EB61 – Garrick Hileman: CoinDesk's State of Bitcoin 2015, Ecosystem Grows Despite Price Decline

Transcript

hello welcome to epicenter Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is Sebastian cuccio and my name is crane we're here today with Gary kyleman Gary Hamlin may be known to a lot of people or sort of known because of his state of Bitcoin report so coins Witnesses report every three months every quarter and we've actually done a show before on that just kind of discussing the report in this housing where we are sort of in the evolution of Bitcoin and today we have him on himself so thanks for joining us today Garrick thank you guys for having me it's a pleasure to be here and then and also

thanks for uh this wonderful report you're writing I think it's always uh it's a it gives one a very good sort of comprehensive overview of where we are at and where Bitcoin is at well it's been a it's been well received and and we really appreciate the community's support of the state of Bitcoin reports and the feedback we've received since we first launched these uh a year ago and uh you know we try to improve them each quarter and uh please if you have suggestions on how we can make them better uh uh we'd love to hear from you okay I also think that it's a good way to sort of gauge the evolution of Bitcoin so not only is it a good opportunity to you know see where we are in the in in the evolution of Bitcoin but you know

looking for month from report to report uh it allows you to sort of track a timeline of where bitcoin's at absolutely we're trying to uh to Benchmark where Bitcoin stands you know it you know you know predefined Junctions and time and and so uh taking a quarterly view of kind of where Bitcoin is and where it's come and try to track how it's how it's performing uh it's very much a big part of the objective with the state of Bitcoin reports so before we get started uh I just wanted to take a a second to uh well to talk about what's been happening recently in Paris uh everybody's probably aware now of the uh terrorist attacks on Shelley Abdul and recently in

Paris and uh so you know it's really horrible what's happened of course I'm in France so we've been sort of uh watching the news for the last two days and uh it seems that it's over now uh but unfortunately there are uh 16 innocent people that have died and among those journalists and people fighting for freedom and of expression and the liberty of the press so our thoughts are with them and so we thought that it would be appropriate to uh to uh add to talk about this just briefly and to add the users we Shelly um Banner to our two more screens here so yeah no absolutely I think it's a

horrible a horrible thing to happen and definitely uh one thing I'm worrying about a lot is to sort of at least in my view increased risk we are seeing you know that with all these wonderful Technologies happening and I think Bitcoin is very much a part of it you know that brings so much progress but at the same time um and maybe this is not so much related to that because it was a technologically uh primitive thing right some guys have guns but it just seems like risks are really increasing in my view at least and um I think we will have a lot of very eventful years and decades ahead and Bitcoin will play a role in this and I'm sure there will be many other things of

Less Pleasant nature that will play a role in this as well um and speaking of Less Pleasant things uh one thing that has been happening in the last days is the the bitstamp hack uh I personally haven't looked into this in great detail but Carrick has a good bit of more insight into this because I think he has spent some time uh digging a bit deeper in this story can you just briefly share with us what you've learned well I I don't have uh you know too many more details than than what's out there and and people can go to coindesk uh you know this website right now and see the

the latest piece of analysis on um the uh the theft wallet that was used to uh to actually uh move Bitcoins from the bitstamp hot wall into uh you know the an account controlled by the the hacker um and how close to almost two million dollars in additional Bitcoins were almost stolen um but obviously this is coming at a you know uh you know coming up on the one year anniversary of the the mount Cox uh meltdown for lack of a better word um this obviously has a lot of people concerned it very much reminds people that you know Bitcoin is as you know Gavin Andreessen and others talk about is still you know a beta technology they're still um you know things that you know need to

be sorted out um and uh you know it's an unfortunate event for for people who have been you know cheering on bitcoin and hoping to move past I think some of the mount gox types things that have happened in the past um but hopefully we'll have some more answers about what really took place there are some questions that I have um about the timing um aspects of the of the case um you know we don't know um you know too much about what's happened with the Bitcoins that have been stolen um what who the hacker is obviously uh what other things may have taken place in conjunction with the hack but um it has been reported that you know the hack started on the 4th of January um but if you look at the coindesk uh

bitcoin price index um in the very early hours on the third a day before the hack supposedly began um we start to see a pretty steady heavy sell-off beginning and uh it's uh it's interesting to uh to kind of see how that the price uh started declining you know a day possibly in advance of the hack you know one Theory that's been suggested is the hacker um you know may have been selling Bitcoins uh or the Bitcoins that were stolen uh you know with knowledge that the hack was going to take place or um after the hack occurred there's um you know some some information in the stories possibly some insider trading I mean if you knew there was going to be a large breach of bit stamp maybe you would want to get out in front of that front run

that breach and start shorting uh you know Bitcoin uh in advance uh you know we don't know what kind of resources the hacker may had maybe they had a bunch of Bitcoins already and dump those in anticipation of being able to steal a large some of it stamps Bitcoins a lot of interesting kind of possibilities for those who enjoy thinking like a James Bond villain um and want to think what they would do as a potential hacker uh in a case like this but uh you know the Bitcoins are supposedly being run through mixers um you know it's probably going to be a while like with Mount Cox before we know what really happened and unfortunately you know I hope one thing I hope for the Bitcoin ecosystem and I think there's a lesson here

um you know we see a lot of times large corporations after a hack has taken place kind of really circling the wagons uh you're not talking about the hack for many months sometimes eBay for example um you know it was many months after they were hacked uh before we found out the details around that and I I think Bitcoin really could you know set an example I think for consumers for people who are using the system are trying to do one better and and being more open more transparent which is part of the Bitcoin ethos I think uh and and talking more openly about what's taking place and and quickly rather than um trying to make things look less bad or or the lane announcements so hopefully hopefully bitstream spoon will come out with you know a full report on

what's taking place I think they may have to no because it seems to me and I don't follow the Bitcoin exchange space but closely but if you sort of looked at the trading volumes no like a year ago or when the Mong Ox declined a bit Sam was the leader you know and and this isn't the case anymore right now other exchanges have much bigger volume uh and so it seems to me they have been sort of under pressure and now with that uh well that looks like a quite an existential threat to me right well but stamp I mean definitely kind of filled the Gap I think that mount gox uh Mount gox's decline in the ultimate failure kind of created but as you mentioned you

