Posts from hacking finance

Our portfolio company Coinbase launched a new feature this week, that when combined with their local currency wallets, basically creates a global Venmo or Mpesa.

It is called Instant Exchange and here is how it works:

Coinbase offers  US Dollar, Euro, or Pound accounts. You can keep your funds in your local currency on Coinbase. They have had this feature for some time.

So let’s say that I owe a friend in Berlin money for dinner last night.

I could go to my US Dollar Coinbase account, do an Instant Exchange Send which takes dollars out of my account and sends bitcoins to my friend, he does an Instant Exchange Receive in his Coinbase account which instantly converts them to euros and then keeps those funds in his Coinbase Euro account or transfers them out to his bank account. Coinbase will apply its standard exchange fees to the Instant Exchange transactions.

I believe this kind of thing will be incredibly useful, especially in the Coinbase mobile app. Sending money to and receiving money from friends around the world using Bitcoin as the “rails” for money transfer no longer needs to expose either side to exchange rate risk.

As Coinbase expands its business around the world, and offers Instant Exchange and local currency accounts in every part of the world, it can build a global Venmo or Mpesa using Bitcoin as the underlying money transfer protocol.

The biggest new trend I am seeing in bitcoin/blockchain is the emergence of a number of companies building systems on the blockchain (including the NASDAQ) to handle the backoffice issues that banks and brokerage firms have to manage. The blockchain is an ideal platform to build these sorts of applications (clearing, settlement, etc) on.

One concern I hear, though, is that banks like to know who is managing their infrastructure and they are uncomfortable with miners they don’t know, located in parts of the world that make them nervous, providing the transaction processing infrastructure for these applications being built on the blockchain.

To me, that is the perfect reason for banks and brokerage firms to take a bit of their data processing infrastructure and point it to the blockchain and start mining it. They could even create a mining pool among the large money center banks. And it is relatively simple for a blockchain application to route its transactions to certain miners to process.

If you think of the blockchain as an open source, peer to peer, massively distributed database, then it makes sense for the transaction processing infrastructure for it to evolve from individuals to large global corporations. Some of these miners will be dedicated for profit miners and some of them will be corporations who are mining to insure the integrity of the network and the systems they rely on that are running on it. Banks and brokerage firms are the obvious first movers in the second category.

I wonder if the CIOs of the large money center banks are already doing this. If I was in their jobs, I would be all over this.

Last week we had a discussion at the New York Public Library about Bitcoin. Andrew Ross Sorkin moderated a discussion between Nathaniel Popper, author of Digital Gold, Bitcoin Chief Scientist Gavin Andresen, and me. Here it is:

Nathaniel Popper‘s Digital Gold, a history of the people who built Bitcoin into a global distributed transaction network that is not controlled by any person or any company, is available for purchase today. I’ve been reading it and enjoying it very much. Even though I have been involved in and closely following the sector since 2011, I did not know all the details of the early days and Nathaniel captured them well.

In celebration of the book being out, The New York Public Library is hosting a conversation between Nathaniel, Gavin Andresen, and me tonight. It will be moderated by Andrew Ross Sorkin. The event is sold out and has been for a long time, but the details are here. The livestream for the event tonight is here.

A lot of people ask me “are you still bullish on Bitcoin” and that question irritates me. Because it suggests that Bitcoin is simple. Bitcoin is not simple, it is not going away, and it continues to fascinate me more than almost anything out there in the tech sector. I’m excited to have a chance to talk about it in public with people who understand it better than I do.

Four hours ago I left my house for the airport and was planning to blog on the flight to SF this morning. But things got in the way of that. First the pilot didn’t show. Then when he did the computer systems went down at LAX grounding all Delta flights to SF. We called an audible, booked a ticket on an American Eagle flight, and hustled to another terminal, through security, onto a shuttle bus, and finally just in time onto our flight. There’s no wifi on this plane and all the delays mean my day in SF has been compressed and will be crazy as soon as I land. 

So no time for a blog post today. 

In lieu of that, here’s a graphic from William’s excellent work to create a “market map” of the blockchain ecosystem:

Click here to read his post which goes on to list all the companies active in all of these sectors.

Stripe has had this in beta for quite a while but yesterday they launched it and now any merchant who is using Stripe can accept Bitcoins in the regular Stripe checkout flow.

