Thursday, March 6, 2014

Satoshi Nakamoto’s Identity

I feel very torn writing this blog post, and thought hard about deleting it a couple times. But, in the end, I’ll just put it out in the ether… because this blog is little more than me thinking out loud, and this is what I’m been thinking about for most of the day.

Satoshi Nakamoto’s (Creator of Bitcoin) identity has been revealed in an article by Newsweek.  The article feels very voyeuristic, as the reader takes on the role of the author, stalking Satoshi and trying to piece together circumstantial evidence in a painful, stretched way. Despite no clear proof that the author has correctly identified Satoshi… it feels quite conclusive when you look at all the small pieces and connections through a holistic lens.

I’m not linking to the article in this post because, in the end, I don’t like the ethical lines the author crossed. She acquired Satoshi’s email address through social hacking a model railroad retailer. She stalked Satoshi to the point he had to call the police. She seemingly mislead friends and family in interviews. Worst of all, as a result of this piece, I’m certain both Satoshi and the Newsweek author will need 24-hour protection (Satoshi needing protection from weirdo Bitcoin criminals that want access to his $400MM in private keys… and the author needing protection from libertarian Anonymous-esque weirdos that hate the methodology of her exposure of Satoshi… or just hate that the mystery is over).

But all that crap didn’t stop me from reading the article with perversely piqued interested. Cue self-loathing.

The real story here that has been rattling around my brain the most is the story of innovation at the fringes beyond normalcy. Chris Dixon said when he made the investment in Coinbase that Bitcoin, “is one of the 5 best computer science ideas from the last forty years.” I agree. And, the idea that this brilliance came largely from one guy, acting in isolation, motivated largely by paranoia and distaste for existing financial infrastructure, is just wild. In this light the profile of Satoshi is the profile of an artist, or better yet, a maker. And like all makers, he is quirky, weird, one of the crazy ones.

More so than any of the circumstantial facts provided by the author, this is what makes the Satoshi identification story so believable.  He looks and feels like other edge people that have made dents in the universe. Watching the ripples from a sole savant’s splash build into global tidal waves is mesmerizing.

Sunday, March 2, 2014
2000 people own 75% of all the Bitcoins in the world. That’s a dramatic statistic. 

I personally am bullish in crypto-currencies and the role they will play in verifying ownership in the future. Crypto-currency = “Internet of money” is a very compelling thesis. 

But this chart is the 2nd most compelling reason to be *bearish* on Bitcoin specifically as a sole crypto-currency winner. 

The 1st most compelling reason is the still crippling difficulty of use. (Only an engineer could have thought to use hash keys as names !?). 

(Hattip to martinvarsavsky's twitter acct for helping be find this chart from Coindesk)

2000 people own 75% of all the Bitcoins in the world. That’s a dramatic statistic.

I personally am bullish in crypto-currencies and the role they will play in verifying ownership in the future. Crypto-currency = “Internet of money” is a very compelling thesis.

But this chart is the 2nd most compelling reason to be *bearish* on Bitcoin specifically as a sole crypto-currency winner.

The 1st most compelling reason is the still crippling difficulty of use. (Only an engineer could have thought to use hash keys as names !?).

(Hattip to martinvarsavsky's twitter acct for helping be find this chart from Coindesk)

Saturday, February 22, 2014

Blogging into the Blockchain

They say, “The Internet Never Forgets.” Meaning: when you post something online, it will be there forever.

But it’s not really true.

Digital data rot is a real issue. I removed 2.5 years of blog posts from the web when I moved from Wordpress.org to Tumblr for blogging, and they are all pretty much lost for good (a deliberate decision on my part). I still have the Wordpress SQL table backed up, but I doubt I’ll ever open it.

Recently I’ve been exploring whether or not it would be possible to blog into the Bitcoin blockchain. There is a comments field in a transaction that can be used to write a note. These notes are most easily explored via blockchain.info. So essentially blockchain.info would become the blog host, but the underlying database would be the blockchain itself.

The more data a given transaction contains (measured in bits) the higher the fee required to process the transaction. This is a deliberate design decision to discourage people from junking up the blockchain with miscellaneous crap or overly lengthy transactions that involve too many transactions. So, blogging via the blockchain could get expensive. But perhaps the fees are worth the permanence…

It feels like the digital equivalent of writing in wet cement.

Tuesday, November 12, 2013

Bitcoin Cap and Endless Divisibility

There will only ever be 21 Million Bitcoins created, the currency is systematically capped.

But, a Bitcoin is infinitely subdividable. Meaning the decimal places to describe the fraction of a Bitcoin are limitless. (Technically, the decimal places are limited by the size of the memory block chosen to store Bitcoins, but if we need more decimal places in the future to subdivide further, we can always choose a bigger memory block size.)

Bitcoin being both limited and limitless makes my mind spin.

Merchants and consumers intimidated by the cost of a single Bitcoin could collectively agree tomorrow that all Bitcoins are best measured in mBTC denomination. 1 mBTC = .001 BTC (it’s a millibitcoin). So now there would be 21 Billion mBTC in circulation. What’s the difference? Bitcoin is not asset backed and has no intrinsic value, so why not just shift the decimal place?

If people knew there will only ever be 21 Billion mBTC in circulation instead of 21 million, would the exuberance for stockpiling Bitcoin diminish? 21 Billion widgets sounds less scare than 21 Million widgets.

Not compelled by my argument? Well, what if we move a couple thousand decimal places…? A million? When there is 21 Googol xBTC, is that enough to convey limitlessness?

And if there are infinity Bitcoins available, how much would you pay for one? This is the question a non-early adopter would need to ask self-reflectively when first buying into Bitcoin.

