is intelligent, helpful and explanatory.Strictly as a suggestions to an otherwise good letter I would have added a few good folksy sound bites that the media could repeat if they wanted to.Additionally language needs to be dumbed down a bit. Manchin knows what a “fiat currency” is but most normals do not.I would have left this part out “What is amazing, however, is its resiliency in the face of massive scrutiny, company failures, fraud, theft, and a host of other challenges it faces as it becomes mainstream and mature.” since that is reinforcing a negative. (Remember you are trying to unring the bell of the negative perception.)There is not a right or wrong with this type of thing and it’s not black and white – just a matter of style of course. Others may differ in their opinions.On a positive note score one (which is important) for front page mention “marilyn was found in the nude” in the WSJ of this crisis. Assuming bitcoin survives things like this are exactly what it needs to get widespread attention in the world. (And I really do mean that. While it’s not a good thing that mtgox had issues, you can’t ignore the publicity value surrounding this event..)

        1. LE

          Note to disqus. I deleted the first photo (because it rotated) but disqus doesn’t recognize the deletion. This has happened before please fix.

      6. Abdallah Al-Hakim

        The money line for me in @fredwilson:disqus letter was “The value of a Bitcoin at this stage of its development should move up and down more like a hot technology stock than a stable currency” because I think it eloquently re-frames the viewpoint of bitcoin from a currency to a new technology. This is not to say that Bitcoin primarily function is not becoming a currency but I think it helps to re-frame this argument until Bitcoin becomes more stable.

        1. awaldstein

          Agree–the real issue here is that it is money though. Our money that buys food and security and life’s balance.Being complacent about this is counter to human nature and the death knoll to politicians.Understanding though can create solutions that are not locked doors and invariably just counterproductive if not stupid.

    2. fredwilson

      It is better to educate than to ridicule

      1. William Mougayar


      2. Yaniv Tal

        Wise words from a financier of this social internet thing… But sometimes you just want to demolish.. ~ Be a better man. Be a better man. ~

      3. Richard

        There is no better argument to move a politician in support of “x” than “job creation”.Politicians argue regulation, but what they really are saying is there is some constituent of mine who is threatened by this technology.

        1. pointsnfigures

          If there were union jobs in Bitcoin, Manchin would eat his words.

      4. Twain Twain

        As part of the education efforts and since Bitcoin protocols are being compared with the Internet’s, it might be helpful to provide a list of Bitcoin sector’s equivalents to IETF, IEEE, ICANN, WhoIs? for the politicians.Explaining to them about the work around standards and oversights for the sector as a whole, including the employment opportunities for the underwriting, securitization, insurance, custody etc that needs to accompany mass market adoption of Bitcoin is something that the politicians might understand.This is not to say that I advocate regulation akin to what currently exists in the financial sector.Financial regulation did not, for example, prevent what happened on Black Wednesday 16 September 1992 when the £ sterling was ejected from the Exchange Rate Mechanism; the Asian crisis of 1997 nor the more recent 2008/9 $100+ billion TARP et al bailouts after Lehman collapsed.

    3. Girish Mehta

      Depends – past failures have led to some banking changes. The Panic of 1907 and bank failures led directly to the creation of the Fed Reserve in 1913 to provide a critical backstop/lender of last resort function. (Not arguing for/against Fed…referring to cause-effect of the Fed’s creation). The bank runs of the early 1930s and absence of insurance till then led to the creation of deposit insurance in 1933.I am referring to these examples and not 2008 simply to suggest that consumer dynamics/perception issues on how safe their money is cannot be addressed by whether Mt Gox issues were exchange-specific or not . Thanks.

    4. Matt Zagaja

      Lehman Brothers, Dodd-Frank?

      1. William Mougayar

        there were slaps on the wrist, relatively speaking.

        1. Matt Zagaja

          Fair point.

  2. David Semeria

    As Arnold mentioned in another post, there are few things people care about more than their money. This makes bitcoin’s passage into the mainstream much more difficult. 20 years ago it would not have been a big deal if my Diamond mp3 player lost all 20 songs it could store, but today I would not feel the same if my online bitcoin wallet vanished into thin air.

    1. jason wright

      Two separate bitcoin tissues are being conflated for the convenience of vested interest.If i leave my wallet stuffed full of dollars out there in the open and not well tended it will be taken. I may have insurance for the first $500, but that’s it. It’s a personal responsibility thing.Mt. Gox may be a criminal enterprise or the victim of a criminal enterprise. Governments must tackle both in the same way they would tackle securities fraud or other financial malpractice, and plain bank robbery.

    2. Matt A. Myers

      The same thing can technically happen through banks, though at least there is the possibility of accountability occurring in that situation – even if that doesn’t seem to happen to the corrupt bankers and financial systems that currently are in control.

