Insights and Opinions

Will Bitcoin Spark a Wave as Big as the Internet?

It's not often that you run across something that Bill Gates calls "a techno tour de force" and Warren Buffet's partner Charley Munger calls "rat poison" -- in the same interview. Imagine a financial service that blows away Paypal for speed and efficiency in transferring funds (at a third of the fees if exchanged into dollars -- and generally no fees if purchasing goods or services directly). Imagine a technology that solves the long-standing ecommerce problem of micro-transactions by being divisible down to eight decimal points, and that has no problems with chargebacks or fraud (like cash, it can be stolen, but unlike cash it's then rendered worthless). Imagine an asset that's at once currency and commodity, that even though it's digital can be mined like gold, and that has risen in value more than 10x since January and is up more than two million percent (this is not a typo -- it went from half a penny to today's valuation of $122.93) in the past three years. To say these early numbers are reminiscent of the early growth of the Internet, Napster, YouTube and Facebook is not hyperbole. Of course, only three of those became successes in the end, but they were among the biggest successes in business history.

Welcome to the exciting, bizarre and intriguing world of bitcoin, the first "cryptocurrency' to come out of the secret, arcane world of gamers, libertarian "seasteaders" (create your own country on a boat) and hackers -- and land squarely in the world of mainstream finance, with top-tier VC money pouring in from Union Square Ventures to Andreesen Horowitz. The most remarkable thing about bitcoin, other than the beauty of the fundamental mathematics required to pull it off, has been the speed of its rise. Google "bitcoin" and you'll find more written about it in the past two months than in the rest of its existence. The wise and lucky (many of them college kids) who bought a few thousand bitcoins when they were pennies or even dollars are now approaching millionaire status. The person who was on the receiving end of the very first Bitcoin purchase of a physical good (a pizza for 10,000 bitcoins when they were valued below one cent) now has about $1.2 million in US dollars to show for it if he sold it all at today's prices. That was May 21, 2010 -- three years ago this week -- and it's now known as "bitcoin pizza day."

With that in mind (and my historic thirst for finding the next big thing going back to the days of the CD-ROM and pilgrimages to "Multimedia Gulch"), I ventured this past weekend to San Jose for the first major conference on cryptocurrency: Bitcoin 2013, put on by the Bitcoin Foundation.

But what struck me most were the similarities to the Internet's first major conference in 1994, Internet World. Same size (about 1,000 people), same convention center -- and I'm pretty sure it was even in the same room, complete with 10x10 booths for strange little outfits with names like Gliph and Kipochi this year and Yahoo! and Lycos in 1994.

In 1994, there was tremendous skepticism about the Internet (people scoffed at claims it had a reach of 20 million people; I recall a TV executive at the time scoffing that "19 million of them are students and professors overseas"). One reads the history of similar dismissal of the telephone (the CEO of Western Union called it a toy), television, automobiles, even electricity. So is this an amazing bubble ($1 billion in value, up from less than $10,000 at its inception in 2009) about to pop, the beginning of a ride to where the bitcoin rivals gold as an asset and the dollar as a currency, or the start of a ride that goes halfway up and then gets destroyed by hacks, government bans (which would be hard to enforce given its completely distributed nature -- it would be like banning barter) or the rise of a newer, better digital currency?

I'm asking myself these questions, and I'm interested as to who in the LA market is asking them as well. Silicon Valley is voting with its dollars on the rise of the bitcoin. I'm going to continue to study this, and I will begin accepting bitcoins for payment (the most impressive company at the show was Coinbase, which is growing at 15 percent per week -- again, this is not a typo), which lets one turn bitcoins into dollars for less than a one percent charge. So even if one doesn't want to invest or speculate in bitcoins, it sure beats the cost, security issues and delays of wire transfers, credit cards and PayPal. I also started an informal group of angel investors at the show interested in seed-stage investments in cryptocurrency startups with one other angel from Texas over beers - we've called it BitAngels (">"> -- and by the next day we had 35 members. Perhaps we've finally found the elusive Web 3.0.

Michael Terpin is the founder of SocialRadius, a social media marketing consultantcy. He began SocialRadius in 2007 and has been engaged in social media marketing campaigns since 2003 through its sister company Terpin Communications, a leading international public relations boutique. Terpin also founded Marketwire, one of the world’s largest and most comprehensive international press release newswires. Originally known as Internet Wire, Marketwire was acquired in April 2006 by Toronto-based media company, CCN Matthews, and is now owned by OMERS Capital Partners, the private equity arm of a $41 billion pension fund. Marketwire employs more than 200 people and has annual revenues of more than $70 million, with offices on four continents. Terpin holds an MFA in Creative Writing from SUNY at Buffalo and a dual bachelor degree in Newspaper Journalism and English Literature from Syracuse University. He serves as an advisor to SU’s Newhouse School of Public Communications, where he was inducted into its prestigious Wall of Fame. Terpin was a finalist in the 2000 Ernst & Young Entrepreneur of the Year Award.