Notes for TWiST ep.618 — Brock Pierce (Blockchain Capital, Bitcoin Foundation) on Bitcoin protocol, scalability, use cases, future

On today’s episode of ThisWeekInStartups (Youtube link) host Jason Calacanis and Broke Pierce discusses what the blockchain protocol is and why it’s a game changer, chinese bitcoin miners and the scalability issues Bitcon is facing, innovative use cases and the future of cryptocurrencies.

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• Jason has known Brock Pierce for 2 decades and he’s one of the brightest and smartest guy he knows
• He’s the chairman of the Bitcoin foundation and a VC capitalist at Blockchain Capital, a fund running the first sector focused on investing on blockchain technology companies

Differences between the blockchain and bitcoin

• The blockchain is the operating system and the the protocol, bitcoin is the first application running on it
• He likes to think about the Internet of today as the Internet of Information and the blockchain as the internet of value ( bitcoin is the first application built on this technology)
• Bitcoin is just the tip of the iceberg, there are a lot of more applications that can be built on the blockchain

The blockchain

• The blockchain is the public ledger of every transaction that’s not stored on a single place but it’s replicated on all versions (clients and servers) of the network
• Instead of a central or cloud architecture, it’s decentralized and distributed, running on so many computers it’s nearly impossible to take offline
• Bitcoin mining works like this: image if Visa or Mastercard said they don’t want to host no infostructure anymore and have no servers.
• They say to their customers that anybody can run their software and host their infrastructure
• In exchange for doing that they get a piece of the revenue relative to your contribution of computing power
• Every transaction is stored as a record on the blockchain and everybody can see it

What they invest in

• Their fund deals fall into 3 categories:
• Bitcoin deals
• Blockchain deals (building enterprise software for financial institution)
• Alternative use cases

Stampery

• Stampery is a startup of on his portfolio focused on legal services
• It allows you to drag and drop a file and create an immutable record on the blockchain, timestamped, that can’t be tampered with
• It cost almost nothing (instead of the 50 bucks you’d pay a notary for the same service) and you can notarize everything
• You can integrate Stampery with your email account and have all your emails notarized and recorded on the blockchain

Bitcoin scalability problem

• In the past 2 weeks there have has been some controversy and doubts about the future of Bitcoin, but the price didn’t really change
• A core dev of Bitcoin proposed to create something called bitcoinXT, a new client instead of the old, to fix the scalability problems Bitcoin faces but the community didn’t come to a consensus so nothing came to be
• Bitcoin code is dynamically updated as long as the majority of the network (miners) agree to update the software
• There are a dozen ways to fix, better ways so they didn’t go with his solution and the dev left the bitcoin community
• Anybody can propose a change to the code base
• The code is the vetted and peer-reviewed by other developers like an open source project
• Miners running the infrastructure have to come to an agreement, process a certain amount of blocks if they want the code to be changed
• Miners are also influenced by companies like bitcoin exchanges, wallets, payment processors
• If a change to the code base came to be there will be 2 forks of bitcoin created and they’ll have a say to which version of bitcoin they’ll accept (miners don’t want to mess with that)
• The debate got a lot of publicity because it was the first time such a big discussion took place in bitcoin
• Scalability problems of Bitcoin are not a matter if it’s possibile, but how and they are good problems to have since Bitcoin has been growing so much

Chinese miners

• A lot of big powerful miners are in China, is the concentration too much? (Jason)
• If you are running a mining operation, you need the cheapest electricity you can get 5–6 cents per kilowatt/hour down to 3–2–1 cent range, and if it’s free, even better — sub 3 cents is ideal (10–15 cents in California)
• There are only a few places in the world with such cheap electricity: Island, Washington State, Kuwait or Venezuela where it’s subsidized, China
• In China they have lots of hydro dams generating 2–4 megawatt
• The problem is that you can’t legally buy electricity from anyone but the government and the deals made are often done without involving the government and in violation of some laws
• There are some risks on the sustainability and scalability over time, the government may crackdown on them