  3. LIAD

    curious.good intentioned and misinformed or opportunistic politicking?

    1. William Mougayar

      maybe both. that senator’s name is known now.

      1. Fernando Gutierrez

        And don’t forget that many people agree with him, so there is a big niche to lead.

  4. William Mougayar

    Oy, he got an earful here on Twitterhttps://twitter.com/Sen_Joe…

  5. andyswan

    Tldr “Get out of my way”

    1. Matt A. Myers

      There is always good reason for friction when change is trying to occur. Friction is a helpful tool for understanding and learning. Primarily it allows time for discussion.

  6. JimHirshfield

    Let’s open an account on one of the BTC exchanges in Manchin’s name and make political contributions to him. Money talks…errr…Bitcoin talks.

    1. William Mougayar

      You’re so machiavellic Jim! you’re sure you don’t moonlight for the NSA?

      1. JimHirshfield

        Just pragmatic.Perhaps too much House of Cards influence.

        1. ShanaC

          nothing wrong with that

        2. Simone Brunozzi

          LOL. Smart idea. 🙂

        1. William Mougayar

          Ha, I had never heard of him either.

    2. jason wright

      disqusting idea. do it.

    3. Matt A. Myers

      Yeah, someone can donate $10 million in Bitcoin that cost them only a fraction of that to mine or purchase early on – to help “prove how resilient and valid Bitcoin is” – meanwhile helping maintain or increase the other $90 million worth of Bitcoin they still hold.Theoretical circle jerk, or perhaps it is what is happening?Circle jerk in the sense of: “A pejorative term for an oligarchy that is self-perpetuated by members granting each other disproportionate rewards for work that is of limited merit outside the group (the negative form of meritocracy).”

  7. Tom Labus

    The problem is the most people see only the scams and explosions of pricing at this stage and don’t take the time to see anything else. Maybe you can educate this guy so things don’t get out of hand here in the US. But Congress is dangerous territory for logic.

  8. pointsnfigures

    For insight, a lot of times you have to follow the money. It also helps to follow the power. Government officials are threatened by, “is not controlled by anyone or company”. It makes them nervous. Like walking into a snooty board meeting and seeing the new chairman dressed in a clown suit.He is also up for re-election and could potentially be in a tight race by the way.

    1. Aaron Klein

      It’s always amusing to watch a politician who knows nothing of which he speaks clumsily grab for free press in an election year. 🙂

      1. pointsnfigures

        And he is on the Senate Banking Committee. Heh.

        1. Aaron Klein


    2. Matt A. Myers

      There is also a valid fear that this is a Ponzi scheme-like mechanism going on, and people looking to profit from it taking off in a big way are trying to game and manipulate the systems to allow them to profit in a large way. Theoretically I am not convinced Bitcoin in its current existence is the answer. Values gained and distributed aren’t reasonable or fair or balanced in its current state.

      1. Bitcoin For Business

        “Ponzi scheme” is not a valid fear. Bitcoin has none of the characteristics of a ponzi scheme. Look up the definition of ponzi scheme, understand how bitcoin actually works, and then you will understand why such a fear is completely invalid.

        1. Matt A. Myers

          None of the characteristics? Ponzi schemes at the base is an investment model. You need more and more people investing more and more money into an ecosystem to give the illusion of the investment being valid, or in the case of Bitcoin, the currency being more successful than it actually is to draw people into it – not as legitimate in the sense if it was purely real transactions occurring.

          1. Pete Griffiths

            Perhaps your concern may be more accurately described as ‘pump and dump’ than as a Ponzi scheme.

          2. Matt A. Myers

            That’s not my only concern. And is pump and dump really the same in a stock market, vs. with a Bitcoin-like currency?

          3. Pete Griffiths


  9. pointsnfigures

    What Bitcoin really needs is not more government regulation. What Bitcoin needs is a legit private exchange with all the bells and whistles traditional exchanges have so that a transparent price can be seen-and government regulators have the back office transparency they need to feel comfortable.Until that happens, it will be considered a tool of hackers to take money from innocents unwittingly, and to launder and conduct illicit activities across borders.

    1. William Mougayar

      But let’s be careful about not re-centralizing stuff that doesn’t need to be. Bitcoin & cryptocurrencies have many layers, and if you re-centralize too many of them, you risk putting it in a straight-jacket and deriding it of its potential benefits.I’m on the fence about centralized exchanges, because it sounds a bit like sliding Bitcoin into existing systems, whereas we need to be innovative and create a new generation of financial services that are decentralized organically.Some hardcore Bitcoin proponents even believe that centralized/hosted wallets are be more vulnerable than a decentralized wallet where you and only you hold the private keys, and no one can take that away from you. That scenario would have prevented what happened in the Mt Gox situation.So, your wallet can also be your bank now, and that’s a new paradigm shift we’re barely getting used to. You can operate and tinker with your money by launching it into new financial instruments, yet retaining control and security.