know bitfinex another exchange based in Asia you know gaining on bitstamp for a while I think I think you know we also need to keep some perspective here with with this case of a bit stamp but it didn't uh Mount Cox 2.0 malcox was a much bigger disaster all right it sounds like the stamp has done a much better job of securing um the vast majority of their Bitcoins and cold storage and so that you know as bad as this may seem this represents progress price hasn't reacted uh you know anywhere uh close to how it reacted uh after Mount gox so I think uh you know the ecosystem is kind of taking this event and stride and realizing you know this is bad but it's not nearly as bad as malcox and in some ways we could think of this as progress

that's uh that's definitely a good way of it in terms of taking this news that's that's the uh I'm out in California right now so that's the California where it's always sunny um well instead of leading into our discussion of the coin this report and and I think that there was a quote on the on the colonist article and and I I really agree with that assessment I think actually also the last time you called it uh the quiet building phase and then I was like yeah that's very accurate I think what was sort of going on was

really quiet and uh I think at this this time there's this phrase the tale of two Bitcoins so on the one hand you have the sort of price which just keeps on dropping and dropping and dropping and then at the other hand we have a lot of we see activity a lot of startup growth where things look pretty Rosy uh so I thought this was a very nice uh a very nice and interesting characterization of of where we're at it's sort of how we've been characterizing it this this last little while too as we we've seen this growth this growth of startups is growth and investment the growth and uh I mean what seems like anticipation for something to

come in but the price just goes stagnating and falling um so we've been very curious about you know why why that might be and you know what would like to get your impressions on uh what is uh what is the what are the factors behind that well first let me say I'm glad to hear the uh the the reference to Dickens uh is is appreciated I I I'm sure many have read the book uh Tale of Two Cities that you know coindes based in London we've got Sebastian here in in Paris uh uh you know it's it's uh but it seemed like a fitting metaphor also for for where coindesk is at I mean I'm not the only person who's picked up on this theme of two Bitcoins or kind of this Divergence

we're seeing between say eco ecosystem progress and and price uh you know my my friend Gil luria at Webb Bush Securities uh recently touched on this as well in his report um a lot of people um you know still equate kind of bitcoin's progress with how the price is doing so I think there is a a perceptional challenge that Bitcoin with a capital B kind of Faces in terms of getting people to see um bitcoin's progress on say the price is going up and up I mean obviously one of the things that put Bitcoin on uh the mainstream media's radar screen was you know the incredible price action uh we saw you know after the surprise the Cyprus deposit uh tax or after uh you know bernanke's comments uh uh that may

hold promise a little over a year ago um and the action in China and so I think the media got got you know very much wrapped up and kind of associating the health of Bitcoin with uh with the price um but especially with the way Bitcoin is being used today uh it may in mind and continue to be used more for smaller transactions uh rather than say large uh institutions um moving you know funds through Bitcoin um the price doesn't necessarily have to increase per se Bitcoin to be healthy as an ecosystem to really grow if it's primarily being used uh well at least in the uh in the short run because if it's primarily being used for say remittances is international remittances there in

the few hundreds of dollars uh you know per transaction you don't need a massive market cap to to be able to kind of absorb those kinds of flows um yeah if if if bigger institutions though want to get into the game want to start sending tens hundreds of millions of dollars you know through Bitcoin then then you know arguably the the market cap will need to grow to really kind of to be able to absorb those kinds of flows without you know increasing the volatility uh but but I think it is it is important for I think uh Bitcoin again capital B Bitcoin the the community to kind of start to talk about how the price can deep in some ways from the progress uh

that's that's being made with the ecosystem with tools and you know Merchant adoption and these these things I I want to come back to this point uh towards the end and talk a little bit about the sort of you know exactly exactly a point you're making you know to what extent this can be decoupling to what extent we can have maybe Bitcoin uh succeed in a sort of a larger sense but Bitcoin the currency not doing so well um but uh let's try to um just briefly touch on some of the different areas so if we talk I think the first part is about we see and the startup activity uh can you tell us how

that has developed over the last in the last quarter and especially relative to before that right well uh so so one of the um comparisons we've made in the state of Bitcoin reports that's gotten a lot of attention is uh this comparison we we did with uh um Bitcoin venture capital investment in 2014 and and and BC investment in the early internet um unfortunately the uh the earliest year we have data for is 1995.

um probably people remember Mark andreessen's um point about a year ago he made in the New York Times article about how he saw the uh the state of kind of Bitcoin as being very similar to where the internet was in 1993 um so a couple years before uh you know the 1995 period that we have Internet VC data for but um one of the things we we did is we looked at by the way is this data adjusted for inflation this data is not adjusted for inflation and this question has come up so let me actually comment on this so if you do adjust for inflation um the the 1995 figure would exceed uh you know the 2014 figure for Bitcoin which was 334 if you're out of 335 million dollars invested uh in in

Bitcoin startups in 2014 compared to unadjusted 250 million dollars invested in early stage uh 1995 internet companies so so why why don't we show that with an inflation adjustment well there's a couple reasons one is um you could make if you start going on the path making adjustments you'd want to start making adjustments for other things so for example uh you know the cost of launching a startup has actually changed quite a bit uh between 1995 and today it's actually quite a bit less expensive to launch a new startup uh than it was back then how would we adjust uh these figures for that um the other thing I mentioned already mentioned was the fact that we don't have 1993 data um you know what was the figure in 1993

we don't know probably less than what it was in 1995. so um again we didn't want to try to turn this into you know uh an exercise which where he went too far down a rabbit's hole where we'd raised too many questions and concerns about methodology we've been very kind of upfront that this is an unadjusted figure but I think it's still an interesting figure just to get some sense of kind of what uh the investment level was back in 1995 and what it is today um and uh you know again there's all sorts of other methodological questions you could talk about how much is CPI inflation have to do with the cost of launching a startup um you know what about the NASDAQ bubble um you know of that time and how much

that affected valuations Etc but um the point is is that you know the the level investment in Bitcoin is is quite large um historically speaking and I think does back up the point that Mark Andreessen was making um you know that VCS are really kind of walking the talk here and putting the money where their mouth is they think Bitcoin you know is very much on level with uh the internet in terms of the size of the opportunity yeah I know I mean I think there's there's no questioning that it is very we have seen a lot of a lot of investment a lot of activity and and one thing that really stands out to me at this time and that wasn't even so aware

