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Bitcoin opportunities

I’m sat here at the Bitcoin London conference organised by my friends Shakil Khan and Pamir Gelenbe mulling over opportunities in Bitcoin. Here are my thoughts, many of which are inspired by, or re-hashes of, what I’ve heard on stage.

  1. Bitcoin’s momentum continues to grow.
  2. Regulation is getting clearer, but is still a big issue.
  3. Governments are starting to recognise that virtual/crypto currencies will co-exist alongside fiat currencies.
  4. Bitcoin’s predictability, reliability, extensibility, and low costs might make it fundamentally superior to fiat currencies, and hence it might prevail, at least for some use cases – of which international remittance is the most obvious.
  5. Usability remains a big issue (although I did use the Bitcoin ATM pictured above from Lamasu which swallowed my £20 note and gave me 0.3406 Bitcoins in a few seconds).
  6. A big part of the usability problem is interfacing with the mainstream financial services industry. I’m told that banks in the UK are much less welcoming of Bitcoin than their international brethren.
  7. Bitcoin transactions are irreversible meaning that fraud is hard, and maybe impossible, to unwind. This is one of the reasons the traditional financial services industry finds it difficult to work with Bitcoin.
  8. The cost of regulation is making Bitcoin exchanges capital intensive businesses, most other Bitcoin companies are capital efficient.
  9. US regulations make it difficult to build Bitcoin startups there – Tradehill, a US Bitcoin startup has eight people in their legal team. Their development team is smaller.
  10. Bitcoin is inherently deflationary, which encourages saving. That’s a good thing.
  11. There are now possibly 10k online merchants that accept Bitcoin.
  12. A lot of people want to view the world as Bitcoin vs the system. That’s understandable given the number of accounts that have been blocked and exchanges that have been shut down, but it’s smarter to think about how Bitcoin can engage with the system rather than fight it.

In summary, the chances of Bitcoin becoming a significant force continue to increase and the obstacles in the way and the paths around those obstacles are becoming clearer. That tells me there is opportunity here. I don’t think we are at the point yet where startups should raise huge rounds to run hard, but we are the point where it makes sense to make small investments in companies that will be careful with the cash until the market really opens up.

  • Wehtam

    Definitely think there are opportunities here.

    The ATM is a nice idea but it really needs to let you scan your wallet and take fiat currency out as well as letting you deposit it!

  • http://www.theequitykicker.com brisbourne

    Yes. That would be good. They should also take debit cards.

  • http://davidmcdougall.org/ Dave McDougall

    Nic,

    Without commenting on your other points, which mostly seem on target to me, #10 is a (potential) massive problem with Bitcoin.

    I think that Felix Salmon explains this well, here. Here’s a relevant excerpt:

    Inflation is bad, but deflation is worse. The reason is that in a deflationary environment, no one spends money — because whatever you want to buy is sure to become cheaper in a few days or weeks. People hoard their cash, and spend it only begrudgingly, on absolute necessities. And they certainly don’t spend it on hiring people — no matter how productive their employees might be, they’d still be better off just holding on to that money and not paying anybody anything.

    That said, I’m optimistic that the future of the Bitcoin ecosystem can add a lot of value to users along the lines of your #4. As Salmon says in his related argument, “There’s a lot to be said for a fast, efficient, peer-to-peer payments system which bypasses centers of authority and which has negligible transaction costs. It just doesn’t need to be its own currency.” I think that’s the challenge of Bitcoin today — keeping the messianic currency-replacement hopes of ideological Bitcoiners at arm’s length to focus on building a real payment infrastructure that leverages Bitcoin’s strengths.

  • http://www.theequitykicker.com brisbourne

    The impact of a deflationary currency is, I think, unknown. There are arguments both ways. Without being an expert my opinion is that people will still buy things – they won’t want to wait forever, and that greater benefits for saving than we currently have would be a good thing. Negative saving rates are a big problem currently.

  • http://davidmcdougall.org/ Dave McDougall

    The key thing is the difference between mild deflation and a deflationary spiral. On the former I would agree that the jury is still out, but my concern is that as Bitcoin becomes more mainstream it will be acceleratingly deflationary, and will fall in to the trap Salmon outlines. Ironically, slower user adoption may be good for Bitcoin in the long run.

  • http://www.theequitykicker.com brisbourne

    Hmm. Interesting. Are we faced with a choice between two flawed systems?

  • http://davidmcdougall.org/ Dave McDougall

    Well, yes, but I think that the flaws of Bitcoin as a replacement system are substantially greater than that which it would replace. Bitcoin is a great ‘app’ for the fiat national currencies ‘operating system.’ I think Ripple’s Bitcoin Bridge, for one, is great as an add-on feature to existing frameworks, and approaches that integration in the right way.

  • http://about.me/jeffreyrobinson Jeff Robinson

    Regulatory bodies worldwide will not endorse Bitcoin as a currency for many years to come, if at all. At the very best, Bitcoin is a great fad. The top of the Bitcoin market will be when we see a crowd funded Bitcoin startup…

  • http://www.cono.rs/ Conor

    A currency is inherently backed by “trust” in some institution – dollar = trust in the US government & central bank, gold = trust not in people, but some trust in not finding a massive gold deposit and doubling supply; bitcoin = trust that there will always be someone willing to exchange something of value for your bitcoins, trust that hackers can’t “create” money, or “steal” your own money.

    The dollar is being printed at an alarming rate. Renminbi has its challenges. Euros… hmmm. Gold is very hard to transport. Bitcoin… I think there is something big here.

  • http://www.theequitykicker.com brisbourne

    If you are right then we can expect Bitcoin to slowly fizzle out.

  • http://davidmcdougall.org/ Dave McDougall

    When the hype (and investor attention!) fizzles out, I expect BTC will still be around for limited use cases like international money transfers (as you say above), and will start a slower growth curve with more limited ambitions.

    What’s more interesting is figuring out the right use cases for which Bitcoin will survive, and how to build businesses that enable those.

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  • http://www.theequitykicker.com brisbourne

    Exactly. I would like to find an entrepreneur who is thinking along those lines.