MtGox Gone, World takes notice
For all the fallout from the collapse of mtgox, which has by now receded back into highs from ukraine, the media fanfare and attention has served to bring new publicity to bitcoins. Its antifragility makes it such that any news, bad news or good news, are all good news, bringing the word out to world.
Roger Ver, a big investor in Mt. Gox, said he did not know if he would ever get any of his lost bitcoin back.
“But the important thing to realize is that Mt. Gox is just one company using bitcoin. The bitcoin technology itself is still absolutely amazing,” he said.
“Even if one email service provider is having a problem that doesn’t mean people are going to stop using email. It’s the same with bitcoin.”
Shishido said he does not expect to get his virtual money back, but that the rest of his bitcoin investments had soared 10-fold in value.
He lost about a tenth of his investment in bitcoin in Mt. Gox, he said, and expected none of that money to come back.
Open networks keep growing even if individual participants fail.
It is critical to understand just how different an open payment network is from the proprietary payment networks that exist today. To illustrate this differently, let’s look at another open protocol: email.
Bad actors are quickly weeded out of open networks because consumers have choice — the choice of many new entrants coming on the market to vie for their business.
Email is a good example of an open network with a standardized protocol; and this standardization is one reason why email is fast, free, and works just about anywhere in the world. There is no single company or country who controls the email protocol (just like Bitcoin), so thousands of different clients and implementations have been created all over the world giving it great reach and driving down prices for consumers who have many email options to choose from. You may have noticed you can successfully send emails between different service providers (such as Gmail to Outlook). This is also due to the open nature of the protocol.
If an individual email provider has a security breach, or loses the integrity of its customers, this doesn’t reflect on the concept of email generally — it merely reflects on the integrity of the individual provider. Further, the beauty of open networks is that they provide a low barrier to entry for competing services to come in and vie for your business as a consumer. Bad actors are quickly weeded out of open networks because consumers have choice — the choice of many new entrants coming on the market to vie for their business. Open networks do a great job of keeping incumbent companies honest, because if they make a mistake and lose their customers’ trust, their customers will be gone in a flash.
An open payment network is a game changer.
Unlike Bitcoin or email, our financial institutions and payment systems today are proprietary. This limits the ability for consumers to easily switch between payment providers and creates less competition for services. If the provider of a proprietary payment network isn’t serving its customers’ needs, where else will their customers turn? There is only one company you can use to access a proprietary payment network — the company that owns it. This higher switching cost has a few side effects: less competition in the market, higher fees, limited geographic reach of any individual network, and less innovation around things like speed of transactions.
Clearly open networks offer a number of benefits, so why hadn’t an open payment network existed previously? Until recently, many people thought it wasn’t possible to build a payment system on an open network. The core issue was around preventing duplicate spending without using a central company to verify each transaction. Nothing prevents you from sending duplicate emails multiple times, for example, if you wanted to do this.
Bitcoin will take time to mature as the protocol is tested and strained with new types of attacks.
This problem (the “double spending” problem) is what Bitcoin solves, and in this sense it truly was a technological breakthrough or invention (one that I think will be viewed as very important historically). If you’re someone in the business of verifying transactions on a proprietary network, the invention of Bitcoin cannot be safely ignored. It will change or disrupt the providers of most proprietary payment networks in the coming years.
New technologies take time to mature.
Just like email, there are growing pains for any new technology. Spam, phishing, and hacking have “attacked” email for two decades, but with each new breach comes the ability to make the protocol stronger, to innovate (as Google has with machine learning to detect and prevent spam email). These technologies weren’t developed overnight, or even conceived when email was created. Yet they were key to making email stable and reliable in people’s minds, until it became a part of their everyday life.
Beyond lower fees and instant transactions, companies are also waking up to the fact that accepting Bitcoin means acquiring new, sophisticated, wealthy customers (top line revenue growth). Take Overstock.com, which began accepting Bitcoin on January 9. To date, Overstock has seen over $850,000 in Bitcoin purchases, with an average cart of $216, or 30 percent higher compared to customers paying in U.S. dollars. These were “almost all new customers,” according to the CEO, Patrick Byrne.
Just in the past few months, sites like Mint.com, Bing, and point of sales software like Revel Systems (used in many retail outlets across the United States) have also integrated Bitcoin payments.
Around San Francisco, New York City and other major cities across the globe, Bitcoin acceptance is rapidly moving into brick-and-mortar shops, restaurants and even professional businesses like dentists and law firms. Consumers are paying with a quick scan of a QR code or using technologies like NFC and Bluetooth low energy. Merchants are enjoying instant transactions at lower fees, and this momentum will only accelerate in 2014 – with thousands more companies beginning to accept Bitcoin.