of it's just how much investment in Europe has increased because when you look at the past reports it was super low and sort of my impression knowing I would say the European Bitcoin scene pretty well uh is is that we still do lag massively behind uh the us in many ways that you know there's so many new startups and and we all there's also a bit of a at least that's my impression a bit of a disconnect that here the text scene and the tech the startup scene um are not as not as enthusiastic about Bitcoin right so like most people are very skeptical about

that uh they and there's a bit of a disconnect you have the big concerning you have to start obscene but there's no not so much mixing uh and my from talking to people it seems to be a bit different in in especially in California and Silicon Valley where it's sort of common knowledge right Bitcoin is a bit thing and then people believe it and there's a lot of enthusiasm for doing kind of Bitcoin radio things and much more openness for that I don't know what's your impression is there because I you spend some time in certain value as well or yes I split time between California and London so it's interesting London though I think is uh you know probably you know closer to say California in terms of its outlook on some of these things or at

least the circles I run in in London uh and maybe other parts of Europe and the continent um but yeah certainly I think you know here in California uh you know where you know change is very much perceived as this positive thing and uh you know there's very kind of optimistic the future is going to get better and bitcoin's a part of that potentially you know you know I think you're going to have a more receptive naturally more receptive audience uh here than than probably in most anywhere else in the world but it is interesting to see as you say that that Europe and the investment level is increasing although I was just I was also curious here um for example blockchain is that a European company in

Europe um well that's that's what I was going to comment on so one of the things we rely on is is publicly reported information for these reports here's a chance for me to actually make an advertisement these reports can only be as good as the data we have to work with and so when companies like blockchain uh you know actually uh deliberately uh hide where they're domiciled that's actually a corporate secret they won't tell you where they're legally uh Incorporated I thought it was in the UK but maybe um maybe they've they've since actually come out with that but I you know talking with their attorney Marco santori in the past I mean that's that's a big secret actually where it was okay maybe maybe you just revealed it Brian

but but we have to do things like where's the CEO based you know you know we kind of like work with the data we have to try to make some of these determinations and we always try to do the best job we can as your audience probably knows as well there's been a lot of VC investment that has not been publicly disclosed uh which is not uh in the report uh and so you know the the real numbers are probably significantly underestimated um by some you know Millions I don't know what I I hesitate to actually speculate on on what the number is but but we know that I know of deals that have been done that are not probably disclosed and therefore I can't include them um you know in the data but um Europe

has been gaining traction and that's that's been interesting to see yeah now just to kind of wrap up this topic what I'm worried about I guess or concerned about is when we see this 1995 investment and sort of the same growth in the in Bitcoin investment now we all know how that like end of 90s internet ended up uh are we are we potentially in the same scenario here with Bitcoin or is there a bubble growing uh well I mean you know uh you know I'm an economic historian let me let me just say this it's a lot easier to spot the bubble in retrospect than it is uh when you're in it um so I'm not gonna to say whether say Bitcoin is in a bubble or uh

or not I mean obviously there are some things I I was in San Francisco in the late 90s um you know working at a tech incubator when all that uh went pear-shaped uh and uh you know there's there's things that you see in San Francisco in terms of like real estate rental prices um you know the comments that people are making about you know um things that actually aren't directly Tech related but are indicative of kind of a frothy Market that does give one some really be a little concerned about say Tech in general and perhaps Bitcoin um it was part of that but uh you know you know if you look at what happened after the internet Bubble Burst you know a lot of great companies came

out of that and are still with us today and they've gone on to be much you know worth even more uh than they were so you know will we see something like that with Bitcoin where there's a handful of survivors the the big big Amazons ebays et cetera Googles that come out of it um you know we might we might I mean one thing we've we've talked about since the beginning of the state of Bitcoin is excuse me I'm just recovering from a little bit of a cold here um that we likely see some consolidation um and I think we started to see that a little bit in 2014 in the mining sector uh with some announced feels there's been a few other deals I think one thing we might look to see uh more consolidation in uh in 2015 is

the exchanges uh I mentioned that and coindesk actually wrote an article about that recently um I mean volumes trading volumes are up um there's still a lot of volatility with with the price of Bitcoin Traders like volatility so there's still a lot of reasons for for high transactions but you know we saw Volta Satoshi recently decide to kind of close their doors go on and pursue something else there's been a lot there's a lot of exchanges out there um and and I would be surprised to see you know some consolidation in that in that space well we'll we'll cover that in just a second uh I want to talk about startups we've got a lot of topics here as well Merchants you know what's going with the price as well as some other topics but before we do that we'd like to talk

about our sponsorship if you ever have if you've ever tried to buy uh altcoins you know that it is uh it can be complicated uh you have to find reputable exchange that supports the uh that supports the the altcoins that you want to buy you have to create an account there potentially you have to give them a bunch of personal information and place an order wait for that order to be fulfilled and that can be annoying and that can take a long time and we kind of expect that when we have Bitcoin once we're already in the ecosystem once we've converted our Fiat into Bitcoins that you know all these transactions should be seamless well that is now the case with uh with

shapeshift so shapeshift is the easiest way to buy and sell altcoins they support a bunch of altcoins which I'll list in just a second but you know the best way the best way to illustrate how great uh shapeshift is just to show you how it works so uh when you go to shapeshift.io you'll see this so this is a what I like to call um Google Translate for cryptocurrencies on one side you have the currency you want to convert on the other side you will have the currency you want to convert to so uh Brian what do we got here we got Bitcoin and Litecoin oh let's buy some Dogecoin let's buy some Dogecoin all right so what we do is we just type in uh the uh we copy your address we paste our address into the into the widget and

enter the amount and here we've got a QR code with the deposit address which Brian will scan and send and sent it and he just sent some how much Bitcoin did you send uh I don't remember a small amount there you go so the uh deposit has received and in just a few seconds he'll have some Dogecoin in his account so uh shape shift supports uh Bitcoin Litecoin purecoin darkcoin Dogecoin name coin NXT that's new feather coin black coin Bitcoin dark quart uh red coin and new bits and so they're adding new points all the time like every every week

they've got a new a new coin that they've added to their list They just added NXT and who knows who they may start supporting other coins like uh like Gems or or ether or some of these other app coins so there you go they're just completed I just received some Dogecoin in my wallet thanks Brian and uh so that's how easy it is to buy and sell all coins with shapeshift um I mean how long did it take like 20 seconds it's just amazing no conf no confirmations required uh so shape shift is the fast and easy way to buy and sell all coins no accounts needed your personal information is secured and it's protected so head over to shapeshift.io