      1. pointsnfigures

        Centralized marketplaces work better when they harness the wisdom of crowds. Trading hogs is really a decentralized marketplace, but it happens in one specific place. Price discovery works better-and more importantly, the back office operations work better. It’s not just about matching of trades, but about pays and collects, clearing, and making sure all the money goes into the right places.(added)-So we should have distributed comments on Fred’s blog? Or do centralized ones work better? The comment section is the bitcoin, and Fred’s blog is the Bitcoin exchange.

        1. Timothy Meade

          Right, I never saw the point of having something like a distributed cryptocurrency and then ignoring the distributed part of it.As far as establishing a price, wouldn’t the public nature of the block chain do that, with the addition of inter – currency verified trades?

    2. markslater

      don’t agree. it needs the exact opposite. It needs to be highly distributed. It needs torrent.

      1. pointsnfigures

        @markslater:disqus let’s take the two extremes, one exchange with one price where everyone meets and competes on a single bid/ask spread, or billions of exchanges where firms can arbitrage to make money off the differences between the billions of exchanges. There are merits to each.My experience has been one exchange will dominate, while other exchanges list the contract. First movers don’t always win, the ones that can attract liquidity, with network effects and efficiencies do.

        1. markslater

          i believe – and i could be wrong – that the exchange will be a torrent exchange. A truly distributed, real-time exchange.

          1. pointsnfigures

            what is the difference between that, and how CME’s Globex works currently?

          2. markslater


          3. pointsnfigures

            Trading on Globex is anonymous to the traders, but the exchange knows everyone’s position and who is doing what. In the case of a crash (1987), they can give anyone data on who bought what from whom at what price and when. That’s important in times of stress.One thing that someone mentioned to me-the percentage points we pay credit card companies is actually insurance. If someone steals all of our money, we get it back.I am empathetic to a distributed argument-but cognizant that there are no free lunches and when money is involved, there will always be fraudsters present.

  10. jason wright

    http://www.manchin.senate.g…”Senator Manchin is pleased to represent West Virginia on the Senate Banking Committee. Our banking system can become more transparent while making sure banks and credit unions can provide responsible loans to businesses to help create jobs and decrease the unemployment rate. Senator Manchin believes it is critical to take care of our community banks and ensure that they can provide a greater range of financial services and allow financial institutions to raise capital responsibly. He looks forward to defending our small banks and local credit unions and their ability to provide the best service to their customers and communities. Serving this on committee, Senator Manchin also looks forward to helping the housing market recover and helping West Virginians deal with difficult housing issues in addition to international trade and development.As a member of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Manchin serves on the Subcommittee on Economic Policy, the Subcommittee on Housing, Transportation and Community Development and the Subcommittee on National Security and International Trade and Finance.”The banking industry has never seemed keen on peer-to-peer virtual currencies. it’s a threat to its collective balance sheet.

    1. pointsnfigures

      If he was interested in defending small banks, he would have voted against Dodd-Frank. He didn’t.

      1. jason wright

        I’m sure the small banks reference in his bio is for populist consumption.

  11. Geoffrey Weg

    “. . .that allow financial transactions to flow seamlessly and at a much greater efficiency than current methods.”This is an important point. Can anyone share resources or examples that expand on this?

    1. pointsnfigures

      Suppose I am Lexus, and I want to sell 100M dollars worth of cars in the US. What are the structural currency barriers that I face? Yen/Dollar is obvious. Banks charge pretty huge transaction fees, and also make money on the bid/ask spread when companies on each side of the transaction execute. Ownership of the cars is another barrier. Who owns them when? Lexus owns them when built, Shipper on the sea and rail, car dealer on the lot, purchaser in the garage. Finding that out and proving it costs money.If I did a lot of international business, I’d try to do it in Bitcoin as much as I could because all in transaction costs would be lower.

      1. Meaux

        When you convert from Yen/BtC or Dollar/BtC you still have that bid/ask spread. You can’t pay your employees in BtC, you can’t pay tariffs in BtC and you can’t pay your taxes in BtC. And with the high intraday volatility, you are adding significant currency risk as well.

      2. Pete

        If you have million-valued transactions, then the transaction costs are completely insignificant, my bank $80 at most to wire that anywhere globally – 30 seconds of BTC volatility can incur far greater costs than that.

        1. pointsnfigures

          yup, they are making a helluva lot more than $80 off your transaction. Suppose you wanted to exchange $1M US for the equivalent $EU? You will get knicked on the trade. Suppose the spread is $12.50 per 125k. Only around $100. But, think of that on a larger scale. That’s how big banks really make their money.

