The Death of Paper :: Blockchain Letter, October 2015

(If you would like to receive our periodic research, weekly industry digests, or special updates, subscribe at

Dear Community,

In October’s letter, we will be covering several themes:

  1. The Death of Paper
  2. Bitcoin Pacifica 2015
  3. Portfolio News — American Express Announces Participation in ABRA’s Series A
  4. The Fourth and Final U.S. Marshal’s Bitcoin Auction (Worth $11 Million)
  5. Bitcoin Volatility at New All-Time Low

The Death of Paper
By Steve Waterhouse

I spent a few days in Moscow recently. On the way in, I found that Aeroflot had mislaid my bag. I, in turn, had mislaid my baggage claim ticket. In broken English and zero Russian, the Aeroflot associate and I traded strong words until, finally, my bag reappeared alone on the conveyor belt.

I was struck at the time how a single piece of paper could hold the key to all of my belongings. Shortly after this I was back in San Francisco and handed the keys of my car to a valet in exchange for a small piece of paper with a number on it. “Hang on”, I thought. I just gave away my car for a small piece of purple paper. Once again, I was struck by the absurdity of how we willingly trust valuable possessions to people who we have no reason to trust in return for a disposable piece of paper.

Add to this absurdity: my personal issue (that I’m sure many people suffer), in which if you give me a piece of paper, it will be lost within minutes. You may begin to see why I have become very focused on an idea I call “The Death of Paper”.

I imagine a different world, which will be upon us very soon, in which instead of representing ownership of physical objects using paper we represent them digitally. Instead of accepting a ticket from a valet, perhaps you will receive a digital representation of your car from your phone and assign the valet temporary rights to drive and store your car for a set period of time.

I believe in the near future all these pieces of paper which represent ownership of items and rights will be represented as digital certificates and stored conveniently on our smartphones. The certificate will bind the identity of the item, your identity, and the identity of the person you are trusting with the item — whether it is Aeroflot or the car valet company. I also believe that the way will we achieve this is through the Blockchain.

The Blockchain is a new kind of database. It is “write-only” (you can’t change entries, only add new ones). Not only does encryption secure the database but also computing power, as opposed to risky 3rd-parties and flimsy paper. For this reason the Blockchain is the ideal solution for storing permanent records, such as authenticity certificates, land title, stock ownership and many, many more applications.

Bitcoin and the Blockchain

Bitcoin shot to fame and notoriety in 2013 and 2014 as a result of a meteoric rise in price and salacious news reports of hacking, sketchy use cases, and a libertarian dream to change reserve currencies and government.

In the last two years since I began working in this space, I have witnessed a dramatic change in use and sentiment around this technology. Now the headlines I read are about major venture firms investing in companies and large financial institutions adopting the technology behind Bitcoin known as “Blockchain”.

What’s going on here? We’ve gone from being sometimes ridiculed for being so focused on Bitcoin as a firm to now having the likes of Goldman Sacks and NYSE invest in Bitcoin companies, and having Citibank, BBVA, and Nasdaq announce initiatives in the Bitcoin/Blockchain space.

The Blockchain

Bitcoin works because of the Blockchain. The Blockchain solves a problem in computer science known as the Byzantine General’s problem. Simply put, in a network of nodes (participants of the network) in which any node can publish something that has a truth-value, which nodes are trustworthy, who do you trust? Some nodes may be faulty, some may be malicious.

The Blockchain solves this conundrum by forcing each node in the network to solve a hard problem. The first node to solve the problem earns the right to publish the transaction in the network and all other nodes verify that the solution to the problem is correct and then update the global ledger of information.

For the first time in history the Blockchain enables the secure exchange of value between two entities without the need for a third party. The network inherently ensures that counterparty risk is eliminated.

There’s no trusted 3rd-party risk with blockchain

The most straightforward application of the Blockchain is simple numerical value transfer, i.e., bitcoin. However, bitcoin is only the first application of this powerful solution.

Blockchain Eats Paper

The Blockchain will be the framework by which all paper records and contracts will be stored.

The advantages of the Blockchain for securing records of ownership in a digital framework are as follows:

  1. Independence:

The Blockchain is a distributed peer-to-peer network with no central point of control, unlike many modern network architectures. This design improves the scalability of the system and protects it from failures of a single node (single point of failure). It also provides the ability for an organization to offer transparency and enjoy new standards of efficiency.

