why-bitcoin-still-matters

Preliminary notes:

Why bitcoin still matters

Hutchins, Founder of Silver Lake

I hope in the coming days that the experts will critique me to help me learn more. I hope people from the general community, rather the experts pardon me, what I have an initial hypothesis regarding what will help bitcoin reach its full potential for its extraordinary opportunity that I think it is.

The title of my presentation was "Why bitcoin still matters". I was reminded earlier today that it is a reference to Marc Andreessen's article "Why bitcoin matters" which woke up a lot of people about the opportunity. Today's there's a saying out there saying blockchain good bitcoin bad. We have heard this somewhat today a little bit, but sometimes not. I would like to think that this presentation today would be that, blockchain good, but bitcoin better. It's what's really important. Let me tell you why I think that.

When you talk about new tech, and I have spent my career as a tech investor... what you're talking about, for instance many people still click on an envelope to send email. Many children don't even know what an envelope is, they still use the button anyway as a metaphor even though email is better than snail mail. Secondly, talking about complex technologies and sometimes you have to take apart pieces and assemble them into a whole. Even though my 26 son says bitcoin tech is one thing, I think there's at least three conceptual segments to talk about it. A car has multiple parts which are useless until assembled.

There are three major parts. First is thta Bitcoin is a store of value. In my view, there's way too much focus on the ... and ... as a result of the... larger in the general public about what bitcoin is all about. Second is that Bitcoin's blockchain is a ledger. It's important, but when it's disconnected from other elemnets of the bitcoin technology, it functions more like an intranet, the early days in investing in internet was first the intranet which was for connecting computers for the computers in an office. The transformative value was only when all the intranets were connected into a global internet and you got the world wide web. Similarly, only when all the blockchains are connected together, you get an internet of value. It will be very valuable. I think the third piece of the technology which has been misrepresented in its importance, is the bitcoin protocol, which is not unlike, which is to the transfer of value in my view to the internet protocol is to the transfer of information. That's where the transformational opportunity resides. We can move value around the world at the speed of light at almost no cost. We can fundamentally transform the finance sector with bitcoin and consumer and financial value.

Barry Silbert described it a similar way today. He is a fellow at Digital Currency Group. He often uses the analogy or metaphor of the railroad to explain this to people, which is the boxcar in which you put oil and whatever. Essentially this is the bitcoin currency which is the means to move on which the value is put, and then move around. The blockchain is the cargo manifest, which tells you what where when, but the bitcoin protocol is the rails. I thought this was an interesting metaphor. It's what carries the value to the final destination. We use the term "payment rails" across the industry. It's only there that digital currencies will be transformative. I think value over internet, that's how I see the opportunity, that's where the opportunity comes from.

Blockchain database tech could be very good enterprise tech. Selling tech to financial services companies to reduce costs, that's good. But the transformational piece of this will be if we can create a brand new payment capital system which is better cheaper and much more robust, and that's what the bitcoin protocol can do.

If you think this industry is just for hobbiests, then think again. There's tons of bitcoin transactions. They have reached an asymptotic level. The hashrate in the middle graph here can be described in a couple of ways which are basically, one is the measure of the computational capacity running across the network, which is one of the key protections against bad actors. The pool today of computational power running the bitcoin technology around the world is 140 times the power that is employed by Google's supercomputers. It's 140x that. It's equivalent to the tech residing in 10,000 of the largest banks in the world. It's at huge scale already. Since people think Bitcoin is in its infancy, that's even more astounding-- what scale will this be at in the long run?

You can also see the pace of capital going into Bitcoin right now, such as from the investment community. In 1995, which is a roughly analogous time in the ecosystem, the internet of value instea dof internet protocol... there had been $250M invested but in 2014 there was $260M invested even though we understand that early pressures on early tech has... we still have already reached in 2015 for bitcoin. It reached extraordinary levels of investment in bitcoin. This looks like an industry taking off. Underlying transactions underlying computation power and investment capital.

Finally, if you still don't believe me, look at where the capital is going. Investors have put money into what I think are parallel financial services ecosystem where you have companies that are walets, exchanges, financial service companies, mining as well as universal companies in the middle. The capital is voting and the entrepreneurs are working to build companies much more than just the ledger or just the blockchain. There's a bunch of people like me out there thinking this is a very valuable very transformative place to go.

That's my message for people in the community who are only focusing on blockchain; you're missing out on bitcoin and the bitcoin protocol and bitcoin technology. It's also my message to the general public about what to focus on. Now I would ike ot talk about the bitcoin community themselves... I have become an investor in bitcoin not unike I did 20 years ago in internet companies. I have invested in Digital Currency Group, joined the board, bought a bunch of bitcoin myself, started to build a portfolio of various bitcoin companies, so I have talked with a lot of the CEOs in the building. I emphasize three important things.

First, you have to have a consumer application which is simple for your consumers to use, whether it's an enterprise business or a consumer business, whoever your customer is, they have to be provided something very simple application, ideally they would not even experience bitcoin technology as they use your application. Today people don't need to figure out what HTTP is or what TCP/IP is to send email, or to visit a website, or VOIP to make a phone call. They just use these technologies when they do a web search, send an email or make a phone cal. Bitcoin tech needs to find its way towards this. It needs to find tech guts for consumer applications that are easy to use.

The second is that we have to work very hard in the bitcoin community to provide consumer applications that reduce latency and reduce costs substantially. The real opportunity here, I have done a lot of investing here, and ... and assets primarily, and I am on board with Nasdaq stock market to make that business. We have taken the cost of trading to equities down to 2.5% from where it was originally, we're at 1/40th the cost. The reason we can't get the cost down lower is because the government wont let us use more decimal places. There are massive opportunities and pools of legacy profitability in the financial services industry, largely around payments, credit card payments, credit processing, remittances, if you can provide an opportunity to customers... if you can get them to... and you can reduce the cost to a fraction of what we had today, you can drive huge amounts of value for yourself and for your consumers not to mention you can enable to commerce to happen that doesn't already happen because it's too expensive to happen, whether that's micropayments, machine machine payments, or whether it's the application of bitcoin tech tovoitng or anti-spam or any number of opportunities like that. If you think about better faster cheaper, fast and cheap and transformative, people who come from high-frequency community was entirely enabled by the tech that went into reducing costs and reducing latency substantially. So think about providing a consumer with a very simple, your customer really, with ta very simple technology that doesn't require them to figure out bitcoin technology. Give them something that works quickly at low cost. You will have massive opportunity.

Third, and most important, is it's really important for this industry to embrace regulation. It's very important to get that right for two reasons. One is that, operating outside... the banks... and other parts of the financial infrastructure will continue to be for a long time, important parts of the bitcoin ecosystem will be necessary to work, to work in that context fo regulation and as you are building out this business, to be able to work inside the framework of the legal and regulatory systems. This will be critical to being successful and also working with the regulators early on in your company's life to get make sure the regulators are smart, that they work for your business, that they are done in a manner that is sensitive to the needs and interests and manner in which the tech works. This is very important. You have to get beyond MtGox and Silk Road. You have to use KYC and AML. If you get that right, if you get that right, the consumer benefit right, if we get the regulatory market right, this is the, and also embrace the bitcoin tech for what it can do, this is an industry that can be transformative in our lives both personally and industriously.

That's all.