      3. LE

        ” Lexus owns them when built, Shipper on the sea and rail, car dealer on the lot, purchaser in the garage.”Shipper doesn’t own them on the sea or rail however shipper bears loss if damaged which is not the same as “owns them” as you are implying. Likewise car dealer doesn’t own them on the lot in the sense that they have title to them. If that were the case dealers wouldn’t be able to trade vehicles as they do now to other dealers “I have a guy that needs the red one with the nav package”. They very well bear the risk of loss to the vehicle but that is not the same as “own them”. For that matter purchaser may not own them in the garage (bank loan, bank owns, lease, leasing company owns etc.)If I did a lot of international business, I’d try to do it in Bitcoin as much as I could because all in transaction costs would be lower.Do you mean today, as in “this month” or do you mean at the point that this all becomes more stable? I don’t think that you would with any large scale transaction actually.There is a company escrow.com that charges typically 8.9 basis points ($890) on a $100,000 transaction to act as an intermediary on a $100,000 domain name sale. For that money they make sure the right thing happens as far as transfer of ownership “title” if you want to call it that (it’s not really title of course). There is nothing to prevent the same exactly transaction from happening by someone simply sending a check (or wire which isn’t that expensive) to the seller and hoping that the right thing happens. But the intermediary gets paid to make sure that both parties are protected. So it’s not simply a matter of getting money at no cost (which as mentioned a check, wire or ach can do at nominal cost) to the other party.

        1. pointsnfigures

          @LE I was using an example for the block chain-it’s not literal.As far as using it, once there was great adoption and I could freely trade in bitcoin-why not use it if transaction costs were lower?A company like GE could remit payments and accept them from a company like Siemens, with little friction. In the future, it also might smooth out accounting costs as well.

          1. LE

            A company like GE could remit payments and accept them from a company like Siemens, with little friction.Which raises an interesting question. If this is actually an opportunity for bitcoin why don’t these parties work together to create a secure system that solves the same problem in a way that makes sense given their specific needs?For example netflix wants to insure delivery of it’s content to it’s customers at the lowest possible transit cost. So it locates equipment at the distribution point of the ISP of the customer (if it can, as we are now seeing happen).It this is a big pain point why not design a system to deal with it by the parties involved? Or a third party jointly owned by the parties involved. Something like that.

  12. Salt Shaker

    Way too much volatility for my blood. I don’t invest in commodities and penny stocks for the same reason. Stability presumably will come w/time, assuming the fraud and illicit transactions can be monitored and controlled, but for now it’s an investment I’m frankly not willing to make. Provide me w/ FDIC type security or insurance and I’ll have a listen.

  13. William Mougayar

    Let’s hope this doesn’t happen.

  14. Andrew Kennedy

    This is really something:Disqus issue — what is something is “disruptive to our economy”I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.

  15. vruz

    They sure love to control things they don’t understand because friends/donors told them the interwebs are destroying their business.I’m not hopeful those guys can reform themselves, and it’s apparent the American people overwhelmingly feel the same.http://www.gallup.com/poll/…With single-digit approval rate, the very legitimacy of their actions and statements should be under scrutiny, and I’m glad they are. No wonder they have a visceral reaction against transparency and accountability, and any sense of proportion.Or really… basic traditional conservative common sense.Dysfunctional doesn’t begin to describe it.

  16. Andrew Kennedy

    “I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.”

  17. Pete Griffiths

    The senator is a puppet reflecting the wishes of his paymasters. We shall see a good deal more of this. And no matter how well considered the views of Fred may be and no matter how much respect his experience should garner it will not speak as loudly in the ear of a politician as a fat wallet brandished by established financial players who do not want disruption.

  18. Matt A. Myers

    “What is amazing, however, is its resiliency in the face of massive scrutiny, company failures, fraud, theft, and a host of other challenges it faces as it becomes mainstream and mature.”You can’t determine why this resiliency exists though, and so I feel this is a moot point. It could easily be prospectors with $100s of millions, or even billions combined in the ecosystem, who want to keep the price from perhaps $200 when they bought it, to say over $1000. So it makes sense for them then to invest additional money – in my example above – spending up to $1000+ ($800 of which would be break-even point ROI to maintain the ROI on their $200 purchase of Bitcoin).If you have enough of these prospectors, then of course it will look resilient. This isn’t to dismiss the underlying individuals who are using Bitcoin-like services for legitimate transactions, however I am not convinced this is what is needed, nor is it safe for large economies to start supporting them in bigger ways – especially not when the prospectors and the value they gain by manipulating it still exists.

    1. andyswan

      Not to mention the $400m worth of scared holders who would probably like to sell but are locked out of the market by MTGOX right now lol. That *could* have an impact on price 🙂

    2. Matt A. Myers

      I hope my comments here aren’t interpreted as counter-Bitcoin, nor do I wish to be an itch under the skin – it’s more my intent to put things into perspective for those who may be in a biased bubble or from an angle outside of a biased bubble.