2. Security:

Nodes in the Blockchain network earn the right to enter a transaction into the ledger by solving a hard computational problem. Over the last 7 years of growth of the Bitcoin network, the difficulty of the problem has increased significantly to a point where custom, highly expensive “ASIC” chips are required to solve the problem. The combined power of the processors in the Bitcoin network is now greater than the world’s largest supercomputers combined, albeit for solving a very specific problem.

Because of this design, the Blockchain ledger is inherently secure and immune from tampering or adjustment. This security means that the network is unquestionably trustworthy. Contrast this with a centralized design, in which a single entity runs a ledger database. The entity would be subject to scrutiny because of its ability to adjust the database for its own gain, or be subject to hackers, who could penetrate the network and adjust the ledger for their gain or some other malicious intent.

3. Transparency:

In the basic Blockchain architecture, any node in the Blockchain network can observe the entire ledger, which contains all transactions that have ever been made. Although new designs, such as zerocash, are pointing towards more heavily encrypted transactions, the default architecture promotes an unprecedented level of transparency relative to traditional databases, ledgers, and networks.


Today almost everything we transact has paper associated with some aspect of it:

  1. House title,
  2. Collectibles, (Rolex authenticity papers)
  3. Stock transfer.

Each of these paper based transactions will become fully digital and the Blockchain will be the digital platform that is used to bear them. Selling a watch or a house will be as easy as clicking a button on your smart phone.

Papering a Deal

The phrase “papering a deal” refers to the process of converting a business agreement into a legal framework which finalizes the deal.

The back offices of financial institutions are some of the most antiquated environments from a technology perspective. While the hard core cutting edge tech is reserved for the high frequency trading engines, back office workers have to use faxes to clear trillions of dollars of trades a day.

Since Goldman Sachs invested in Circle in early 2015, there has been a series of announcements of large financial institutions investing in Blockchain technologies. Chain recently revealed major financing from VISA, Capital One, Citibank, Nasdaq, and others.

What are all these major financial institutions doing with Blockchain? The answer lies in the complexity of the back office of these institutions. Every deal that is inked — whether it is a corporate stock issuance or a syndicated debt deal — has a series of contracts that underpin it, and a team of lawyers and administrative staff ensuring that the contract reflects the deal correctly. 25 million faxes are sent each year for syndicated loans.

There is a massive opportunity in financial services to streamline and automate these manual processes. To illustrate the enormity of this opportunity, a good analogy would be automation replacing factory line workers in the 1950s and 60s.


Reduced to this:

Perhaps the most widespread and disruptive change brought on by blockchain technology will be the digitization of paper contracts. Contract terms will be encoded as statements in a scalable distributed database secured by the computational power of the Bitcoin mining network. APIs and the imminent Internet-of-Things will automate the carrying out of these contracts, checking environmental data to see if contract conditions have been met.


Art, Collectibles, and Provenance

In many commercial transactions, verifying the authenticity and provenance of an item is very important. For example, in the art world, great care is taken to establish authenticity. The street artist Banksy has his own art sales agency called “Pest Control”, which ensures that he receives a piece of every secondary market transaction by informing buyers that if they buy or sell any Banksy work outside of Pest Control, they will never be able to buy an original Banksy.

The art world has long debated the issue of artists not receiving compensation for their work in the secondary market. While Banksy has implemented his own “walled garden” approach, Californian and EU law makers have enacted legislation which codifies this intention (the “California Resale Royalty Act” and “Directive 2001/84/EC”, respectively). These acts have no teeth, however, since there is currently no way to track the sales of art between private parties, no central registry of art ownership, and therefore no reliable basis with which to enforce the laws.

The Blockchain changes this by enabling digital provenance to be recorded in a decentralized registry which is free from corruption or manipulation. Various companies including Verisart, founded by Robert Norton a renowned figure in the art world, are working on this problem. Our portfolio company Chronicled is providing a provenance solution along these lines for luxury sneakers and other consumer goods. Another incredible example of this is being implemented by a company called Everledger in London. Everledger has recorded 830,000 diamonds on the Blockchain, where the diamond industry suffers from billions of dollars worth of fraud.

Everywhere we look Blockchain solutions are being used to replace paper solutions for recording and transferring ownership of property. We envisage the entire world of commercial transactions moving to a world of “digital commerce” by which we mean that all ownership records and transfer records will move to the Blockchain.

Bitcoin Pacifica 2015

Bitcoin Pacifica is an annual conference we organize for the blockchain industry, where we invite a small group of the blockchain industry’s leading entrepreneurs, academics, developers, investors, and regulators to converge, strategize, and coordinate on how to move the industry forward in the following year and beyond.

Here is some of the content from this year’s conference.