give it a try tell us what you think and we'd like to thank them for the support of episode or Bitcoin so moving on uh to our next topic and then you just briefly mentioned it I just before we did the ad there um you know consolidation and this is something that uh I also in reading the report thought it would probably uh we can expect to happen in the in the next year we've seen a lot of growth and investment in financial services in wallets uh also in mining sort of infrastructure but not so much in the the universal space you know there are many universals by universals we need these these companies that are involved in many

aspects of Bitcoin whether that be uh buying and selling uh trading wallets uh uh um ATMs Etc we haven't seen so much uh investment in those uh do you expect that in uh in 2015 we'll see some of those universals start acquiring these smaller financial services companies to smaller wallets and integrating them into their into their service set it's a really good question um when would the universal start going on in Acquisitions free um I mean there was just to speak to the uh the investment side there is this rumored 60 or 100 Million Dollar Round that that coinbase is uh currently uh

fundraising for um that hasn't been announced uh in 2014 uh you know don't know if that's coming soon or not um but that certainly would move the investment needle for for kind of the universal category um significantly if that round's announced anytime soon um you know it's it's uh you know I think Bitcoin still can probably generally be described as being in a kind of land grab you know kind of mode in terms of there's a lot of wide open uh opportunity I think for a lot of companies to continue um say say building rather than buying um and so I think we're going to see maybe some consolidation uh in in other areas outside of the exchanges but

um it wouldn't surprise me if the universals are still in more of a build mode um rather than buy um I think they can do a lot still in terms of building things in-house um but uh but we'll see I mean it's going to depend on the pressures I think that that come to bear on these companies um you know is coinbase running into trouble uh raising that round at evaluation uh that that they're happy with uh would they be better off with less competition uh more consolidation in in certain areas and can they do they want to pursue something like that I think we could see you know some of these conversations taking place in 2015 uh around some subjects but I I'm

hesitant to to say oh I I think there's going to be a big merger of some sort between say a coinbase and a uh you know a circle or something like this I I don't know if that's going to happen or not yeah I I think it's I think it's still too early for uh for probably for those types of deals to be taking place I mean all these companies think there's a lot of growth still um my impression of these Acquisitions is almost more that uh this may be companies that you know sort of failed uh maybe failed to raise money feltic attraction or just didn't see the Outlook but had you know good teams good

I.T Etc and then you know they're just sort of taken over and gone I mean I don't think we are at the stage any company I mean okay you could say today maybe uh it could be interesting for a company like PayPal to acquire coinbase right or that kind of thing one could see that maybe someone from outside comes and buys one of the big Bitcoin companies but within the Bitcoin space I mean I I I don't I totally agree with you I don't think we're at the stage where like there's really it makes sense for anyone to acquire another company and not least because I think um

no company has really also achieved a lot very large customer base right and then right Brian I'm not sure I agree with you there because I mean if you just look at first for example coinbase is a acquisition of blocker you know if a company like coinbase wants to integrate a block Explorer and you've got this tiny little startup with with you know IP and a good team uh and they're acquiring 100 you know potentially 100 million dollars in VC money and they can just throw two million dollars to have this yeah right I agree the startup integrate with their services why wouldn't they do that so I I personally I think that in 2015 we're going to see a lot of these universals start and acquiring these small companies uh that are that are that are just popping up and uh you know

acquiring their teams uh acquiring their IP and integrating their services to you know provide more services they are universals that's what they you know that's they're no no I agree with you it just seems like it's a it's a really a very minor thing right and it's it's not too different I mean you know you could also say that maybe they I don't know if they even want an IP right maybe they threw it away maybe they just wanted the people and they said oh we're only going to come if you give us a million for this thing we've been working on for a few years um right and that's something you see a lot in Silicon Valley of course and I I agree with Sebastian I think these kind of targeted uh Acquisitions will continue to happen they may even accelerate uh you know one of the

fascinating things for me at least uh is to see you know 44 we talk about this in the state of Bitcoin report you know 44 applications built on top of the coinbase API um you know I mean that's that's I think a pretty significant development and and um you know that I think to some degree speaks to maybe this kind of consolidation theme we're talking about you know certain apis getting more traction and uh and companies looking to kind of align or build around those well yeah let's talk about that because I I uh I noticed this I noted this as a topic that I wanted to discuss so you know I I've mentioned before that I think an important uh component that that needs to start being built is you

know apis so companies need to start integrating apis a lot of them have and also uh app coins uh having interoperability between their services so coinbase is one example of uh uh you know having integrated an API and like you said having about 45 apps built on top of it um I think that this is important uh component to building the infrastructure what are your thoughts on that yeah absolutely I think uh you know anything that's going to make Bitcoin easier to use I mean if you you have a coinbase account um you know you you trust the coinbase brand and I'm sorry to be giving such a a lot of free advertising to coinbase

here I don't have any official relationship with them just full disclosure but I'll use them as an example you know you have a coinbase account um you're not sure about the changes out there you're maybe wondering you know I see bitfit X is is got the highest volume but they're not based in the United States I don't know who these guys are you know I want to just kind of keep doing things with coinbase but I want to be able to put in uh a stop order you know I want to be able to buy Bitcoins on the dip uh well now you've got stopcoin uh this app that was written you know that's on top of the coindesk API that you can you can do that it's all making it much easier for I think consumers to uh to you know do more with Bitcoin and kind

of stay within this kind of trusted brand um you know and and I think that's an important part of making Bitcoin easier I think for people to use and um getting it out there to a broader audience foreign well let's move on to to the merchant topic and and that's I think we can sort of use that also to Circle back or in a bit I think well let's suppose I guess I think we can put sort of merchant and consumer adoption together Under the Umbrella like adoption you know to what extent is bitcoin's in traction as as a means of payment there's a payment