    3. hagrin

      @mattamyers:disqus – You’re 100% correct. The recent CoinDesk report states that 80% of the entire BTC market cap is controlled by 2,000 entities. There’s massive interest by these 2,000 entities to make Bitcoin appear to be resilient. In fact, I haven’t seen a price get propped up like this since Day 1 of the Facebook IPO.

      1. Matt A. Myers

        And until that 2,000 people owning 80% scenario disappears, then the masses won’t adopt it. It’s an unnatural pressure and not distributing value fairly or reasonable. In real world trade and transaction, you get X for Y. You shouldn’t in the future (because of that specific transaction) now get more of Y because someone else is now doing a trade. With stocks, it makes more sense – at least if there’s a dividend.

  19. Aviah Laor

    Government appropriate action has made much more damage than Mt. Gox.

  20. erikvoorhees

    Well said, Mr. Wilson

  21. Donald McIntyre

    “What is amazing, however, is its resiliency in the face of massive scrutiny, company failures, fraud, theft, and a host of other challenges it faces as it becomes mainstream and mature. “Scrutiny, failures, fraud, and theft are things that people do to other people regardless of the means of payment. If Bitcoin is involved as a payment means in the middle is circumstantial. People steal, give, compete, and cooperate with each other in rubles, British pounds, US dollars, shekels, Argentine pesos, and, yes, in Bitcoin too!

  22. Ana Milicevic

    The prospect of Bitcoin and the idea that money can operate w/o express government control must be particularly terrifying to most government representatives.Fred, I hope you actually sent this to the Senator through email or even snail mail. While I hope he is a frequent reader here, there’s very little evidence that would support that ephemeral notion.

  23. Matt A. Myers

    There is a huge difference between the Internet existing as a platform, and something replacing transactions with real value behind them.With the Internet, someone performing an action doesn’t inherently take away from the other person. With financial transactions however, one person is giving to another and therefore the person giving no longer has the value they held before. If someone does something malicious on the Internet platform, what are the consequences? A DoS attack will take down a portion of the Internet, however a theft of Bitcoin – that is then possibly preventing someone from eating, paying for shelter, etc..Though they perhaps both can be considered platforms, what they facilitate is different, and so comparing the success and value of the Internet to that of what Bitcoin could be IMHO is invalid, wrong, and unsafe to do. That isn’t to say Bitcoin in the right incarnation or point of evolution can’t be safe and reliable, though I am not convinced it’s there – and lining up economies in front of a bus, before knowing if the bus can fly or not, just doesn’t feel good.

  24. name

    How about donating to campaign fund of Manchin’s opponent.

  25. lord eels

    if properly regulated, bitcoin will only be stronger.

  26. brgardner

    I hope everyone reads the senators letter first before passing too much judgement.I am really interested in the debate on bitcoin, I really don’t have a hard opinion yet. Fred, I would like to hear your response to the other issues around drug trafficking, illicit financial activities, etc.If this were purely a debate judged on facts and figures I would say he is winning. I don’t really know much about the senator or what is truly influencing him. But if you are to give him the benefit of the doubt, he is trying to protect his constituents who he represents. Which is very similar to you trying to protect your LP’s investments.Let the debate continue!

  27. Ric

    The Internet has one last legacy before the state seizes it completely and that is to spawn a financial vehicle that bypasses and makes the fiat money system obsolete.It matters not if it is bitcoin or something else. All that is important is that it ends the middle-man destructive monopoly that is central banking. Once we have a medium of value exchange then we can move away from the debilitating financial system we have now.Thanks Fred!

  28. AlexHammer

    Fred Wilson and the Future of Bitcoin – An Analysis of the Bitcoin Investment Landscape http://www.quora.com/Alex-H

  29. LE

    Just read the letter.http://www.manchin.senate.g…My suggestion. You know the way to deal with this is to get a PR firm to go and offer point by point easily digestible rebuttals to the issues raised in the letter. At the very least it then becomes a “he said, she said”, issue and until people move on to the next hot story of the day they will mark in their brain that there are “two sides to every story”. Tactfully done, in a nice way.

    1. Timothy Meade

      Easier: bitcoin is mined using electricity predominantly coming from coal.

  30. sje

    it is like a tech stock! see btc vs appl chart

  31. Mark Gavagan

    Federal Reserve Chairwoman Janet Yellen said the central bank doesn’t have the authority to regulate bitcoin.“The Federal Reserve simply does not have authority to supervise or regulate bitcoin in any way,” Ms. Yellen said Thursday in testimony before the Senate Banking Committee. “This is a payment innovation that is taking place entirely outside the banking industry and to the best of my knowledge there is no intersection at all” between bitcoin and banks that the Fed can oversee.~ WSJ http://on.wsj.com/1cfjB92

    1. fredwilson

      i knew she was a smart lady

  32. Felix Leuschner

    Frank Underwood couldn’t have said it better

  33. James Ferguson @kWIQly

    Watching the United Kingdom / Scotland debate on the concept of fiat independence, it would be fun to imagine if younger or emergent nations tried to adopt bitcoin as a state medium of exchange.Implications …Who could imagine?

