Bitcoin, the Global Reserve

I want to write about a topic that I seem to be debating on a near daily basis. It there any reason to continue to be excited about bitcoin the currency? (It’s late, so forgive any typos.)

It feels like we’re about month six into an indefinite branding war with the mainstream financial community and even some of our own over whether bitcoin per se, or blockchain technology (sans deflationary currency) is the winning fintech innovation from 2009. And admittedly, there are good arguments against bitcoin becoming a legitimate currency — or even a rails of payments used by anyone who prefers to keep their bank account intact and stay on the right side of the law.

For instance, there is still institutional fear that the technology is infeasible to use for payments because it’s impossible to reverse charges, and difficult to surveil the bitcoin network for bad actors and black market transactions (both problems seem solvable by bitcoin startups). There is wariness to buy-in to the “bitcoin as a backbone” argument where institutions hide the currency and use the tech and its token behind the scenes, mainly because bitcoin is still (according to its own chief scientist) in a beta release. The security of the network is still relatively weak, and hundred billion dollar multi-nationals aren’t going to invest in a network that might cease to exist in five years without any clear contingency plans.

As a Bitcoin permabull, these short term challenges don’t bother me. But I list them because they are rational concerns and ones that will take years to quell at an institutional level. In the meantime, you’ll see dabbling in alternative protocols like Ripple and Stellar and Ethereum and Hyperledger, and (gasp) these same institutions will even fork open-source code and make it their own. (Michael Lewis writes in Flash Boys about the laughable degree to which Goldman makes open-source code their own “IP”.) I think Tim Swanson’s paper nailed it (for the most part) and that this experimentation with blockchain-not-bitcoin is perfectly fine.

Bitcoin might not ultimately make it as a currency in the world’s largest economies, and it might prove to be a pretty poor store of value if its corresponding tech is relegated to second-tier status in favor of a more government/bank friendly protocol. With that in mind, competition is healthy and new ideas are welcome when it comes blockchain tech, I think.

But there is a huge caveat.

The longer that bitcoin survives, the more likely it is to disrupt a large swath of developing economy currencies. I’m increasingly convinced that Wences et al have been right all along with bitcoin as a value store (reserve) emerging as its hidden-in-plain-sight killer app. In a stroke of irony, we might be looking at 50–50 odds that bitcoin’s character arc goes from cryptoanarchist currency, to commodity that powers 1.0 financial technology, and back to functional currency reserve for much of the developing world. And if that’s where it settles for the medium-term, it would still be a phenomenal outcome.

Consider: Bitcoin inflation slows to ~4% by 2017 — reasonable by most any economist’s modern standards and not too far off of the target thresholds for most central banks. This is also a predictable 4%. Yes, that figure belies the forex swings that bitcoin will inevitably experience as a young currency, but the rate of seignorage will still be quite low. And less new bitcoin money creation will inevitably reduce sell-side pressure from miners as a percentage of total network transactions. That could and probably will help the market stabilize enough to price more and cheaper derivatives to hedge out volatility for those who don’t want it.

Consider: Most developing economy currencies suck, and will be debased into oblivion within two decades, if not much sooner. If you believe your current currency has a 50% chance of being completely destroyed in the next ten years, and think bitcoin has a 50% chance of being alive at all, it makes sense to buy bitcoin with your less sexy currency. It probably only takes one country to start buying bitcoin for their central bank (as if it’s gold), for others to follow suit in rapid succession. (FWIW, Gyft’s Vinny Lingham, who has proven to have an uncanny knack for picking the price trends that matter, agrees with me.)

Consider: Dozens of countries around the world already operate on a two currency system with the US dollar as a viable alternative to their local options. Economists’ dismissiveness of bitcoin as a potential reserve currency on the grounds that “governments and their central banks would never cede that kind of monetary control” ignores pretty much all of the evidence that already exists which shows how it is an extremely rare luxury to live in a country with a central bank that has any flexibility whatsoever with respect to monetary policy. i.e. if a country’s central bank stores dollars and gold, it might like BTC.

