Yesterday, the Wall Street Journal reported that Coinbase has raised $5 million, which represents the largest funding round to date for a Bitcoin startup. The funding is being led by the highly respected Union Square Ventures, and despite the fact that 90% of financial “journalists” and mainstream “economists” continue to bash Bitcoin as a bubble and a ponzi scheme, some of the brightest minds in venture capital are getting involved. From the Wall Street Journal:
Eleven-month-old startup Coinbase announced Tuesday the largest funding round to date for a Bitcoin startup, a $5 million investment led by Union Square Ventures.
Coinbase is an online platform that allows users to buy Bitcoin, the virtual currency taking the tech world by storm. Users can also store Bitcoin in a digital wallet and pay merchants for goods or services with it. About 300 merchants have signed up with Coinbase so far, including content-aggregation site Reddit.com and dating siteOKCupid.com.
In April, Coinbase’s co-founders said the company claimed about 116,000 members who converted $15 million of real money into Bitcoin, up from $1 million in January. Ehrsam said the volume of dollars it’s converting to Bitcoin is increasing at a rate of about 15% a week, and its user base is growing at a weekly rate of about 12%.
Bubble! Stay away!
He added that he thinks Bitcoin is poised to be a true game-changer for the business world, and the tech community in particular. “Hackers are the animals that can detect a storm coming or an earthquake,” he said. “They just know, even though they don’t know why, and there are two big things hackers are excited about now and can’t articulate why–Bitcoin and 3D printing.”
Wilson said that Union Square has looked at about a dozen Bitcoin startups over the past two to three years but that Coinbase is its first investment in the space so far. “There is no magic bullet that they have,” he said. “They have competitors doing the same thing. We just really liked their approach to the business and the product they built.”
Coinbase’s founders, he added, are “very pragmatic, level-headed engineers.”
“Digital currency and Bitcoin specifically is a very interesting area where if one were to get it right, the upside would be enormous,” he said. “If Bitcoin really becomes the global currency that every country and every business accepts, and Coinbase becomes the JP Morgan Chase of Bitcoin, that could be worth a lot of money.”
Micky Malka, founder of Ribbit Capital, one of Coinbase’s other Series A investors, said he likens Bitcoin and its skeptics to when the Internet started becoming popular in the early 1990s. Back then there were “a lot of articles about the Internet being a place for porn,” he said, similar to how early Bitcoin adopters have been allegedly using the currency for illicit purposes, such as to buy and sell illegal drugs.
I love all the Bitcoin bashing. It’s just further evidence as to how early we are in this whole exciting process and how much opportunity there still is.
Full article here.
In Liberty,
Mike
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Hi Mike,
I truly respect your work, but I think you are way off on your enthusiasm for Bitcoin, and I’m a bit unsure whether or not you have even considered some of the most terrifying implications of the concept; but if you have, why have you not discussed these?
Most importantly, I am disturbed that you seem convinced of the decentralized, anonymous nature of Bitcoin. If the currency exhibits these features, it is only as a desert exhibits an illusory oasis to a weary traveler. I can assure you that I am just as weary of this paradigm as you are, but if following a mirage only leads you away from the ocean and deeper into the desert then it is even more destructive than soldiering on through the sand dunes.
One of the most essential components of any currency is the need for authentication. The issue here is that with any cryptographic currency like Bitcoin, the only way to truly ensure authentication across the board is to maintain a full transaction history for each unit of currency. I understand the argument that this transaction history is spread across all blockchains involved in the coin and therefore not available as a whole, but research has shown that the history is publicly available to those with the knowledge/capability to obtain it. In this sense it is, in fact, perfectly non-anonymous! Money (gold) and even paper fiat currencies are far more anonymous than Bitcoin at a meta-level.
Furthermore, it is well known at this point that the current functionality is not compatible with any non-trivial scaling up of the entire system; centralization has already progressed substantially due to the exchange system but it will continue to do so exponetially as the user population grows.
Do you ignore the possibility that Bitcoin might prove to be the state’s (I use this word non-specically, perhaps even referring to a supranational entity) greatest friend – a medium of exchange with zero underlying true value, that can be subjected to full surveillance/tracking by an authority with sufficient capabilities?
If you disagree with any of the points I made above, please let me know where you feel I have gone astray in my argument. Please know that I am not rejecting the concept of a decentralized currency free of the state monopoly over money, just the opposite: I am fearful that Bitcoin could be a far more potent tool for totalitarian control than even state-issued paper fiat.