    1. Walt French

      I can.We had the Gold Standard in this, and many other countries, as a predecessor to pure “fiat” money. The more quickly the country tried to grow, the worse the cycles of boom/bust, and runs on banks, etc., all became.We did pretty well with our money from the time of heavy regulation (against fraud) and the accompanying insurance against savers’ losses, up until a very Libertarian Federal Reserve Board chief (Greenspan) assumed that “the market” of savvy investors could control the amount of money in circulation better than the greybeards.Bitcoins, however good the concept of cryptocurrencies may be for transactions between the technologically adventuresome and very rich, have not been designed to serve the needs that a real-world country, in that they cannot be adjusted the way that the Fed quickly did in 2008 to stave off an utterly complete collapse of the economy.I’m all in favor of the Bitcoin experiment for people to see their shortcomings, and we’ll see what they or their successors need to actually serve more than a tiny niche set of speculators and über-rich types.

      1. PrometheeFeu

        Nonsense. While the number of bitcoins cannot be adjusted, banks can issue notes that are backed by bitcoins and hold more or less reserves to vary the quantity of money. Lookup the Scottish Free Banking era for a demo of how that worked with gold for quite a while.

        1. Walt French

          I DO NOT know the history of this example, but I DO KNOW that in the US, private banks’ notes were the subject of constant panic runs—a bank that “expanded the money supply” by making loans was always subject to people not trusting the value of the essentially, quasi-fiat money, resulting in panics (bank runs) when trust ran out.What mechanism did the Scots use to ensure that the banks’ were never illiquid nor that they never lost enough on loans to make their notes worthless?Just for the record, in the US it was FDIC insurance, originally generous against savers’ balances, that prevented people worrying whether their bank maybe made loans to somebody who couldn’t pay them back, or whether Uncle Billy misplaced a few thousand. The FDIC sticker in the window, together with the audits that set the banks’ insurance rates, have made retail banking an essentially zero-risk proposition for savers and checking account users, although obviously not free as in free beer.

          1. PrometheeFeu

            Historically, private banks in the US were very highly regulated. Among other things, they often were required to hold large amounts of state bonds. (Some had to hold almost all their reserves as state bonds) When state bonds had a hiccup, the banks would become insolvent. Furthermore, prohibitions on branch banking meant US banks were not very diversified and were quite small.Scottish banks during their free banking era were no so-hobbled and so a run in one branch could usually be covered by another branch. They were also more diversified in the assets they held or held gold (doesn’t matter what the price of gold does if you hold lots of it and your obligations are denominated in gold) There also was lots of competition and so-called note raids (when bank A would accumulate bank B’s notes and try to redeem them all at the same time to cause insolvency) meant banks were careful not to overextend themselves and made insolvency rare.(This all ended when the English governmeny decided it wanted to control the money supply more directly for its private benefit and that of its allies)So it’s not really what the Scots did that made this work. It’s what Americans did that made it fail for them.If you’re interested, George Selgin wrote at length on that era and free banking monetary theory. (His macro can be a bit cooky IMO, but his micro and history are very good)[image: Disqus] <http: disqus.com=””/> Settings <http: disqus.com=”” dashboard=”” #notifications=””> <http: disqus.com=”” dashboard=””/>A new comment was posted on A VC: musings of a VC in NYC<http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Favc.com%2F2014%2F02%2Fa-letter-to-senator-manchin%2F%23comment-1266034011%3AiaaetRqe2s25itT3eh_X3eHT-C4&amp;post=1266034011&amp;type=notification.post.registered&amp;event=email”> —————————— <http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Fdisqus.com%2FWaltFrench%2F%3AqD2A584CbGgl9YzwzzPESwYWBwE&amp;post=1266034011&amp;type=notification.post.registered&amp;event=email”> *Walt French*<http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Fdisqus.com%2FWaltFrench%2F%3AqD2A584CbGgl9YzwzzPESwYWBwE&amp;post=1266034011&amp;type=notification.post.registered&amp;event=email”> I DO NOT know the history of this example, but I DO KNOW that in the US, private banks’ notes were the subject of constant panic runs–a bank that “expanded the money supply” by making loans was always subject to people not trusting the value of the essentially, quasi-fiat money, resulting in panics (bank runs) when trust ran out.What mechanism did the Scots use to ensure that the banks’ were never illiquid nor that they never lost enough on loans to make their notes worthless?Just for the record, in the US it was FDIC insurance, originally generous against savers’ balances, that prevented people worrying whether their bank maybe made loans to somebody who couldn’t pay them back, or whether Uncle Billy misplaced a few thousand. The FDIC sticker in the window, together with the audits that set the banks’ insurance rates, have made retail banking an essentially zero-risk proposition for savers and checking account users, although obviously not free as in free beer.1:13 p.m., Saturday March 1* Reply to Walt French * <http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Favc.com%2F2014%2F02%2Fa-letter-to-senator-manchin%2F%23comment-1266034011%3AiaaetRqe2s25itT3eh_X3eHT-C4&amp;post=1266034011&amp;type=notification.post.registered&amp;event=email”> Walt French’s comment is in reply to *PrometheeFeu*<http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Fdisqus.com%2FPrometheeFeu%2F%3A-Wd-eK4jTnXHFJRygaLkN6RqjYo&amp;post=1265415729&amp;type=notification.post.registered&amp;event=email”>: <http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Fdisqus.com%2FPrometheeFeu%2F%3A-Wd-eK4jTnXHFJRygaLkN6RqjYo&amp;post=1265415729&amp;type=notification.post.registered&amp;event=email”> Nonsense. While the number of bitcoins cannot be adjusted, banks can issue notes that are backed by bitcoins and hold more or less reserves to … Read more<http: redirect.disqus.com=”” url?impression=”34431c78-a16d-11e3-9e46-003048db5eee&amp;forum=24&amp;thread=2329723721&amp;behavior=click&amp;url=http%3A%2F%2Favc.com%2F2014%2F02%2Fa-letter-to-senator-manchin%2F%23comment-1265415729%3Ax_l4m3-NFCuJqQzsW20_XLWi06U&amp;post=1266034011&amp;type=notification.post.registered&amp;event=email”> ——————————You’re receiving this message because you’re signed up to receive notifications about replies to PrometheeFeu.You can unsubscribe <http: disqus.com=”” account=”” #notifications=””> from emails about replies to PrometheeFeu by replying to this email with “unsubscribe” or reduce the rate with which these emails are sent by adjusting your notificationsettings <http: disqus.com=”” dashboard=”” #notifications=””>.[image: Disqus] <http: disqus.com=”” dashboard=””/>