Network and and there's a currency as money right so because of course we do know there is traction in terms of people building startups now whatever they're focusing on some are very closely dependent on uh the currency the money right so maybe not the um but I think the one place where we really sort of see and I think it's a great measurement of of the health of Bitcoin and the development is you know how many Merchants are there how much volume are they doing and you know how many wall you know how many users are there right and and as well I think on the user side uh how much activity are they actually doing

um because uh you know it's one thing to have a Bitcoin wallet and it's another thing to actually use Bitcoin sort of integrate into your life and and pay things with it and um right what's your impression on that yeah yeah um well well merch and adoption is something that you know I think you could this is kind of again staying with our Tale of Two Bitcoins theme uh we could we could say you know in 2014 there was a lot of really incredibly positive news on the merchant adoption front I mean getting companies like Microsoft Dell you know Etc I think we all know the the big brand names that have come on board and and chosen to start accepting Bitcoin as a form of payment

um 180 billion these companies just the top ten you know are close to 180 billion in total revenue and these companies the other the other thing that's really important I think to know about this uh development is that these companies are very brand conscious very reputation conscious and you know a lot of people have claimed that say the Bitcoin brand is it's been dull the mortal blow with all this fraud and the mount gox failure et cetera um you know the arrests um but that's clearly you know not stop a company like Microsoft for others that are very reputation conscious from coming out and embracing Bitcoin and that's a really important development I think that says a lot about uh bitcoin's future and and and how these companies see the uh you

know the Innovative aspect of the technology um having said that um our Bitcoin uh accepting Merchant forecasts for 2014 came in short of what we originally were forecasting we we originally came out uh six months ago with a forecast of about a hundred thousand Bitcoin accepting Merchants by the end of 2014 we cut that last quarter to 90 000 and you know we only have a bit paying coinbase's most recently updated numbers to work with but it's not looking like we even got to 90 000 uh you know here uh by the end of 2014.

so I think the number of merchants came in below uh what we were kind of forecasting originally of course and we know these are not including immersions that um accept Bitcoin about using a payment processor exactly and so so probably the the real number is again significantly north of that but we we don't really have a great way of uh you know at you know aggregating up that data we've tried through you know sites like coinmap to kind of untangle you know who's processing uh you know payments on their own versus doing it through a bit pay or coinbase unfortunately bit paying coinbase don't um publicly disclose their full uh list of merchants for competitive reasons I

believe uh but but we know that there's probably more than obviously the numbers we're showing who are accepting but but just based on those two companies kind of reported figures which like growth has slowed basically is the point I was trying to make um here towards the end of the year and we also saw you know overstock.com announcing that their their sales forecast and Below what they were originally hoping so I I don't think this is too surprising though and I I think um I think if the Bitcoin Community was uh putting a lot of Hope in um faster kind of merchant adoption and more traction and commerce I think that may have been a little bit misguided to be completely uh Frank about it uh you know as a as someone who you know works in the

economics space you know I'm I'm more interested in kind of cold hard economic logic driving adoption um and when I look you know the Merchant side of things and why I would want to go to a pub and pay for a pint with Bitcoin um you know at least in the west uh Advanced countries which have for older warts and all you know Financial systems and currencies that are relatively stable and work you know reasonably well um it just doesn't make as much sense to me to want to use Bitcoin for that versus say something like International remittances where you know if I'm in Kenya and I'm looking at 12 or more you know transaction fee and the money's got to go through three Banks to get to me

and take three it takes three days I mean that to me is again cold hard economic logic good reason to use Bitcoin much more so than say going uh and paying for my burrito at a you know a food stand with with Bitcoin um and so I I think maybe there's been a little too much emphasis or optimism around Merchant adoption at this stage I think something like Apple pay you know you know just to make a comparison um which which hasn't by the way people should know this has not uh signed up nearly as many Merchants as Bitcoin uh has uh they've got obviously some big names and you can buy a lot of stuff at those big names with Apple pay um but Apple pay does you know offer

something that's compelling in some ways I don't like having to all my credit card around with me all the time I can just bring my phone and pay um you know that's that's making more cold hard economic logic sense to me uh than say doing a a merchant transaction with Bitcoin at this point yeah but I think you um you're putting on something interesting here and and I think there there is a there's a sort of discrepancy when you look at incentives between the the consumer and the merchant right for the merchant I think uh actually Bitcoin is a great argument like this makes so much sense for merchants to say like yeah I want to take Bitcoin right because I mean saving two percent I mean we've we've mentioned

this example a few times I think Overstock is the best example uh because they are in such a low margin business and I think they you know because they're a public pay Trader company the profit margin is like two percent and now if they pay I don't know two percent for credit card fees and versus Bitcoin which is basically free uh you know that's an excellent argument like I do and I think that's why we have seen I I would still say the immersion option has been you know pretty good and especially if you look at the big companies and personally that surprised me I did not I I always thought that it was going to be a different way right like that there would be a more wider adoption and then these companies would come but it's been the other around right they refers to

come and we haven't seen that wider adoption right because um on the consumer side I think that is uh that's much weaker actually than the merchant side even it seems to me yes my experience sorry go ahead I was just going to say right you make an excellent point and I agree with everything you just said there great point my experience with talking to Merchants and all the a bit you know perhaps not large Merchants but you know smaller Merchants like bars and restaurants and things like that when I talk to them about Bitcoin they uh their reaction is like who's gonna use it I mean no exactly yeah and and I'm not talking you know and I'm talking about you know people that are like you know

young uh you know young people and people that are maybe like you know interested in the internet and like you know kind of hit with those kind of thing uh the overall reaction that I've gotten uh when talking to people around around town here is like who's gonna like it just seems like a hassle for me to start accepting no yeah I think you're absolutely right right because like uh one should put like some uh you know um caveat here so for merchants this is a great a great cell very easy to sell I think as long as there are people actually using it right but you need some people using it I mean I I don't know where the barrier is I guess the larger the company is the smaller the

percentage can be and maybe for a large company they can say oh if only one percent of the people paying Bitcoin it makes economic sense for me um whereas for bar maybe it will be lower whatever but of course there has to be a certain number of people using it and we're probably not even have enough of that I mean Garrett do you know are there any do we have any data on that on the uh the volume these people are seeing because yeah unfortunately you know bit pay and coinbase have uh you know who who obviously have the data um they've been reluctant to want to be very open with with that data and again I'll make another plea to to the powers that be at these companies to be you

know within reason I mean obviously you're in a competitive space and you you want to protect things that you think uh your competitors can use against you but at the same time I think the more open the ecosystem can be um on on you know with the data then the the more we can explain I think to the broader public how Bitcoin is being used and and so on but unfortunately long story short we don't have as much data here as we'd like on use do you think there's a possibility that they are not sharing that data because it's so bad you know obviously obviously put a a positive spin on things um you know and keep you know uh people's you know um expectations you know kind of moving

