Why I’m interested in Bitcoin

Some people assume that all Bitcoin advocates are motivated by a libertarian political agenda. That is certainly not my agenda. I’m a lifelong Democrat who supported Obama in the last two elections. I think the Federal Reserve plays an important function, and I don’t agree with people who think inflation should be our nation’s primary economic concern.

It is true that many early Bitcoin proponents were libertarians. But it is also true that almost every significant computing movement had early proponents who were ideologically motivated. The developers of the first personal computers were closely aligned with the 60s counterculture movement. Open source software was originally created by people who believed that all software should be available for free. Early advocates of blogging and collaborative systems like Wikipedia were trying to democratize the production and dissemination of information. This isn’t coincidental: broad-based technology movements have depended on non-economic participants early on since it often took years for commercial participants to get involved.

If not for political reasons, why am I interested in Bitcoin? Like a lot of people, I was disturbed by the aftermath of the 2008 financial crisis. I thought the government did what it had to do at the peak of the crisis but missed an important opportunity afterwards to reform the financial system. It seemed to me that there were two ways to improve the system: from above through regulation (which I support), or from below through competition.

I wrote a blog post about this issue about four years ago. My argument was that if the technology industry wants to change the financial services industry, it can’t just build new services on top of existing financial services companies. That would be like trying to disrupt Google or Apple by building services on top of their platforms. To actually have an impact (and create large businesses) you need to create services that completely bypass incumbent financial companies. I gave a series of examples including payments:

Charging 20% interest rates (banks) and skimming pennies off every transaction (Visa and Mastercard) is a very profitable business. Starting a new payment company that doesn’t depend on the existing banks and credit card companies could be disruptive.

Since then I made a number of financial services technology investments, all of which were consistent with this thesis.

I started getting interested in Bitcoin about two years ago. Like a lot of people I initially dismissed Bitcoin as a speculative bubble (“Internet tulip bulbs”) or a place to stash money for people worried about inflation (“Internet gold”). At some point, I had an “aha!” moment and realized that Bitcoin was best understood as a new software protocol through which you could rebuild the payments industry in ways that are better and cheaper.

The payment industry is a $500 billion industry (or larger, depending on how you measure it). That means banks and payment companies charge $500B per year in fees to provide a service that mostly involves moving bits around the Internet. There are other services they provide like credit, security, and dispute resolution, but in any reasonable analysis these services should cost dramatically less than they currently do. The payment industry should be at least an order of magnitude smaller than it is today.

Another thing that informed my view was seeing what a huge headache payments were for startups I was involved with. Let’s say you sell electronics online. Profit margins in those businesses are usually under 5%, which means the 2.5% payment fees consume half the margin. That’s money that could be reinvested in the business, passed back to consumers, or taxed by the government. Of all of those choices, handing 2.5% to banks to move bits around the Internet is the worst possible choice. The other main challenge startups have with payments is accepting international payments. If you are wondering why your favorite technology service isn’t available in your country, the answer is often payments.

But the most exciting aspect of Bitcoin (and this is admittedly more speculative) are all the interesting new business and technology models that “programmable money” could enable. For example, I am very bullish on micropayments (this is a longer topic which I plan to write about separately). The world recently ran its first large-scale micropayments experiment – so called in-app payments on iOS and Android – and despite some serious design flaws (centralized control, 30% fees), it was a smashing success. I think Bitcoin could enable a micropayment system for the open web, and thereby provide a business model beyond banner ads for many important services such as journalism.

I’m not claiming that Bitcoin (or any new technology) can save the economy or the world. The technology industry is in the business of creating products and services that either enable new activities or make existing activities less expensive. Venture capitalists are in the business of funding entrepreneurs who run experiments to try to create these new products and services. I believe the only way the technology industry can offer meaningfully improved financial services is by building new services that don’t depend on incumbent companies. Bitcoin is a serious proposal for dramatically improving the payments industry. There are plenty of open questions but I think it’s an experiment worth running.