Chinese monopoly

• One of the biggest mining operation he’s an investor in is called Bitfury, based largely in the country of Georgia, they get government subsidies, some big miners are in Sweden
• China doesn’t yet have a monopoly, may getting close to the 51% soon though
• He’s not afraid they could harm bitcoin: why would they want to do it with the all money they are investing in mining bitcoin — if they destroy Bitcoin, they lose money like anybody else, it’s a lose-lose

Bitcoin killer app

• Jason wrote about bitcoin in 2011 when the price was under a dollar but didn’t buy it
• It’s currently used only for money transfer and speculation, why isn’t more popular in our day to day life
• Americans don’t have a need for it, they have a solid system of banks, a strong currency
• It’s started to being used for money transfer from immigrants sending back home money
• Cross border transactions: it’s the cheapest and quickest way to send money between different financial systems (different nations have different systems and it costs money and time to get them to work together)

Bitcoin regulation

• Bitcoin is pretty much legal everywhere: he was worried about regulations when he started investing in bitcoin
• Regulatory responsive has been positive
• Banks are not allowed to work with bitcoins, only startups can, to keep things smaller and take time to figure things out before growing too much, too quickly

Future cryptocurrencies vs Bitcoin

• He’s invested in Ripple, which is doing very well working behind the scenese with financial institution and taking an enterprise approach
• If a new currency comes up with interesting solution to cryptocurrency problmes, the bitcoin code can always be modified and they can copy the innovation
• It’s less likely people will invest in new, unproven currencies when Bitcoin is the one that’s being around for longer
• His money is on Bitcoin but he edges: he bought ethereum and tell everybody to buy ethereum

Ether and Etherium

• Ether is the second most valuable cryptocurrency (according to coinmarketcap.com)
• It’s a turing complete coin designed to be more of a smart contract layer platform than being a bitcoin competitor and built from the ground (Litecoin for example was forked off Bitcoin and built in 4 hours by a developer)
• Turing complete means it has it’s own scripting language in the currency itself
• Don’t buy cryptocurrencies, most of them are a scam

Why we need mining

• Bitcoin has built a trustless system, you don’t need to trust any counterparty to use bitcoin
• Historically was up to banks to be the ledger of transactions between individuals exchanging value
• The proof of work system eliminates the need of them: all the miners make up a network of computer trying to solve a Sudoku kind of puzzles and getting rewarded for that, proving such a distributed ledger of all transactions

Voting

• It’s the perfect tech for election and voting and it will prevent vote fraud
• The information is transparent, everybody can audit it and you can’t counterfeit bitcoin

Identity

• Once you solve it on the Internet, it opens the possibility for hundreds amazing new business
• Facebook has been trying and it could create an API of verified people (it’s not open and available for people to use yet)
• We need that proof-of-identity to do online things we can only do offline: voting, paying bills, driving licenses, government related stuff

Abra

• His biggest risk factor: wrong timing — he gets the confidence he has the right timing when seeing other great entrepreneurs working on the same ideas
• He’s an investor in Abra, they are both investors in it and winner at Launch last year
• At Launch the founder pitched the business without mentioning bitcoin, which works behind the scenes
• It’s better to avoid mentioning it, people don’t really know what it is and won’t want to used it
• Abra is a startup in consumer money remittance business similar to MoneyGram and WesternUnion
• There are 550 billion dollars/year being sent from places like the US to Mexico, Latin America — people are sending money home
• Normally people pay 10–20% fees at places like Moneygram or WesternUnion, they have to pay for the bricks and mortar retail stores, lots of costs from a past era
• Abra solves the same problem in a faster and cheaper way
• It’s an Uber type product: someone will deliver cash on your behalf, turning people in the emerging markets selling prepaid cellphones, lottery tickets into the drivers delivering cash
• Most of growth for Bitcoin in the short term will come from services you don’t even know they are using bitcoin

Stem

• It’s another porfolio startup of his focused on content creators
• If I’m an artist creating content with somebody else and we want to split 50–50 the revenues, Stem would become the platform to distribuite the generated revenue to us quickly and transparently

What’s worried about

• Market timing more than anything: if getting a return takes too long, he won’t be able to provide them with the liquidity to keep running
• Global macro trends out of his control, bear market that make investors keep their money in cash and out of the markets
• Fear of missing out on the best deals, although so far they have always invested in the companies they believed in

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