in the right direction so uh I I I don't have any reason to suspect that the the numbers that they are reporting in terms of number of merchants that are accepting it Etc are are being you know inflated or no no I don't believe that right yeah I'm sure those are accurate but uh of course the question is I I I maybe I misremember this but didn't pay last year publish how much volume they did like also in terms of transactions for Black Friday and this year they said oh this many emergency transactions that number was higher but they didn't say how much what money was actually spent and then it was like well

why wouldn't they say that I mean the only reason I can think of is that it was it was worse than last year right so yeah I I was gonna yeah I think I think you're you're barking up the right tree here and and uh you know companies will be quiet private coin Overstock as a publicly traded company doesn't have the luxury of of kind of only revealing the positive data they've got to come clean and talk about stuff in a more open you know framework than bitpay does but um yeah I think you're you're probably on the right track with your theory there yeah one interesting uh I I just want to point out this slide here so apparently people buy trash bags and instant formula with Bitcoin is that hack well this data is from

purse uh purse.io which I don't know if you've talked about on your show in the past or not no but which we use quite extensively to buy like all our gear yeah I know it's an amazing uh amazing amazing service and uh and uh you know if you want to talk about reasons to use Bitcoin um a lot of people shop at Amazon again I'm gonna I guess make another free free advertisement here for another Bitcoin company but um you know person's not the only company do this uh brocker uh which coindesk recently wrote a a review French company by the way I think French company yeah interesting I believe uh yeah they are French I think yeah yeah I think I met the guys well they both these companies offer uh

you the option of kind of uh trying to buy something brought in broadcast case anywhere on the internet um and and then you know getting up to a 20 discount uh on that um for for your Bitcoins um so someone who wants to they serve as a middleman and and uh you know these are again thinking about the cold hard economic logic these are reasons I actually want to use Bitcoin um you know like I know there's some questions around uh you know who's on the other side of these transactions and um you know pers recently came out with an announcement that one of their uh customers had had his house searched in Germany I believe um uh for transaction done through purse uh you know stolen credit cards are

always a concern you know always check the local regulations and wherever you are uh you know I think that was I think that was broker actually uh they they yeah they announced an email yeah that they've come out with a new program to uh protect actually users of their site with ten thousand dollars I think uh in in response to this uh this search but um but again I mean you know I I think if you want to I think I think Brian you hit the nail on the head Merchants have great reasons to start adopting Bitcoin consumers need better ones discounts uh you know putting money back in the pockets of consumers uh because they're saving uh Merchants money on transaction fees that's something we need to see Merchants doing

more of you know consumers respond to things like frequent flyer mile credit cards uh you know or saving even a percent or two on a large transaction can make a big difference um you know and it's got to be easy it's got to be you know I've talked about this from the beginning you know if I went to Amazon's website and there were two prices on a large ticket item uh one I could pay with with my credit card on file or the other I could save a couple percent by just clicking this box you know clicking this button clicking a boxing accepts certain terms and a lot of the complexity of Bitcoin is just done on the back end and is invisible to the end user you know I think that's where you'd start to see

um more consumer use of Bitcoin it's just got to be really push the button simple and there's got to be a good cold hard economic reason I think to do it from the consumer's perspective absolutely am and yeah I agree I think this is being you know that there are a lot of things different things happening in different contexts and sometimes we do have these incentives and sometimes we don't and overall largely uh we don't enough in the west right to use Bitcoin uh unless I mean I think the one exception is have for speculative purposes right like if you believe in the potential then that is a great um a great reason to buy Bitcoin and I

think that's why we are seeing most of the most of people buying Bitcoin today I mean it's speculation it's not it makes very little sense to buy Bitcoin to spend Bitcoin but maybe that can change right I mean I think in the US already if you have Circle or disconnected with your bank account maybe you could have an automatic buying when you purchase something of Bitcoin I think then you can start slowly getting into the direction where maybe people have enough incentive but I don't know it the progress seems very slow in this area and it is uh worrying to to an extent right because um and and maybe that's maybe that's a good point to sort of bring up my point that I kind of wanted to allude to

earlier um when we look at the numbers you guys have half there for wallets and for merchants and and you also project it out right to the end of next year uh you're sort of projecting this linear growth and to me it seems if this is true and you know even if you do see that growth rate right let's say it doesn't get even worse than this but we soon we do see that growth rate it seems very plausible to me that will be actually this will be really really bad for Bitcoin that this could be a terrible situation uh and and the reason why is that I think when VCS and and

companies invest today in Bitcoin and uh people start project people build products they build it for uh under the assumption that will be reaching a mass adoption right so I mean I think you know that comparison with the Internet is the best example for that right that and I think the reason why a lot of VCS invest in that are excited about that is because exactly as you pointed out they see it sort of as something that could be as big as the internet so if you see this linear growth then that is not going to get us there anytime soon right and we have a lot of investment uh 2014 and of course with vce Investments they don't get uh that much money right so

they get usually enough money for a year a year and a half let's say uh to keep on building and then they either have enough revenues or they have to raise more money in the general of course in the sort of startup world they're going to raise more money then so it's just if you if you look at all this investment has come right if you calculate that out it means they will have to go back to raise more money uh probably late 2015 or early 2016 many of these companies and my sort of fear is that if we do see those growth rates that you guys are protecting they will have a very difficult time raising money right so I

think it has to be better than that you know yeah it's an interesting point you raise I mean uh you know Mary Meeker who you know writes the internet Trends reports for Kleiner Perkins now uh formerly at Morgan Stanley um you know she she had a Bitcoin slide in her internet from last year and and she remarked on how anything that grows as quickly as Bitcoin has you know from zero to you know north of 5 million or so wallets I think at that time uh you know it's something that gets on her radar screen as as you know something that's interesting um so but you do make a a really good point okay so Bitcoins you know achieve this miraculous thing I mean alternative currencies aren't supposed to work if we

