SILICON Valley is starting to catch Bitcoin fever, but entrepreneurs and venture capitalists being drawn to the virtual currency claim that the biggest profits will come from using it to build a new digital finance industry rather than just as a vehicle for speculation.
Digital currency groups that have attracted early rounds of venture capital recently include Circle Internet Financial, headed by Jeremy Allaire, an entrepreneur from the media technology industry, and Ripple Labs, whose founder, Chris Larsen, was behind pioneering peer-to-peer lender Prosper.
Prominent investors who have been drawn to the field include Jim Breyer, a partner at Accel and early backer of Facebook, as well as Google’s venture capital arm, which has invested in Ripple and Buttercoin, a Bitcoin exchange.
Bitcoin’s tech industry backers argue that the shared protocols and common technology standards on which it is based echo the open technologies that lie at the heart of the internet. That could make it the foundation for a low-cost, standards-based financial system independent of the traditional banking system.
"It reminds me of the internet protocols in the mid-1990s," said Mr Breyer, who is also a director of retailer Walmart. Bitcoin was an "enormous e-commerce opportunity" for merchants, because it could reduce transaction costs and make it easier to buy online, said Mr Breyer, who contributed to a $9m investment in Circle — the biggest first-round financing for a payments start-up, according to the company.
But this could make possible the same sort of disruption in finance that the media and communications worlds faced with the rise of the internet. His company has created its own virtual currency, Ripples.
An open digital currency platform made it possible for start-ups to create a range of financial applications, similar to the way the likes of Google broke into the media world by building on the internet’s HTTP protocol, Mr Larsen said.
But there are hurdles. Regulators in the US have been more cautious than in other countries, making banks nervous about setting up accounts for Bitcoin companies. Brazil, Germany and Russia had taken a more open stance, contributing to a wave of Bitcoin exchanges and other virtual currency start-ups in those countries, said Micky Malka of Ribbit Capital, a Silicon Valley investor in financial services. China is now the focal point for much of the innovation, say venture capitalists, given the speculative investment frenzy there and lower use of traditional financial services.
Silicon Valley’s Bitcoin start-ups claim that comments by regulators at a Senate hearing two weeks ago show US attitudes are changing.
In written testimony, Federal Reserve chairman Ben Bernanke said virtual currencies held "long-term promise" for innovation in finance.
Supporters say Bitcoin’s open protocols make it possible for payments to flow as freely and cheaply as e-mail, leading to a race to build low-cost payment systems founded on the virtual currency.
Entrepreneurs such as Allaire say that this gives merchants a strong incentive to adopt the currency, in that they would escape charges from payment card companies.
Mr Larsen said for consumers, using currencies such as Bitcoin could be a way around fees and exchange costs, which consume up to 10% of international remittances.
Meanwhile, the huge volatility in the Bitcoin price, which soared above $1,000 last week, has created a problem for start-ups that hope it will come to be seen as a stable and widely accepted medium of exchange rather than a speculative commodity.
Mr Breyer said: "The bubble craziness of the currency was not a positive for me in any way."
The tech start-ups claim they will be able to step into other virtual currencies should faith in Bitcoin evaporate. Some, like Ripple, have created their own.
...
Alderney to join the game with Bitcoins
THE Channel Islands have long held an outsized role in the world of financial services, writes Jane Wild.
But while Jersey and Guernsey compete for offshore banking business, their tiny neighbour Alderney is bidding to become the first international centre for Bitcoin transactions.
As the price of a single Bitcoin has climbed above $1,000 this week, the British crown dependency sees an opportunity in the rising global popularity of the virtual currency.
The territory, which is part of the British Isles but close to the coast of France, belongs to the Bailiwick of Guernsey and relies on its bigger neighbour to provide public services for its population of 1,900.
But Alderney has long dreamt of being financially self-sufficient and sees Bitcoin as a potential path to prosper-ity, along with its growingrole as a gambling centre.
Law changes in 2005 meant the island was able to attract licensed operators who could advertise gambling in the UK.