Consider: Not even the US dollar is likely to be the world’s reserve currency in 20 years. I have begged on social media for some smart economist to refute this, but none have so far. It’s easy to look at our surging economy and think “we’re still the best”, but China’s economy will dwarf our own by 2040. India will likely eclipse us as well. And its a slam dunk that frontier markets will continue to command a larger chunk of the global GDP pie. (Europe is still probably screwed.) In a world where the US is the second or third largest economy in the world and commands 15% of its GDP rather than 25%, who honestly thinks the greenback is going to be the only currency reserve? (That’s not rhetorical, by the way. Send me a counter-argument and I’ll reprint it.)

If all that is true, then it follows: In a world where even the mack daddy of all fiat reserve currencies is dethroned, and a neutral, stable, predictable alternative exists, some countries are going to start taking a chance on bitcoin. It really only takes one successful experiment to create a domino effect, and those tier II (and III and IV) government currencies will collectively fade to black. The longer bitcoin survives, the longer we have to build the robust infrastructure to support a fully functional bitcoin ecosystem that could swoop in to support an entire small country. All we need to do is stay heads down and wait for one regional storm to brew in a world that is frankly already plagued by currency wars.

In a stroke of irony, policymakers and Keynesian economists might finally see the “bancor” global reserve currency that their idol John Maynard Keynes proposed 80 years ago.

Only it will sneak up on them from the frontier. And it will be completely beyond their control.

Events: “Bitcoin 2015” is happening this fall. Stay tuned.

Jobs, Jobs, Jobs

Coinbase Product Manager, Exchange

Summary: Coinbase is the leading bitcoin wallet and brokerage business in the world. The company recently launched the first US-compliant bitcoin exchange — previously, the dominant bitcoin exchanges have been unregulated, offshore exchanges with little access to the U.S. banking system. The Product Manager will lead Coinbase’s efforts to make the Coinbase exchange #1 worldwide in users, institutional partners, volume, etc. The best candidates for the position are metrics-driven leaders who are technical or have some technical background, with a preference for folks with experience growing a business line and/or working with trading or exchange technologies.

Full job description here

ConsenSys, New York (consensys.net)
Blockchain production studio building decentralized applications in the blockchain 2.0 space (mostly on Ethereum). These tools will be packaged into separate ventures that are individually funded and skinned for different business niches. We are hiring 5–15 students for a summer internship program where they will have access to our amazing team and have the opportunity to plug into numerous ongoing projects. (Since ConsenSys is itself a somewhat decentralized company, with personnel in various cities, remote working interns may be considered.)
-Please apply by sending an email to info@consensys.net with work samples, resume, and general interests in the space. If you include a proposal for a dApp, smart contract, or other useful tool you want to build, we may consider the development of that project.

Abra, San Francisco (VC-Backed)

The 2.0 remittance app that just won the Launch Festival last week is looking for two senior engineering hires. (goabra.com)

-iOS Dev Lead — Min 5 years development experience with at least 3 years on iPhone. Must understand location services, UI programming, and other core iOS servIces.

-If you think you’re a good match or know someone who is, email contact@goabra.com.

Grayscale Investments, New York (a DCG Company)
The manager of the Bitcoin Investment trust, the first publicly traded bitcoin investment vehicle, is making two non-engineering hires. (grayscale.co)

-Account Manager — Min 3 years of demonstrated sales-driven success within the financial industry, preferably in an investor development or capital raising role; Series 7 and 63 licenses certifications. More info here.

-Marketing Manager — Min 4 years of demonstrated success in product marketing, preferably in the financial space; looking for candidates with experience marketing either public or private investment products and/or marketing for asset management businesses. More info here.

Bolt, San Francisco (VC-backed)
The stealth startup focused on consumer applications of Bitcoin is making a number of engineering hires including Security Engineer, Ruby Engineer, and UI/UX Designer.
-Check out Bolt (bolt.com) and email jobs@bolt.com.

Elliptic, London (VC-backed)
-The full-service bitcoin custodian is also making a number of key hires including data scientists and front-end developers.
-Learn more and apply at elliptic.workable.com

Today’s Tid Bits

Controversial Dark Web Bitcoin Bot Released from Custody
http://www.cnbc.com/id/102604472
Earlier this year an automated shopping bot designed to make purchases on dark web marketplaces was confiscated. The Random Darknet Shopper had a weekly budget of a $100 in bitcoin and purchased ecstasy pills, a Hungarian passport and a baseball cap with a built-in camera. The bot was set up by the Swiss art group, !Mediengruppe Bitnik, as an art installation to explore the dark web, and has recently been released from custody.