I know, I know. I can already hear the naysayers reading this post. They’ll say: “Andrew, you’re making a 4th grade math mistake.  If we just change the decimal place, then I now own my same portion of Bitcoins that I did before.  My 2 Bitcoins becomes 2,000 or 2 million, etc… So infinite subdividability is meaningless and the number of Bitcoins are still fixed at 21 Million.”

In the context of early adopters, this feedback is correct and I agree.  But if Bitcoin is only ever relevant to early adopters, it will fail. It’s disruptive power is perfectly correlated with Metcalfe’s Law. What good is a currency that is only accepted by a small fraction of the world.

In the context of mainstream participants in the global ecosystem (non-early adopters who do not benefit from the near term Bitcoin inflation because they do not own any coins), I think my argument that, practically (not theoretically), there are limitless Bitcoins is more persuasive.  And the value of a single Bitcoin will only be measured in its purchasing power with merchants that accept Bitcoin, or the work you’re willing to do to be paid in Bitcoin. Without that counter-party context, Bitcoin is limitless and inherently worthless to the non-early adopter. 

Oh, the Bitcoin mind games…

Tuesday, October 22, 2013
Bitcoin Market Map
Spark Capital was interested in learning more about the Bitcoin market. How does Bitcoin work? Who are the companies in the space? What are the important layers of the bitcoin stack and how do they interact? How would one navigate investing in this market?
We turned to HourlyNerd and were paired up with Oxana Kunets from Columbia GSB to help us learn more about this market.  She built a deck that helped us answer these questions and map the landscape.  The image above is slide 74 from the deck. We thought the result was worth sharing with others.
The X/Y positioning on this chart is Alexa data because it’s a simple common denominator that is available for all companies, which (albeit crudely) proxies popularity and usage.  The size of the dot is an index created by Oxana to proxy revenue potential.  Here is a spreadsheet that displays her methodology and all source data.
I don’t know whether or not Spark will make an investment in the Bitcoin ecosystem, but I do feel like I have a better handle on what are the companies in this space and how they sit relative to each other. I hope you find this data and analysis helpful, and a big thanks to Oxana for doing all this great work.

Bitcoin Market Map

Spark Capital was interested in learning more about the Bitcoin market. How does Bitcoin work? Who are the companies in the space? What are the important layers of the bitcoin stack and how do they interact? How would one navigate investing in this market?

We turned to HourlyNerd and were paired up with Oxana Kunets from Columbia GSB to help us learn more about this market.  She built a deck that helped us answer these questions and map the landscape.  The image above is slide 74 from the deck. We thought the result was worth sharing with others.

The X/Y positioning on this chart is Alexa data because it’s a simple common denominator that is available for all companies, which (albeit crudely) proxies popularity and usage.  The size of the dot is an index created by Oxana to proxy revenue potential.  Here is a spreadsheet that displays her methodology and all source data.

I don’t know whether or not Spark will make an investment in the Bitcoin ecosystem, but I do feel like I have a better handle on what are the companies in this space and how they sit relative to each other. I hope you find this data and analysis helpful, and a big thanks to Oxana for doing all this great work.

Tuesday, May 14, 2013

Bitcoin: the Company? or the Currency?

Charlie wrote a great post about Bitcoin recently.  It’s a great read.  There is one key point that’s banging around my head that I can’t get out since reading his post yesterday:

If you believe in the Bitcoin ecosystem with enough conviction to make an investment right now, are you better off investing in a startup making a business in the space or simply taking your capital and buying the currency itself?  

Given the deflationary nature of the currency, can any single company build value faster than the current itself will appreciate if the whole system takes off?

Thursday, March 28, 2013

The value of a Bitcoin has grown 900% in 3 months. Really remarkable. How high will it go?

It’s interesting to see the correlation between Bitcoin price relative to its Google Trends search volume interest over time. (depicted above)

What is a Bitcoin worth? The simple answer is “whatever someone will pay for it.” Which, right now, is over $90. But that answer doesn’t properly value the usefulness of a Bitcoin. I find the user experience of Bitcoin to be incredibly frustrating today, and I’m surprised the difficulty of using/transferring/storing Bitcoins is not hindering its value right now.

Because the value of a Bitcoin is rising so rapidly right now, there is a strong disincentive to spend them. It’s in either a bubble or a deflationary spiral. Until this period of rapid price growth stabilizes I don’t feel like I really know what a Bitcoin is worth.

Here’s a simple heuristic: I think we’ll know what a Bitcoin is really worth when the current price, 30-day moving average, and 90-day moving average are all within 5% of each other. Until then… who knows?

Friday, March 1, 2013

Bitcoin Needs a Leader

Bitcoin is quite a remarkable, audacious project.  I’m rooting for Bitcoin and all the startups building in that ecosystem. But I can’t help but wonder if the Bitcoin movement would be better served if it had a clear, well-known creator. Every non-commercial movement needs a cheerleading parent:

Wikipedia has Jimmy Wales…
The world wide web has Tim Berners-Lee…
Linux (and also Git) has Linus Torvalds…

These charismatic creators can get up on stage and really motivate people to jump into the parade they are leading.  It’s an amazing sight to watch (I’ve had the wonderful pleasure of seeing Jimmy speak, and it’s incredibly motivating).

Bitcoin, like any major project, does have a creator, but that creator(s) chose to hide behind a pseudonym: Satoshi Nakamoto. The myth of Satoshi and his true identity certainly adds to the mystique of Bitcoin. It also generated some nice PR with two investigative journalism efforts to unearthing his/her identity via the New Yorker (warning: paywall on that NYer link :/ ) and Fast Company.

But, I don’t think a couple of news articles makes up for the loss of a charismatic creator.  No one can tell the story of a movement like a Founder can. I hope that a thought leader emerges in the Bitcoin movement that can fill in the gaping hole left by Satoshi Nakamoto’s absence.