It earns about £40m from e-gaming revenue, but must pay £37m of that to Guernsey in fees. Alderney balances its books, while its neighbour has seen its deficit increase — fuelling the island’s desire for financial independence.
The popularity of the decentralised digital currency has mushroomed from its original base of tech fans to investors, businesses and speculators. The main stumbling block was its association with money laundering and buying drugs online.
In January the price of Bitcoins hovered at about $15; last Friday, it hit a peak of $1,242.
Alderney’s finance minister, Robert McDowall, was put in touch a few months ago with Michael Parsons, a banker and adviser on Bitcoin. Over a meal in London they discussed the potential of Bitcoin and the idea of bringing it to Alderney with a physical coin was born.
The Royal Mint, which has a longstanding relationship with Alderney, was brought on board and proposals were drafted. The Bitcoin financial services hub would include exchanges, payments services and physical storage for coins for wealthy clients — and would diversify the island’s revenues from gambling alone. The plan would have to be approved by the island’s parliament and then legislation could be passed to finalise the project. If passed, it will become the first jurisdiction to introduce a regulated environment for the coin. Advocates of the scheme hope it will help end uncertainty over the virtual currency’s status.
How would the plan work?
An independent company will provide the Bitcoins. If the price plunged, neither Alderney nor the Royal Mint would lose anything. The company will put the Bitcoins in an escrow account at an agreed price.
Meanwhile, the Mint will take customers’ orders for its minted Bitcoins and receive money from those coin sales.
The virtual Bitcoins backing the physical coins will be held in digital storage by Alderney.
The Mint will issue the commemorative Bitcoin, paying for the value of the gold content itself. Alderney will receive royalties from sales of the coins.
Coins can be redeemed for sterling at any point in Alderney for the price of a Bitcoin on that day.
© 2013 The Financial Times Limited
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NO SMALL CHANGE: Payments will soon flow as freely as e-mail. Picture: CAMERON SPENCER/GETTY IMAGES
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The bitcoin website is shown on the computer of the proprietor of a shop selling vinyl records and that accepts bitcoins for payment in Berlin, Germany, in April. Picture: SEAN GALLUP/GETTY IMAGES
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A sign announces a proprietor's loyalty to Bitcoins, where they are also accepted for payment, at a pub in Berlin, Germany, in April. Picture: SEAN GALLUP/GETTY IMAGES
SILICON Valley is starting to catch Bitcoin fever, but entrepreneurs and venture capitalists being drawn to the virtual currency claim that the biggest profits will come from using it to build a new digital finance industry rather than just as a vehicle for speculation.
Digital currency groups that have attracted early rounds of venture capital recently include Circle Internet Financial, headed by Jeremy Allaire, an entrepreneur from the media technology industry, and Ripple Labs, whose founder, Chris Larsen, was behind pioneering peer-to-peer lender Prosper.
Prominent investors who have been drawn to the field include Jim Breyer, a partner at Accel and early backer of Facebook, as well as Google’s venture capital arm, which has invested in Ripple and Buttercoin, a Bitcoin exchange.
Bitcoin’s tech industry backers argue that the shared protocols and common technology standards on which it is based echo the open technologies that lie at the heart of the internet. That could make it the foundation for a low-cost, standards-based financial system independent of the traditional banking system.
"It reminds me of the internet protocols in the mid-1990s," said Mr Breyer, who is also a director of retailer Walmart. Bitcoin was an "enormous e-commerce opportunity" for merchants, because it could reduce transaction costs and make it easier to buy online, said Mr Breyer, who contributed to a $9m investment in Circle — the biggest first-round financing for a payments start-up, according to the company.
But this could make possible the same sort of disruption in finance that the media and communications worlds faced with the rise of the internet. His company has created its own virtual currency, Ripples.
An open digital currency platform made it possible for start-ups to create a range of financial applications, similar to the way the likes of Google broke into the media world by building on the internet’s HTTP protocol, Mr Larsen said.