Interpol Creates Digital Currency to Study Crypto Crime
http://www.coindesk.com/interpol-creates-digital-currency-study-crime/
The Global Complex for Innovation (IGCI), Interpol’s cybercrime research facility, has created its own digital currency in an effort to combat cryptocurrency fueled crime. The team, in collaboration with Singapore’s police force, will use its in house virtual currency to play out situations where cryptocurrency would be misused, in a specially designed simulation trading game.

21 Inc. Chairman Hints at Stealth Startup’s Larger Mission at Bitcoin Job Fair
http://www.coindesk.com/21-ceo-balaji-srinivasan-bitcoin-job-fair/
During the Bitcoin Job Fair on Saturday, the chairman of the secretive startup 21 Inc., explained his larger vision for his company’s technology. Balaji Srinivasan, the 21 Inc. chairman, hinted that his firm’s technology would be enabled by the digital currency and stated that “Bitcoin is here to stay.” He also asserted that “Bitcoin is bigger than Google,” and discussed that the bitcoin network’s problems are solvable due to the distributed nature and collaborative development of its network.

Mt. Gox Leaked Bitcoin for Years Before Heist, says WizSec
http://www.theregister.co.uk/2015/04/21/bitcoin_heist_went_on_for_years_says_wizsec/
WizSec, a Tokyo-based group that’s been investigating the unravelling of Mt. Gox, claims the crypto-currency was going missing from Gox long before the exchange collapsed in 2014. Thereport suggests that thefts went as far back as 2011, noting a “discrepancy of several hundred thousand BTC between expected holdings and actual holdings.” This discrepancy appeared to have only grown with time. WizSec’s research is ongoing and was prepared with an eye on an upcoming creditors’ meeting.

US Police Office Charged with Receiving Stolen Bitcoin Miners
http://www.coindesk.com/nj-cop-charged-with-receiving-stolen-bitcoin-miners/
Vincent Saggese, a New Jersey police officer, has been arrested and charged with receiving stolen property after allegedly selling stolen KNC Miner Neptune devices. Saggese was also charged with professional misconduct after allegedly accepting $250 from an undercover detective in exchange for obtaining the address and photograph of a license plate’s owner. He was arrested on April 17th.

Bitcoin Acceptance Highest in Turker, Says ING Survey
http://cointelegraph.com/news/114018/bitcoin-acceptance-highest-in-turkey-says-ing-survey
According to a recent survey by ING, which was aimed at gaining a better understanding of retail customers’ banking and spending habits, Turkey is the country where digital currencies have had the highest acceptance rate. The ING International Survey, collected information from 14,000 consumers from 15 countries on their views and habits towards mobile banking and payments. Turkey also currently holds the largest share of mobile banking users among internet users at 65%.

Bitcoin Mining Firm KnCMiner Being Sued by Customers
http://www.coinbuzz.com/2015/04/20/asic-manufacturer-kncminer-sued-customers/
KncMiner, the Swedish Bitcoin ASIC Mining Manufacturer, is facing a class action lawsuit by a group of approximately two dozen people being represented by the Swedish Law Firm, Advokatfirman Rise & Co AB. KnCMiner has been notoriously known for their delayed or unfilled customer orders and shady business practices.

Bitcoin vs. Wall Street: A Love-Hate Story
http://techcrunch.com/2015/04/20/bitcoin-vs-wall-street-a-love-hate-story/
Phillip Kim, a marketing analyst at a bitcoin wallet and bitcoin payment processor, wrote an article discussing the development of the relationship between Wall Street and Bitcoin. In 2014, Bitcoin easily written off by Wall Street execs and companies, now it is being acknowledged and even embraced by some. Regardless, most companies are beginning to realize that Bitcoin is something that can no longer be ignored. Kim predicts a bright future for Bitcoin and Wall Street.

Have a tip or feedback? Email me! (2bitidiot@gmail.com)