Mt. Goxalypse Now! Bitcoin’s Credibility Faces a Make-or-Break Moment
Bitcoin Bull Holds Firm as Mt. Gox Drags Down Currency
Malka began investing in Bitcoins in 2011 to pay a contractor in Argentina and bypass government money-transfer restrictions. He founded venture capital firm Ribbit Capital the following year with $100 million to invest in financial-services startups and Bitcoin companies such as Coinbase Inc. and BTCJam. Andreessen’s Andreessen Horowitz and Wilson’s Union Square Ventures also back Coinbase.
Unlike most venture capital firms, Ribbit also invests directly in the virtual currency. Social+Capital Partnership, founded in 2011 by former Facebook Inc. executive Chamath Palihapitiya also invests in Bitcoins. The two firms together control at least 5 percent of the Bitcoins mined, according to Palihapitiya, whose fund is an investor in Ribbit Capital.
That indicates that the firms’ holdings may be worth about $360 million at current exchange rates, based on the 12.4 million Bitcoins in existence, according to Bitcoincharts.com, which compiles prices and currency data, and the CoinDesk Bitcoin Price Index.
“There’s more money to be made owning Bitcoins than Bitcoin companies,” said Palihapitiya, whose fund doesn’t directly back Bitcoin companies. He and Malka declined to comment on the value of their holdings.
Buying risky assets is more typical of hedge funds, said Lerner.
Fortress Investment Group LLC (FIG), a New York-based private-equity and hedge-fund manager, said it bought $20 million worth of Bitcoin last year and recorded a paper loss of $3.7 million on the investment, according to a filing today.
When venture investor Jeremy Liew was considering whether to back Bitcoin startups, he said he turned to Malka, who has spoken on the virtual currency at five conferences in the past year.
“We were interested in Bitcoin and Micky helped us get up to speed,” said Liew of Lightspeed Venture Partners, which is an investor in Malka’s fund. Lightspeed has since backed three Bitcoin companies, including China’s largest Bitcoin exchange, BTC China, and has seven indirect investments through a Bitcoin incubator that supports early stage startups.
While companies and regulators are still debating how to treat Bitcoin, others have embraced it.
David Marcus, president of EBay Inc. (EBAY)’s PayPal payments unit, said he finds Bitcoins “fascinating,” and he only invests in the virtual currency with personal funds as a limited partner in Ribbit Capital. PayPal itself won’t offer Bitcoin services until regulatory issues become clearer, Marcus said.
“Venture capital is about taking risk, and you can’t be focused on financial services without investing in Bitcoins,” Marcus said of Ribbit’s strategy. “There are very few venture capitalists focused on financial services, and that makes Malka sharp and truly unique.”
The bankruptcy of a major Bitcoin exchange in Japan not only focused attention on the digital currency’s risks, it also rattled a still-newer market that regulators are just starting to monitor: Bitcoin derivatives.
George Samman, a former Wall Street investment adviser who in May helped start a platform for betting on Bitcoin’s price swings, saw trading on his BTC.sx website grow to more than $35 million by Jan. 21. After the shutdown at Mt. Gox, the Tokyo-based exchange for buying Bitcoins, BTC.sx suspended trading — because it had to find another exchange partner for its customers.
“It is semi-Wild West, but that’s only because it’s new,” Samman said before the Mt. Gox shutdown.
The CFTC could argue that Bitcoin is a commodity under U.S. law and subject to the agency’s rules against manipulation and fraud, according to Salman Banaei, Washington-based senior counsel at Norton Rose Fulbright law firm. He said the agency, which regulates derivatives tied to interest rates and commodities like oil and wheat, would have “clearer” jurisdiction over futures, swaps and options linked to Bitcoin.
Jaron Lukasiewicz, chief executive of Coinsetter LLC, a New York-based Bitcoin exchange, said that his company has suspended plans to offer derivatives due to the uncertainty around the CFTC’s intentions, plus the expense of maintaining a derivatives-broker license.
“We’ll keep pressing forward on it, and we hope that reputable companies will be given the chance to offer this essential addition to the market,” Lukasiewicz, a former investment banker with JPMorgan Chase & Co. (JPM), said in an e-mail.
Mt. Gox Seeks Bankruptcy After $480 Million Bitcoin Loss
By Carter Dougherty and Grace Huang Mar 1, 2014 3:59 AM GMT+0800
Mt. Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan saying about $480 million in Bitcoins belonging to its customers and the firm were missing.
“The company believes there is a high possibility that the Bitcoins were stolen,” Mt. Gox said in a statement.
The filing follows three weeks of speculation about the fate of the Tokyo-based exchange, which suspended