          2. Walt French

            Your response is a technological mess (hmmm…what does that remind me of?), but one point is legible enough: your claim that diversification is (at least, was) sufficient to stop out bank losses.Failure of diversification—geographic diversification, at that!—to address systemic risk is one of the Top 5 lessons from the recent Crash. There was fraud, especially in the ratings for mortgages that our shadow (unregulated) banks promoted, and that regulators failed to notice because the shadow banks were outside their purview. But bank fraud in the ’80s merely caused $150 billion or so in losses; it never threatened the entire world’s financial system. THAT required both some fraud and the notion that markets would automagically self-correct.

          3. PrometheeFeu

            The markets might autocorrect if we stopped preventing corrections. But regardless, this last crisis is to be blamed largely on the Fed. The banks may have been to blame for the collapse of the housing market, but it took the Fed’s ridiculously slow and pathetically small reaction for this to turn into a recession.

  34. Capitalistic

    “store of value in the system and it acts a bit like a currency or a commodity” – No it’s not. It’s similar to Western Union or Pay Pal, but it’s not a currency.

    1. PrometheeFeu

      Some transactions and prices are denominated in BitCoins. That makes it a unit of account.Some people exchange bitcoins for goods and services. That makes it a medium of exchange.Some people hold bitcoins as savings. That makes it a store of value.Bitcoin hit all three criteria for money. I’m not sure what makes you think it’s not a currency.

  35. Honest John

    Sure, let’s ban BTC but why stop there, the Internet is just as disruptive. BAN the Internet too! But wait bloggers are kind of annoying as well, especially when they don’t agree with the big boys. I say let’s ban blogging and freedom of speech. Just ban everything and live in the middle ages.On a serious note, senator Manchin’s letter stands against the freedom the forefathers envisioned for the USA and I strongly believe it is unpatriotic. Bitcoin is a technological progress if anything, the way of the future if you will and ‘legal’ wise it could easily fit in the same category as commodities. Banning virtual currencies will isolate the USA from the modern world. And the FED going against BTC is just like gas companies trying to trash the electric bulb and electric current. And I want to kindly ask senator Manchin to try and live a day without electricity and ponder how much credibility he stands to loose by playing the FED’s puppet.