Thanks,
Demosthenes
Hi Demosthenes, of course I have considered all of the above concerns and I will try to give you a sense of where I am coming from. I have never said Bitcoin is “the answer” or a panacea, or even a better store of value than precious metals. Never. I have also never made claims that it is perfectly anonymous. The level of anonymity is based on the precautions a user decides to take. If you take certain precautions you can be relatively anonymous. I think most people understand that at this point.
Of course, it is quite obvious that a digital currency controlled by the state and enforced as a monopoly would be the most powerful totalitarian control mechanism known to man. That’s partly why I do support Bitcoin so much. It seems the market may have beat the power structure to the punch in the race to create this type of currency. I applaud the fact it is open source as well. That’s not to say that this couldn’t change in the future, at which point I would pull my support for it. As of now, no one is being forced to use it and many companies are getting involved in a real dynamic, exciting free-market fashion. I support this and all other currencies in the free market. I want choices, not state or Central Banker monopolies. So I support the philosophy behind it, the way it functions at the moment and what it is showing us about the potential of free market currencies. There will be many competitors and I support them all trying to compete. People should be able to use whatever they choose as money, not be forced into something. That’s where I stand. It’s not a black or white thing. For now I like Bitcoin, if I was ever forced to use Bitcoin or something like it by the state, I would fight that.
Hope that helps,
Mike
Hi Mike,
Thank you for the response. This is what I have always gotten from your writing — objective, unemotional analysis based on what is good and true; there are very few truly moral voices in the world today, and I feel I can trust yours to be so – I can hear it in your “voice”. I especially appreciate your last statement : “For now I like Bitcoin, if I was ever forced to use Bitcoin or something like it by the state, I would fight that”
However I do not understand your argument that “the market has beat the power structure to the punch” in this case. What do you base this very definitive and important statement on?
The origination of Bitcoin is shrouded in mystery. I will not claim outright, in the depths of my own paranoia about the subject, that Bitcoin is the creation of the state, but is it so impossible? What do we know about the genesis of the currency? The creator of the source code is unknown; any rational analysis of the labor time, and more significantly cost of creation, beta testing, and initial implementation required would point to both a large budget and significant long term testing, all things very attainable with some sort of state assistance.
From most of your articles I get the impression that you are very forward thinking, constantly anticipating both the near and more distant future based on the facts available in the present. I would like to think I do the same. Why do you so distance yourself from such a mindset in your response? From what I can tell you are characterizing your opinion as a completely reactive one, dependent on the current prevailing status of the currency.
You must know that any totalitarian system relies wholly on the lack of anticipation of its subjects. A reactive mindset will always fail in such a system, in which I am sure (based on your other writings) you would agree we find ourselves today.
I implore you: not to abandon your support of Bitcoin, but to temper it with a bit of doubt and uncertainty as to the very troubling possibilites that can and must arise in the process of any expansion of the currency or anything like it, and to give credence to such alternative considerations in your writing.
Demosthenes
FYI: To the “voice of reason” –> if you believe any single bitcoin unit cannot be traced to an IP address and therefore (eventually) a name, you need to read up a bit more on the true nature of the currency – and I don’t mean basic news articles but true academic research. Those with the know-how and ability to circumnavigate certain legal restrictions (read: NSA, FBI etc) can certainly pinpoint the entire history of a coin including key identifying information, not the least of which includes every participating machine and associated user.
A truly rational analysis gives at least an even (50%) probability that the source code was in fact created by the state; at the very least, discounting this possibility entirely (as you seem to do in your post) is at the very least foolish, and at the very worst, suicidal.
The “surveillance/tracking ” only gets them a long number. It doesn’t get them a name. And that number can change every time you accept or send money. It’s still relatively an anonymous creature.
Not sure what you mean by “current functionality”, but the limitations of MTGOX or other exchanges getting hit with DDOS attacks is because they are not geared up yet with endless cash to put into their infrastructure. But don’t worry, its coming and that’s what the VC’s are here to do in my opinion. Other than that the more computers entering the BTC mining system the more robust it gets. You gotta love it!
There are other issues that are more important in my mind. Like how the gov’s and central banks around the world will attack BTC. Expect it. A financial war is coming. And the first stage in a counter-attack is to divest from fiat currencies into ANYTHING ELSE.
Like you my biggest fear is the govt., they have the resources and reasons to attack bitcoin. Imagine the same kind of virus they attacked the Iranian nuclear plant with. They will only have to do it once or twice and people will be too scared to go there.
On the other hand Martin Armstrong has said this is where govt. want to go, a digital currency, totally traceable and taxable, there will be no place to hide…except perhaps metals which will be the black market or underground economy.
thanks for sharing this wonderful post.