Here’s the details on how it works and there’s a nice interactive demo on this page.

If you are using Stripe to handle your checkouts, just add a few things to your Stripe code and you are good to go.

It’s things like this, making it drop dead simple for merchants to accept Bitcoin, that will help drive adoption of Bitcoin payments in the coming years.

And accepting payment with Bitcoin via Stripe costs a merchant 0.5% vs the customary 3%. For low margin products, this is real money. I expect merchants will start incenting customers to pay with Bitcoin in certain product sectors.

I’m going to go find some Stripe merchants that are accepting Bitcoin and try out the checkout flow. It looks really smooth and clean, like everything Stripe puts out.

It feels to me like mobile banking is arriving. Whether its M-PESA in Kenya, Venmo in the US, or Bitcoin around the world, more and more people are using mobile services connected to the cloud to store and exchange money with other people and businesses.

And one of the big potential impacts of this trend is on the unbanked, those people who traditional banks won’t service.

The Verge’s Ben Popper and Bill Gates wrote a piece in The Verge this past week about the potential of mobile money to improve the lives of the poor. It’s a good read.

Bill Gates wrote this in his annual letter:

By 2030, 2 billion people who don’t have a bank account today will be storing money and making payments with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.

That’s 15 years from now, a long time for sure, but the part of that prediction that is the most important is the “don’t have a bank account today” part. That’s a huge number of people who will have the basic infrastructure in place to allow them to consume other financial services. That feels like a massive market opportunity to me. And it feels like a massive life improvement opportunity to me too. Doing well by doing good. There isn’t much better than that.

So this is a different kind of feature friday. It is about a feature I want but don’t have.

Digital money is coming and it is coming pretty fast now. In the developing world we see mpesa taking off in many countries. In some places, like Kenya, it has become the dominant way people conduct their financial lives.

In the US, among the young adult crowd, Venmo is hugely popular. My kids use it for much of their financial lives. The Gotham Gal and I rent a property we own to some young adults and they all pay us rent on Venmo. We, in turn, pay the super we use in the building on Venmo.

And then there is bitcoin. I’m running around with the Coinbase bitcoin wallet on my phone and sending money (dollars or bitcoins) around using the bitcoin protocol.

The problem is these digital money services are a “black hole” when it comes to accounting for all the transactions. I know that I put $500 into my Venmo account last month and I know its all gone. But where did it all go. How much came in and why? And how much went out and why?

I want Mint.com for digital money services, starting with the Venmo and Coinbase mobile apps. That would be super helpful for me and, I suspect, for everyone using these digital money services.

I bet it exists or that it is being built. I just haven’t see it yet. And I want it. Badly.

I spent some time today on the new usv.com. We launched it on New Year’s Day and then pushed another rev of it last week. It’s pretty damn good, if I must say so myself.

Anyway, I read two posts back to back. Joi Ito’s post comparing the early days of the Internet to the early days of the Blockchain. And William and David Cohen’s post on The Trust Web.

Joi makes the point that interoperable email was the first killer app of the Internet and that Bitcoin is likely to the be the first killer app for the Blockchain. He talks about how we were able to send email on the proprietary online services like Compuserve, Prodigy, and AOL, but only to other users of those services. And then these services implemented connections to Internet email and all of a sudden we could talk to anyone. I remember that moment vividly. It was one of the many “aha moments” that I had in the mid 90s that led me to leave Euclid and start Flatiron with Jerry. I could see that something important was afoot and I needed to get in on it.

William and David talk in their post about SMS based banking and payment services in the developing world:

To peer into the future of decentralized banking for the masses, look no further than the success of easypaisa in Pakistan and M-Pesa in Kenya

It seems to me that easypaisa and M-Pesa are the equivalents to Compuserve, Prodigy, and AOL. They are the proprietary closed networks that deliver on much of the value of Bitcoin but are not open and interconnected to everything else. Their very existence, however, is the tell that we are on the cusp of something similar that is open, global, and interconnected. I know that people are working to connect easypaisa and M-Pesa to Bitcoin and the Blockchain. That’s an obvious but important step to get to “decentralized banking for the masses” as William and David call it.

As Mark Twain supposedly said, “history doesn’t repeat itself, but it does rhyme.” I’m banking on that to be true.