But there are hurdles. Regulators in the US have been more cautious than in other countries, making banks nervous about setting up accounts for Bitcoin companies. Brazil, Germany and Russia had taken a more open stance, contributing to a wave of Bitcoin exchanges and other virtual currency start-ups in those countries, said Micky Malka of Ribbit Capital, a Silicon Valley investor in financial services. China is now the focal point for much of the innovation, say venture capitalists, given the speculative investment frenzy there and lower use of traditional financial services.
Silicon Valley’s Bitcoin start-ups claim that comments by regulators at a Senate hearing two weeks ago show US attitudes are changing.
In written testimony, Federal Reserve chairman Ben Bernanke said virtual currencies held "long-term promise" for innovation in finance.
Supporters say Bitcoin’s open protocols make it possible for payments to flow as freely and cheaply as e-mail, leading to a race to build low-cost payment systems founded on the virtual currency.
Entrepreneurs such as Allaire say that this gives merchants a strong incentive to adopt the currency, in that they would escape charges from payment card companies.
Mr Larsen said for consumers, using currencies such as Bitcoin could be a way around fees and exchange costs, which consume up to 10% of international remittances.
Meanwhile, the huge volatility in the Bitcoin price, which soared above $1,000 last week, has created a problem for start-ups that hope it will come to be seen as a stable and widely accepted medium of exchange rather than a speculative commodity.
Mr Breyer said: "The bubble craziness of the currency was not a positive for me in any way."
The tech start-ups claim they will be able to step into other virtual currencies should faith in Bitcoin evaporate. Some, like Ripple, have created their own.
...
Alderney to join the game with Bitcoins
THE Channel Islands have long held an outsized role in the world of financial services, writes Jane Wild.
But while Jersey and Guernsey compete for offshore banking business, their tiny neighbour Alderney is bidding to become the first international centre for Bitcoin transactions.
As the price of a single Bitcoin has climbed above $1,000 this week, the British crown dependency sees an opportunity in the rising global popularity of the virtual currency.
The territory, which is part of the British Isles but close to the coast of France, belongs to the Bailiwick of Guernsey and relies on its bigger neighbour to provide public services for its population of 1,900.
But Alderney has long dreamt of being financially self-sufficient and sees Bitcoin as a potential path to prosper-ity, along with its growingrole as a gambling centre.
Law changes in 2005 meant the island was able to attract licensed operators who could advertise gambling in the UK.
It earns about £40m from e-gaming revenue, but must pay £37m of that to Guernsey in fees. Alderney balances its books, while its neighbour has seen its deficit increase — fuelling the island’s desire for financial independence.
The popularity of the decentralised digital currency has mushroomed from its original base of tech fans to investors, businesses and speculators. The main stumbling block was its association with money laundering and buying drugs online.
In January the price of Bitcoins hovered at about $15; last Friday, it hit a peak of $1,242.
Alderney’s finance minister, Robert McDowall, was put in touch a few months ago with Michael Parsons, a banker and adviser on Bitcoin. Over a meal in London they discussed the potential of Bitcoin and the idea of bringing it to Alderney with a physical coin was born.
The Royal Mint, which has a longstanding relationship with Alderney, was brought on board and proposals were drafted. The Bitcoin financial services hub would include exchanges, payments services and physical storage for coins for wealthy clients — and would diversify the island’s revenues from gambling alone. The plan would have to be approved by the island’s parliament and then legislation could be passed to finalise the project. If passed, it will become the first jurisdiction to introduce a regulated environment for the coin. Advocates of the scheme hope it will help end uncertainty over the virtual currency’s status.
How would the plan work?
An independent company will provide the Bitcoins. If the price plunged, neither Alderney nor the Royal Mint would lose anything. The company will put the Bitcoins in an escrow account at an agreed price.
Meanwhile, the Mint will take customers’ orders for its minted Bitcoins and receive money from those coin sales.
The virtual Bitcoins backing the physical coins will be held in digital storage by Alderney.
The Mint will issue the commemorative Bitcoin, paying for the value of the gold content itself. Alderney will receive royalties from sales of the coins.
Coins can be redeemed for sterling at any point in Alderney for the price of a Bitcoin on that day.
© 2013 The Financial Times Limited
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