Best-of Bitcoin Pacifica 2015 Panels

At Bitcoin Pacifcia, several panels took place. The subjects of the panels included:

  • Academic Perspectives on the Blockchain
  • Public Policy and Law Enforcement Perspectives on the Blockchain
  • The State and Future of Digital Currency Exchanges
  • Approaches to Governing Digital Currency Software Development
  • Blockchain-Based Applications Transforming the World
  • Theoretical Blockchain Applications

Below is some of the best commentary overheard at the conference (a following section has links to the full panels):

From the Academics Panel:

Patrick Murck — Fellow at the Berkman Center for Internet & Society at Harvard and Special Counsel for Pillsbury Law — comparing early blockchain and Internet growth strategies:

“This could be a problem, and maybe the answer is that academic institutions should be running full nodes. Every academic institution could pretty easily spin up full nodes in their data centers, and for the people who rely on federated server models, maybe those should be hosted in academic data centers as well. This starts looking like how the internet was developed in the first place where the academic institutions were those big, important nodes of the network….”

From the Regulations Panel:

Mark Wetjen, former CFTC Commissioner, on the distinction between regulator and law enforcement sentiment:

“…You know, the policy makers, at least the individuals that I’ve worked with and talked to in government, across the board, are very, very open and encouraging of what’s happening in this space. So, I think the overall posture, in my experience, has been very, very positive, and one of trying to nourish and stay out of the way of what develops in this space.
“Someone made the distinction earlier about how to look at the federal government. You do have the regulatory side and then you have the enforcement side. The enforcement motivations and mission is a little bit different than that of policy makers. So, I think a lot of times there — again just in my own personal experience at the CFTC — what would motivate enforcement lawyers was, well, we’ve got to make sure people understand the rules have to be followed by everyone regardless of whether you’re deploying new technology or not. At times you’d also see a sentiment of wanting to put a stake in the ground and just having people take notice — okay we are the cops on this beat and we want everyone to be aware of that.
“On the policy side, as I said, the posture’s been very, very open, very positive, and that’s been across the board. Brian used to work in White House, people at Treasury that Jerry has met with, everyone’s been trying to be pretty accomodative, I would say….”

From the Exchange Panel:

Bobby Lee — CEO of BTCC, a leading Chinese bitcoin exchange — pointing out how digital currency exchange liquidity is a function of its value:

“In other words, Bitcoin has proven itself to be a solution that is much better at certain things than fiat and the existing banking system. That’s why we’re here today. As more and more traditional industries realize that, there will be more pile-on effect in another four years. So, the way to solve that problem is not about more liquidity. What happens is when more industries realize the benefits of Bitcoin transactions, and payments, and remittance, and whatever, naturally the market cap will go up. Instead of 3 billion it’ll be 30 million, and it’ll be 300 billion, and by the time it’s 300 billion, aircraft parts and stuff, it will be [feasible]. Whereas today it can’t be because it’ll move the price. Just like four years ago, even buying coffee would move the price, or buying pizza would move the price.”

From the Applications Transforming the World Panel:

Marwan Forzley — CEO of Align Commerce, the blockchain-based business-to-business cross-border payments platform — on what Bitcoin as a payment layer represents:

“I always thought of the blockchain as, really, a very different network, it’s kind of like a global ACH. It’s a way of moving transactions in a new real-time system that has global perspectives. [It forgoes the] concept of a domestic payment system. We use it [from this perspective]…
“…It’s common language across a number of distributed — call them ‘digital agents’ — that are in the function of moving money in and out of a network, with a common construct that unifies it. That’s always been my view on this. We talk a lot about all kinds of concepts around Bitcoin but the real advantage, the real competitive strength, what has been built is an open system of which there’s a common language between end points that are distributing payment processing. You’re outsourcing the function of payment processing to the edge of the network among a pool of nodes that talk a common language….”

For more Bitcoin Pacifica 2015 content:

Halving Price Prediction Polls

Approximately every four years, the amount of bitcoins introduced into the network is halved. The next halving event is currently projected to occur on July 26, 2016. Considering that this will have an effect on the introduction of available supply of bitcoins, it’s reasonable to expect an effect on price.

This year at Bitcoin Pacifica, we (unscientifically) polled around 30 blockchain industry leaders about their thoughts on and predictions of bitcoin price performance around next September, a couple months after the 2016 bitcoin issuance halving date.

The average price prediction for this group was $616, with a 14% change in price one month following the halving date.

Industry Leaders

Public Poll

We similarly polled our Twitter followers. Interestingly, the average price prediction was over double the Bitcoin Pacifica attendee poll, at $1,389, with a 48% increase in price one month following the halving date.