  36. ASG in NYC

    Fred — there are two aspects to bitcoins, one is already in the press (a virtual currency) and another is barely understood (a way around the global financial plumbing dominated by big banks). The irony is what has captured attention and imagination is the virtual currency, yet it is the most dangerous and unstable aspect of bitcoins. Ultimately it will fail, as have all alternative currency experiments. To be in favor of it, as you seem to be, you must analyze it within the well documented history of currency experiments, from the Confederate dollar to Assignats. Please make a serious defense of it by explaining how it will succeed where all other such experiments have failed. To equate it to tolerating the internet in its early days is just not the right analogy, please defend it using a better analogy. As an aside, one of the reasons that it is dangerous in my view is that the US dollar is already the world’s reserve currency, and it serves US interests very well. As you are a patriot, why would you purposefully want to undermine that hard to match competitive and comparative advantage? It would be like handing the innovative culture and top people of Silicon Valley over to the Chinese. But to be clear, I am not against it for reasonsons of jingoism, only because it will ultimately fail, as a currency.The place it will be disruptive and I believe succeed, however, is in lowering the cost of using the international financial infrastructure, which is dominated by big banks and highly regulated. Kind of paypal on steroids, or a western union for the internet 2.0 era. If it is successful, it will replicate the Islamic Hawala system of regional money transfer, existing since the end of the Roman Empire in the Islamic countries, but do so on a global scale. A good professor to consult on these matters is Dick Sylla at NYU who wrote the Hsitory of Interest Rates with the legendary Sydney Homer.

  37. LE

    I think it’s a practical solution to a problem. [1] So to me the fact that if I like netflix I am hooked up to a provider who makes netflix a better experience (even at an additional cost) is a good thing. I’m a fan of ala carte pricing as being generally fairer in the end.[1] As I’ve said before I’d rather pay to rent a sailboat on vacation than have a bunch of them available for free. That way I’m not competing for scare resources. (Same with paying all those extra airline fees for that matter.)

  38. pointsnfigures

    Coase in action.

  39. fredwilson

    not entirely sure. some say its a peering deal. some say its a shakedown.

  40. LE

    I already pay Comcast for certain speeds and bandwidth–that’s built-in to the model.Sure but you definitely know that the cobalt on the other end of that connection is not always able to push it out at the speed of the network, right? (sorry couldn’t resist that one) [1] it’s their right as a monopoly to use that power Well the son (Brian Roberts) of the man (Ralph Roberts with the bowtie) has certainly earned that right. They worked hard to get that monopoly. And did a few bet the ranch moves as well.said that Apple should use its cash to buy the cable companies. Regardless of voting rights and all of that I don’t think the Roberts would ever let that happen. Brian is to young he’s only 54. [2] What is he going to do without that company to run? I’m serious I think things like that factor in greatly to what a company ends up doing (once again regardless of dejure power). Imagine the wonderful treatment you get as CEO of that place? Why give that up? So he could derail that any number of ways most likely.(This is my talking out of my ass analysis I’d love to hear the numbers guys tell me facts and figures that would counter my behavioral analysis which is right more often than wrong..)[1] For those that don’t know Charlie sold his company Chilisoft to Cobalt which made these really cool raq servers. Cobalt was purchased by Sun who killed the company. I had a few Cobalts.[2] Of course (like Bill Gates) he could end up having health problems and need to slow down which would change the calculus of all of this. (No disclosure that Bill has health problems but if you look at the guy he looks way over his age).

  41. LE

    Not to mention playing ice hockey and golfing as well.Sun really is what happens to companies when the execs aren’t hungry anymore. (Not that it can’t happen when you are hungry but certainly more likely if you are not). When he’s not loafing or bonding with his son he goes to meetings at wayin I guess.Hey Jim Hirschfield shouldn’t disqus be part of the “capture” phase of this: (McNealy’s new company):http://www.wayin.com/how-it

  42. LE

    My ex brother in law got a job at Sun in the 80’s. Two weeks into the job he got an offer from Apple and left. Just like that. [1] He worked for a number of years at Apple then left and went elsewhere. In the early 00’s he went back to Apple. A few years ago he had a major medical problem and couldn’t work. And he couldn’t say enough about how Apple took care of him and all. (He now collects 80% of his salary when he was at Apple).Now of course if Apple spends it money buying a cable company they won’t be as rich and able to give great benefits to employees. It’s easy to do the right thing when you are awash in cash (sez the cynical side of me..)[1] For lack of a better way to put it he was always “a dick”. So to him taking a job and then quitting was almost no big deal. I’d never be able to do that he not only did it he didn’t see what the big deal was either.

  43. M. Edward (Ed) Borasky

    Netflix simply negotiated a contract with Comcast to work around an annoying middleman and will pocket the savings as profits. Capitalism 101 – no laws were likely harmed in the process. 😉

  44. LE

    It’s a quick way to get beyond a problem.What do they say? That Bill Gates got all distracted by the Feds and took his eye off the ball of the Internet? Sometimes you have to just bend over and grease up (as Ballmer would say). A cost of doing business.