In January 2011, an underground market called Silk Road was opened on the Tor browser (an encrypted software that ensures anonymity of its users). Silk Road sold drugs and other illicit goods and services—and accepted payment only in bitcoins. The U.S. Federal Bureau of Investigation shut the site in 2013, by which time Silk Road had made more than 9.5 billion bitcoins, worth a little more than $1 billion (at that year’s exchange rate). Bitcoin, the cryptocurrency, has always been viewed with more than a hint of suspicion, since getting this currency is an esoteric task. Unlike digital wallets, which are based on real currency, virtual currencies are regulated only by users and not by a central bank. It’s all very obscure and geeky, but here’s the thing. Blockchain, the technology that powers bitcoins, is a technology that banks worldwide are moving towards. It’s popular enough that San Francisco-based Blockchain Capital only invests in businesses based on blockchain. The managing partner of Blockchain Capital, and chairman of the Bitcoin Foundation, Brock Pierce, was in India recently to hunt for potential unicorns. In a freewheeling interview, he talks of his past as a child actor (he acted in The Mighty Ducks and The First Kid), bitcoins, blockchain, and much more. Edited excerpts:
Is bitcoin a stable investment?
It is not necessarily a stable investment but an interesting one, and one that has the potential to appreciate. Bitcoin is essentially gold 2.0 [like gold, bitcoin can take the value of any fiat currency and can be traded anywhere in the world. It is an underlying asset unlike paper money]. It possesses all the attributes that made gold a successful form of money, expect one—it is intangible.
How can someone in a village or a small town use bitcoin?
This is the reason why we invested in BitPesa in Kenya. It [transferring money on blockchain] needn’t be bitcoin per se; you can do it via any asset. Think about blockchain as the operating system and bitcoin as its first application. Through the blockchain platform, an individual can even send smaller amounts [of "real" money, as little as $50] to his family. This can be done on blockchain because it is essentially a distributed public ledger.
There is no central authority that verifies and records transactions in accounting books. All transactions are verified simultaneously in various nodes [points in the blockchain system where transactions are verified and recorded] in a network that acts as a public ledger.
The transaction happens in real time, is faster and cheaper than anything else. And the user will not even know he is using bitcoin or blockchain; for him it is just the app he is using on his mobile phone.
Then why hasn’t this technology picked up yet?
It is mainly due to lack of awareness. People think that it is used only for “bad things”, sort of how the Internet was perceived in its initial days. In 1995, pretty much everyone was saying that the Internet was going to fail, it had no future, and was being used only for bad things. Similarly, people think that bitcoin and blockchain are not secure. But that is not true. It is the most secure computer network in the world. Since all nodes in the system must agree simultaneously that a given transaction actually took place, it is impossible to cook the books and falsify the public ledger. This makes fraud and theft extremely difficult.
How easily do you think blockchain will be adopted in a country like India?
Adoption will take time, just like it took for the Internet. For mass adoption, technology needs to improve your life in a material way. Most of the growth is going to occur in products where the user does not know he is using bitcoin or blockchain.
The problem with financial technology and banks is that so much of it revolves around trust. It is always going to be word-of-mouth virality that creates growth. If a friend tells you that he sent money home and his family got it the same day, and that too for a negligible fee, you will be interested to know how it happened. The word spreads, and this how you get exponential adoption growth.
IBM recently said it’s planning to bring banks in India and other countries on board with blockchain. Do you think banks in India will adopt this technology?
Banks all over the world are adopting this technology. Mostly the big, smart banks are doing this. The large incumbents of the banking system will co-opt this technology.
There are banks that are already thinking about re-architecting their systems to run on blockchain in their middle and back offices to get faster, cheaper, and better settlement, clearance, and security. Most of the top banks in the world are saying this publicly, and many are co-investors in our portfolio companies. (Blockchain Capital has co-invested with American Express Ventures, Citi Ventures, the NYSE, and Nasdaq.) I am not sure if Indian banks have figured this opportunity out yet, but they’ll get there.
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Do you have investments in Indian companies?
I’ve been keeping track of Indian companies working on bitcoin and blockchain technologies. Out of the four [major Indian] companies working on bitcoin and blockchain technology, only Unocoin has raised money so far. [After this interview, Delhi-based Coinsecure that runs a bitcoin exchange and wallet raised $1.2 million (Rs 8 crore) in angel funding in April.]
I have also met a couple of blockchain-centric companies focussed on using the technology and not necessarily bitcoin. However, I cannot name them right now.
So, is investing in an Indian startup something you are considering?
India is naturally a place we are looking to invest in. We are looking for the mystical unicorns. Most venture capitalists are generalist investors. And since we invest only in blockchain, we are sector-specific. This makes the world a smaller place for us, due to which we have a global investment mandate. We are stage-agnostic, which means that I can invest in pre-seeds to series Cs [advanced stage fund].
How did you get into bitcoin? It is hard to believe that I am sitting here talking to you about bitcoins.
It is certainly an unusual career trajectory for a young actor. I have always been an entrepreneur; it is just that I happened to act for some time when I was younger. I started out as an entrepreneur in the 1990s when the dotcom boom started. I started my first company when I was 17. I dropped out of college and raised $88 million to do something combining the Internet and media. Then the Internet bubble burst, and I was a washed-up actor, a college-dropout, and I lost nearly a $100 million of other people’s money.
No one wanted to talk about it and no one wanted to invest in the company, but this was arguably the only skill I had at that point. So, I built a virtual currency business and pioneered the secondary market for online games. It went from zero to $100 million in revenue from 2001 to 2003. The company still makes a $1 billion a year in revenue today, mostly in Korea.
Even when the Internet bubble burst in 2000 and everybody was going out of business, I had said that virtual currency was going to be a big deal. Running one virtual currency exchange naturally led me to bitcoin.
I guess I’m not smart enough to be late to a sector, so I have to be early, before everyone figures it out [that there is an opportunity].