For our public poll, we included a field for people to share their reasoning behind their price predictions:

  • “I think it will be mostly psychological. Many will expect to make a quick buck from the temporary rally.”
  • “Supply inflation is low, even lower supply inflation won’t have much of an impact on price. Price will rise simply due to the recent low volatility and a speculative bandwagon will cause a run up 4x to 10x.”
  • “Exponentially growing demand coupled with reduced incremental supply mean higher prices.”

To browse the rest of the public responses, follow this link to our Google Doc:

If you’d like to add your opinion, fill out the form:


Combining the two data sets, the average price prediction was $1,300 even, with a predicted 35% increase in price one month following the halving.

Portfolio News


ABRA, the blockchain-based “Uber of cross-border payments and global banking” today announced American Expresses’ participation in its recent $12 million Series A million funding round. This marks the first investment in a blockchain company for American Express. American Express believes that the blockchain will help people and businesses transact more globally and will play an important role in the evolution of money transfer and commerce, especially in emerging markets. Also included in the Series A investment round is a personal investment from Ratan Tata, as he will advise ABRA in their efforts in India and elsewhere.

In addition, ABRA has today launched two products: their mobile app on the iOS and Android app stores and their merchant API. The mobile app will be launching in their initial target countries which include the United States and the Philippines, including ABRA Tellers in both markets. The merchant API will allow business to perform real-time cross border multi-currency digital cash purchases with no chargebacks, instant settlement in digital cash, low MDR (less than 1%), and any currency to any currency with real-time conversion. The merchant API will be available in late Q4.

U.S. Marshal’s Service Bitcoin Auction

Say’s Law states that “supply creates its own demand”. That’s certainly true when it’s the U.S. government auctioning bitcoins.

The publicity surrounding the June 2014 U.S. Marshal’s (USMS) auction generated a tremendous amount of new investor demand for bitcoin. December’s auction saw over two times the number of interested parties, with at least 120 bidders. The 3rd and most recent auction in March saw less hype — but because the government’s recognition of the value of bitcoins had become trivial, a good thing.

Pantera is now accepting syndicate bids for the November 2015 USMS bitcoin auction.

The USMS will be auctioning a total of 22 blocks, in total valued at approx. $11 million for the 44,000 bitcoins.

If you are interested in participating, please contact Pantera’s investor relations team or at 415–360–3600. Deadline to join the syndicate is no later than Friday, October 30, 2015, 1 PM PDT.

Pantera will charge a 1% fee on winning bids for organizing the syndicate (there is no fee for unsuccessful bids).

Bitcoin Volatility At A New All-Time Low

In September, one-year bitcoin price volatility reached a new all-time low.

Not a real currency? Bitcoin volatility has been below paper money like the Russian ruble.

“Flight to safety” — lately, bitcoin has been less volatile than traditional asset classes: stocks, commodities, paper money.

Interesting times,

Dan Morehead
Chief Executive Officer

Steve Waterhouse

Roadshow & Conferences

We will be visiting several cities over the next few months to discuss the blockchain industry. Some of our dates include:

  • October 26–28, Las Vegas for Money 20/20
  • November 2–4, Hong Kong
  • November 5, Korea
  • November 6, Singapore
  • November 16–17, New York City
  • November 18, Washington, D.C.
  • November 19, Dallas
  • December 3–6, Miami
  • December 13–17, San Diego

If you are interested in a meeting, please contact Pantera’s investor relations team at 415–360–3600 or via

Top Twitter Content

Major Blockchain Industry Developments

The BitFlash is our weekly curation of the blockchain industry’s best articles, charts, opinions, and websites (you can subscribe at Below are some of its recent, standout entries:

Blockchain Development Startup Blockstream Releases First Bitcoin Backed Sidechain Dubbed “Liquid”

Excerpts: “…The product is called Liquid, a so-called ‘sidechain,’ a platform that operates separately from bitcoin but is ultimately ‘pegged’ back to the digital currency. Liquid is an attempt to create a system that maintains bitcoin’s open system, while sidestepping its built-in limitations. If it works as planned, Liquid will be a sort of hybrid between bitcoin itself and the many projects currently underway that are taking the blockchain technology and building entirely separate products.”

“It’s one more front being opened in the quest to keep bitcoin alive. While the digital currency remains the only use case of the software to reach any critical mass, and the price has stabilized, the underlying technology has itself this year become the focus. From the startup world to the biggest Wall Street firms, there are numerous efforts under way to build products and services that utilize bitcoin’s underlying technology, while abandoning bitcoin itself. The Blockstream group is an effort to counter that tide….”