38 thoughts on “Why I’m interested in Bitcoin

  1. Pingback: Trackback
  2. Pingback: agen gasa
  3. Pingback: Trackback
  4. Pingback: Hay Day Hacks
  5. Hello There. I found your blog using msn. This is a very well written article.
    I’ll make sure to bookmark it and return to read more of your useful info.
    Thanks for the post. I will certainly return.

  6. There is nothing like knowing that you have to stop at
    traffic lights all the road time in which these
    accidents must be reported. At the end of July and
    the end of the first development of the bicycle. This argument works
    for many sports but for cycling the picture is a little history
    oon the FLO DISC now ship with Shimano 11 speed hub bodies
    for the FLO 30 in the CFD environment. 55 lbs oof wheels
    on one of the most important strategic military point in the area.

  7. Wonderful beat ! I would like to apprentice even as
    you amend your web site, how could i subscribe for a
    blog website? The account aided me a appropriate deal. I had been tiny bit acquainted of this your broadcast offered brilliant transparent concept

  8. Superb blog! Do you have any recommendations for
    aspiring writers? I’m planning to start my own blog soon but I’m a little lost on everything.
    Would you recommend starting with a free platform like WordPress or go for a paid option?
    There are so many options out there that I’m completely confused ..
    Any suggestions? Kudos!

  9. First of all I would like to say terrific blog! I had a quick question which I’d like to ask if you don’t mind.

    I was interested to find out how you center yourself and clear your mind prior to writing.
    I have had a difficult time clearing my thoughts in getting my
    thoughts out. I do take pleasure in writing but it just seems
    like the first 10 to 15 minutes are usually wasted simply just trying
    to figure out how to begin. Any suggestions or hints?
    Thank you!

  10. I’m truly enjoying the design andd layout of your site.
    It’s a very easy on the eyes which makes it much ore pleasant
    for me to come here and visit more often. Did you hirfe outt a
    designer to crewate your theme? Great work!

  11. However, these extraordinarily well performing stocks are a rarity and should
    not be used to judge all equities. So in other words, you have to be creative
    and take some risk if you want to make more from your
    initial investment. Here is a tested, easy money management technique that works
    exceedingly well.

  12. I’m really enjoying the theme/design of your site. Do you ever run into any internet browser
    compatibility problems? A couple of my blog visitors have complained about
    my website not operating correctly in Explorer but looks great in Chrome.

    Do you have any ideas to help fix this problem?

  13. Asking questions are actuallky fastidious thing if you are not understtanding anythging totally, however this
    piece of writing gives fastidious understanding even.

  14. May I simply say what a comfort to uncover somebody who genuinely understands what they are
    discussing online. You certainly understand howw to bring an issue to light aand make it important.
    More people must check this out and understand this side of the story.

    I was surprised you’re nnot more popular because you certainly possess thee gift.

  15. Hello just wanted to give you a quick heads up. The text in your content seem
    to be running off the screen in Firefox. I’m not sure if tis is a formatting iwsue or somethjing tto do witrh browser compatibility but
    I thought I’d post to let you know. Thee design and style look great though!
    Hope yyou get the issue resolved soon. Cheers

  16. They haven’t experienced to dedicate lengthy hours
    to research and research. She watches a boxing match
    so she can speak about it with you. The outer levels of
    the pores and skin become inflamed, ensuing in burning, itchy rashes.

  17. Hey, if it’s any consolation, I’m the kind who drives a scratched,
    dented (and I mean a huge dent) car and never pays for a cellphone.
    Donahoe has sold the same number of shares twice before this year.
    In spite of regular oral care, everyone still find some sort of dental problems that
    bothers the way of life.

  18. Hello there! Do you know if they make any plugins
    to safeguard against hackers? I’m kinda paranoid about losing everything I’ve worked hard on. Any
    suggestions?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s