we look at history and it's already gotten you know millions of people using it uh a global brand but how does it go from that five million level or so to 50 million um to 100 million users that it really needs to kind of stay with this kind of you know growth uh comparison to the internet and and that's a that's a that's a really really good question um I think the industry needs to kind of really think hard about where they're putting their emphasis uh on Advanced countries on the west if that's in fact really what's going on um you know I'm much more optimistic about bitcoin's prospects and places that have very poorly performing currencies that have uh you know

um track record of using alternative money um you know that have systems like m-pesa you know in Kenya already kind of in place that Bitcoin can integrate with um I'll give a plug for another company bit bit PESA uh you know is working very hard on on the remittances industry in Kenya um you know and and integrating within PESA but how do they and how do other companies like them kind of really get that critical mass that you need to kind of make Bitcoin um the preferred way of sending money to Kenya do do they need to link up more with ATM uh firms do you need to really scatter bomb ATMs across Kenya or in a particular District in in London to link

with with Kenya um you know I I think you know maybe there's been a little bit too much focus on trying to get people to use Bitcoin in places that really don't have great reasons to use Bitcoin or as much great reasons as other parts of the world and and that's partly why I put together this piece of research called the Bitcoin Market potential the next weekend you're introducing your own topic I mean we're going to interrupt you now and say like well I think this is a great moment to move on to your uh Bitcoin Market potential index but you've done it yourself so um well I I'm looking at the clock and I know we're we're getting a little uh time so I want to make sure I plug my own research uh no absolutely every other Bitcoin company but uh

um so I've got a paper that I've I've uh that's it's going to be presented uh at the PDP Financial systems conference at the bundes bank the first I think Bitcoin related conference taking place inside a major Central Bank or any Central Bank possibly um as well as at the second Bitcoin research Workshop in Puerto Rico uh here at the end of January and this paper which I wrote about on coindesk when I first developed the first iteration of the index in July uh tried to think about you know what are the reasons for why Bitcoin might gain adoption and which countries around the world uh are more attractive uh or more fertile ground if you will for Bitcoin than others uh and Argentina topless uh the things that are

driving the index are things like inflation as well as a history of financial crises size of the international businesses Market size of the black market level of Technology penetration Bitcoin obviously needs technology to thrive uh and uh and and and some other things and and Argentina was number one Venezuela number two um interestingly when you add in uh the the uh the the size of the remittance fee the average fee that people are paying um sub-Saharan Africa starts to look like a really attractive region uh for Bitcoin as does Latin America as does many of the post-soviet uh countries um so so those are the areas that that

at least according to the index that I've developed which again I would I would qualify and say is you know uh you know an interesting conceptual piece of research but I I wouldn't want people to hang too much uh uh you know on the results of the index I think it's still a work in progress but it is interesting that these regions um are popping up as the places where Bitcoin I think could be more useful than other regions and I think the industry might want to think more about that and how they can Target those regions more did you take into account also the the regulatory environment because I I think exactly the countries you named for example Argentina and Venezuela I personally like if I was

building I would never build a big I would not build a Bitcoin exchange in Argentina like even even if you're right right and there is a lot of potential and reception there it just seems to be almost guaranteed that the government as soon as it gets traction was going to step in and just shut it down uh confiscated uh put you in jail or Deport you or whatever so did you I mean I presume it also it's a very difficult variable to include in the research right because how do you quantify that right now I talk about this in the uh both in the article and in the uh the the paper um which should be posted soon by the way on the uh the second Bitcoin

research Workshop website if you're interested in reading it um so regular regulation uh was excluded specifically for now for a couple reasons one is uh the data on regulation I think is very much what's it's it's we don't have a lot of data yet further we we regulation is something that's still very much evolving um and this Builds on the data point I just mentioned in other words we know China for example was was cracking down on bitcoin um you know Erasure uh with the announcement that Banks you know shouldn't be using or interacting with Bitcoin companies um but China has continued to be uh you

know by Far and Away the the place where we see more Bitcoin exchange volume uh you know than any other place so what is the impact of Regulation uh we don't really know that it's very hard to kind of think how to score that variable in this index at this point uh because in some ways like you say regulation could be the end of Bitcoin in say a country like of Venezuela which has maybe an effective regulatory regime on the other hand a regulatory Crackdown could also be a signal from a country that Bitcoin stands actually a better chance there of gaining adoption and therefore you know that country should move up the rankings because they have a hostile regulatory environment so in some ways we need to have a better sense of how effective

regulation is um and and also what it really means because regulation uh you know may actually be a positive thing um in terms of these you know adoption prospects well I'm looking forward to that report and perhaps we can have you back on at that time to uh to talk about it when is it coming up uh so the the conference is taking place here at the end of January and they should be publishing the the papers on their website um soon this is a part of the financial cryptography 2015 conference this is the second Bitcoin research Workshop associated with that Gavin Andreessen is going to be there uh the Bitcoin Foundation sponsors it um and other

academics who are doing work on bitcoin um so it should be a great event cool and so we'll add the uh this article you spoke of uh we'll uh add that link to the show notes as well great so we've kind of come around full circle here um now the report also makes some uh some diamonds kind of looks forward to 2015 and you know which before we wrap up we'd like to sort of talk about some of the things that we can look forward to in the next year uh what are the most interesting areas where the areas you moved to find interesting for 2015.

um well uh I think you know obviously price is going to continue to I think be something that people are focused on um and uh you know just you know that's the question that often comes up I think you know even inside the ecosystem you know we look at like for example the story is a coindesk that they get a lot of traction I mean the price stories oftentimes get you know the the most interest uh there's still a huge huge interest in what's going on with bitcoin's price and um you know I think it's gonna be interesting to see what happens in 2015 with the price I mean it's you know the audience I'm sure knows uh you know the the blockchain you know new uh reward for for uh you know solving blocks is not going to have until 2016.