“…Several well-known bitcoin exchanges and services firms, including Kraken, Xapo, Bitfinex, BTCC, and Unocoin, signed on as partners to the Liquid network. ‘We’re collaborating to address some key technical and business challenges while preserving Bitcoin’s core ethos of decentralization, innovation, and security,’ Blockstream said in a release….” [WSJ]

An Exclusive Interview with Fredrik Voss, Vice President and Head of Blockchain Strategy at Nasdaq

Excerpts: “…Appointed in June, Voss previously served as the company’s deputy head of commodities, but admits he was a “newcomer” to the technology before assuming the position.

“Voss presented a clear roadmap for Nasdaq’s development, adding candidly that the company is not ‘married’ to the bitcoin blockchain, but is rather ‘ledger agnostic’ in its approach, believing bitcoin remains the best ledger system for its current needs.

“Still, it’s the underlying technology that Voss believes holds ‘great potential’ to solve pain points in the operation of financial markets due to attributes such as its auditability and security.

“’That is what attracted me and attracted Nasdaq, and the potential of creating efficiencies and releasing capital that is locked into post-trade processes. Those are powerful and attractive attributes,’ Voss said, adding, ‘Now of course it remains to be proved that those things can be deliver….’” [CoinDesk]

The Blockchain Is Set to Rock Investment Management

Excerpts: ‘Large plans especially would have the most to gain from our efforts.’ Mr. Rutter said, because they often handle internally some administrative functions that could lend themselves to blockchain applications. ‘In what we’re setting up, we’re keenly interested in the buy-side perspective and in what they need. Having asset owners in some involvement with this is important to us….’

“’…It’s a reach right now to say what (asset owners) will see,’ said State Street’s Mr. Liang, ‘We do think this will change how back-office and middle-office functions work. How that will change is hard to say right now.’

“Mr. Connell agreed, saying, that asset owners ‘are a step removed from jumping into distributed ledger technology with both feet.’

“The immediate attraction of distributed ledger technology is how secure it is vs. traditional network-based technology systems that are prone to hackers, said R3CEV’s Mr. Rutter. Blockchain technology is cloud-based, with data held on each individual computer used in the blockchain. ‘At a high level, new technology pushes cryptographic controls to the data level rather than the network level,’ said Mr. Rutter. ‘Blockchain protects that data on a cloud, and matching data is then confirmed. Validation is made through a trusted cache or through truth-of-work’ in which every computer on the blockchain, rather than a central server, validates the value of the data being transferred. ‘Many people will have ledgers in the same form. It would mean hackers would have to break into all ledgers at the same time to access the data….’” [Pensions and Investments]

Bitcoin Is Officially a Commodity, According to U.S. Regulator

Excerpts: “Virtual money is officially a commodity, just like crude oil or wheat.

“So says the Commodity Futures Trading Commission (CFTC), which on Thursday announced it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform. ‘In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities,’ according to the press release.

“While market participants have long discussed whether Bitcoin could be defined as a commodity, and the CFTC has long pondered whether the cryptocurrency falls under its jurisdiction, the implications of this move are potentially numerous….” [Bloomberg]

Bank of England Chief Economist: “Bitcoin Technology has Real Potential”

Excerpts: “Traditionally policymakers have resisted cutting rates below zero because when the returns on savings fall into negative territory, it encourages people to take their savings out of the bank and hoard them in cash.

“This could slow, rather than boost, the economy. It would be possible to get around the problem of hoarding by abolishing cash, Mr Haldane said, adding: ‘What I think is now reasonably clear is that the payment technology embodied in [digital currency] Bitcoin has real potential….’” [Telegraph]


We tweet blockchain news and insight at @PanteraCapital and @Dan_Pantera.

You can subscribe to our publications by visiting or by emailing

  • BitFlash: the day’s best blockchain articles, charts, opinions, and websites.
  • BitFlash Weekly Review: the week’s best blockchain articles, charts, opinions, and websites.
  • Public Letter: a monthly letter with our thoughts on significant market and ecosystem-related developments. Also, includes our thoughts on blockchain venture capital and news on our portfolio companies.
  • Investor Letter: Public Letter plus exclusive information for accredited investors.
  • White Papers: periodic, original blockchain research and academic papers.
  • Portfolio Company Profiles: inside looks into our portfolio companies and our perspectives on their industry positioning.

Most of our content is publicly available at However, the SEC mandates that only accredited investors can access certain information. If you are an accredited investor, register here to access restricted content.