so this nearly 4 000 Bitcoins per day of new Supply that's you know being mined in new existence there's there's no letting up from that pressure on the price uh until 2016 and so unless something fundamentally shifts uh with the Bitcoin economy where instances start getting more traction or something you know more speculators come in um yeah I think there's gonna be a lot of you know price pressure still on on bitcoin having said that um I I am certainly a lot less comfortable uh you know recommending that for Bitcoin uh than I was a year ago when I was recommending that people do that um to to short the price of Bitcoin I I I

was comfortable telling people short Bitcoin at the beginning of 2014. I'm a lot less comfortable uh saying that now I I think the the bear case is still pretty strong for bitcoin's price as we go into 2015 but I I certainly um feel like a lot of the you know with a 67 decline I think the price has taken a pretty big hit and I'm not I I don't know how much further it would fall I just I don't know but price is going to be I think still a big thing it seems to me so my view on this is it can't really fall it doesn't make sense for it to fall much further because you know to a large extent like if you look at all the CVC investment I mean I

think to a large extent you still can say that um there's an extreme correlation between the success of these companies and the success of Bitcoin the currency and maybe that's going to change at some point but I think at this stage that's still the case so um you know for that to be true it's just at some point right you have to say like it's a better a better choice at some price you have to say it's a better choice to buy Bitcoin than to buy uh shares invest in some companies so there's a disbalance there I think um and well it's yeah it's hard to know what's going on also in the minds of some of the players who who hold a lot

of Bitcoins who are maybe looking at this from a long-term perspective I mean think about what's going on with Saudi Arabia right now and the price of oil you know and the Saudis really trying to drive out a lot of the high-cross producers from the market um you know I mean would that strategy make sense for certain say players in the mining industry to want to consolidate uh you know push out some of the higher costs or you know players with you know don't have as Deep Pockets uh you know in the interest in reducing competition and block difficulty and and the pressure to say upgrade Hardware you know on this you know regular basis I mean I don't know um but but I I would caution people uh to to be aware that I think the price of

Bitcoin could fall uh quite a bit more um I think that's not an impossible Thing by any means yeah of course Brian I want to ask you what are the areas that you're most uh interested in for the next year you know it's a hard question because I think there's on the one hand there's a sort of side you I wanna how does the space develop what's the technology I mean I think I'm I have I have been getting a better sense of some of them maybe problems or proof of work and then those kind of things are very interesting but I think when it comes to when it comes to the sort of

adoption that's that's another area that I think is very interesting and I also want to mention sort of the the counter case to what you just mentioned Eric that I mean of course it's very possible the price is going to decrease further and maybe much further uh it certainly can be excluded um but I also see um a very significant chance of the opposite happening I see a very significant chance of the price going up dramatically and I think the way the way I could see this happening is if it if there is an increasing number of financial institutions hedge funds Etc

who are starting to take maybe small small positions in this just because they say well maybe it works and then we make a ton of money or if it doesn't it doesn't matter if it's like half a percent of our portfolio or something um because I think for for a lot of investors this is just a a gamble you want to take right even if you say like there's an 80 chance this is not going to work but that 20 chance that it is going to work in a five percent chance that this is going to be huge then this is just I think something that uh uh this is a investment that you have to make and I think that understanding is there to an extent and then you know we

had uh Daniel Galaxy on from solid X and and who are trying to actually help sort of financial institution hedge funds to to be able to do that because it's it's complicated because their systems aren't built for that their compliance isn't built for that uh like it's something different right so I think a Bitcoin ETF would be a big thing but I think if that happens you know it doesn't take very much right for for if a if some funds a few of them put in 10 million there pretend women here this is a lot for Bitcoin and it's not very much for them so I think very very quickly you can see the price going up and then of course the the whole thing with Bitcoin is that it has to sort of you know self-perpetuating thing right

if people get excited about it they think like oh now I need to buy two and then it keeps going up and so it has a self-fulfilling effect of course it to some extent also on the downside um so I I I achieved a fairly significant probability to that kind of thing happening but to be quite honest I I thought this was going to happen this year already at the beginning of the year and it hasn't so uh maybe I'm going to be wrong again well yeah I I don't want to sound too bearish I mean I I think bitcoin's got tremendous potential I think what's going on with New York and and uh you know getting some clarity around that's helpful I think there's a lot of reasons that Bitcoin could perform spectacularly

well price wise um but it's just important that people be aware of this kind of steady increase the supply and the effect that that can have and um you know so yeah good good points Brian what do I use about Sam well I mean uh I mentioned this in one of our recent episodes I mean what I'm really looking forward to is the growth of dapps uh and specifically app points so you know I'm I installed gems I've been telling all my friends to get it and I've been using it to talk to my family for example so you know uh getting uh daps in front of regular consumers so seeing more adapts and app stores for example uh I think is uh is an interesting thing to look forward to

and just generally improve customer experience um so uh you know getting people to be able to use cryptocurrency and you know through simple applications um and uh and and securely so you know one thing we mentioned earlier was uh you know universals kind of growing their feature sets I think that uh that will greatly help adoption so once you've got a company that you can install their wallet and you've got access to uh or install their app rather and you've got access to this wealth of services that allows you to do just about anything and then you've got like merchanted option

Merchant uh adoption plugged into that as well uh or merchant services rather um I think that that will will help adoption in a way and I'm really looking forward to you know seeing what are some of the new and interesting ways that um that companies in the Bitcoin space can innovate in terms of ux and ux security and all that the next in the next year and I think an interesting thing about um well you're mentioning the whole dap space is that that's also a space that can sort of succeed independently with Bitcoin right I mean I think it's totally possible that we will yeah bitcoin price can do terribly but they may still uh do away well and then I

think there we may also see that kind of mainstreaming option coming then right because you could see like something like James could have totally mainstream appeal uh and also the people who don't use Bitcoin but you see this as some sort of cool like points that are fun like people like getting points when they play games right um so so that I I agree I think that's going to be very very interesting area to watch and and hopefully we'll see some some good things happening there but um yeah I think we're at the end of our show so thanks so much for coming on Gary it was very interesting uh so interesting reading report and it was especially interesting talking with you

about it and talking a bit about uh Bitcoin and where we at it was a pleasure guys thanks so much for having me and do come back on when the when the Q2 or sorry the q1 2015 report comes in yeah yeah we can uh come back a few months and uh see how right or wrong we've been that was a fun thing to do yeah so uh our show notes will have a link to uh the report and um we cannot will also link to I think maybe Garrett's website where people can have a look at his his research um and of course you know you can also

find a report on coindesk uh if you we will be back in a week from now and we're gonna have a an episode uh with a Preston Byrne and Sean Jones and it's going to be on um on the startup that Preston is working on which is a very interesting DAC related thing and you know if you you can subscribe if you want to support us you can subscribe to us on YouTube so you get updated for the next Show's next Hangouts and uh please leave us review on iTunes because that helps new people find the show and we tremendously appreciate that so thanks so much for listening and we look forward being back

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