unsure if I was breaking the law or stumbling upon a hidden fortune. I surveyed my new environs, and I decided to make a purchase; this was my first step toward untold riches. But it all came to a screeching halt when I realized that I overlooked one tiny detail – I needed an actual bank account with real money to buy the coins.
I was determined to cash in on my bubble and promptly formulated a plan.
When I signed into Mt. Gox, a message advised that there was a waiting list of people trying to buy bitcoins. The exchange was so busy that they could not process all the requests, and the message indicated it would be five days before my paperwork could be processed. I was thrilled to have an additional five days to open a U.S. bank account for a “person” with only a fake Gmail address. It was not yet clear to me that my judgment had been compromised by visions of planes, autos, and jewelry. Finally, I drifted back to reality and began to hatch a better plan.
Even though Bitcoin was anonymous, I quickly recognized that my dreams of bitcoin billions required my personal information. I immediately began to look for a layer of security. Another Internet search led me to eBay, where sellers of bitcoins were plentiful. It appeared that I could use PayPal, which meant I did not need a bank account and my information would be safeguarded. Alas, I had once again overlooked a small, but important, detail. If I bought bitcoins on eBay, I would be a counterfeiter's dream. This is a currency that lives on the Internet. While I was accustomed to dealing in foreign currencies, buying Mexican pesos from JPMorgan is a long way from purchasing a digital currency from a stranger on EBay. I did not know if I should expect a zip file of computer code or an actual metal coin. Obviously, I needed Plan C.
After an appearance on Fast Money, where I disclosed parts of my Bitcoin buying adventure, a Twitter follower mentioned Coinbase as an alternative to Mt. Gox. I had not heard of Coinbase, so back to Google stealth mode I went. As it turns out, Coinbase is one of the largest digital wallets, and it is a bitcoin broker that could handle my purchase seamlessly. I felt even more comfortable when I learned that Coinbase was based in the United States and backed by one of the largest venture capital firms in Silicon Valley.
Now that I was back on my road to riches, I needed to register, verify a bank account, and wire funds. The entire process would take over a week: three days to verify the bank account, one day to buy the bitcoins, and another five days before the coins would show up in my account. This was unacceptable – I was about to make a fortune and every second counted. Sadly, I was out of options. Since I was technically inept and had absolutely no idea how Bitcoin worked, I was at a severe disadvantage. I just had to wait, which was a monumental task for this attention-challenged trader. For a week I checked my account like a child on the night before Christmas: Were they there yet? How about now? Now? Now? Now?
My anticipation was exceeded only by my excitement when the coins finally arrived. All that remained was relaxation, planning my private jet purchase, and waiting for the world to catch up and buy bitcoins. I was waiting for a greater fool than I, and it did not take long before a whole bunch of fools arrived. The price of bitcoin soared from my purchase at $795 to $1,200 in a matter of days. I quickly calculated the annual return – $400 in 4 days meant $100 a day; multiplied by 365 days meant I had just turned $795 into $36,500, a 4591 percent gain. This was going to be the greatest trade I ever made – drop the mic and walk off stage.
Not so fast, hero.
Within days, the Chinese government banned banks from dealing with bitcoins, effectively shutting down the largest market. The price plummeted to $500 almost overnight. There is a saying on Wall Street about losing positions: they start out as a trade and end up as investments – rationalization at its finest. My “can't miss, surefire” trade had just turned into an investment. I was in for the long haul.
Now that I was an “investor,” I thought I better find out what I actually owned. Typically, I rely on a deep knowledge of the markets I trade before I place money at risk. In the case of Bitcoin, I had succumbed to the powerful emotion of greed. Ironically, I make a living seeking out greed and fear, acting only when other people's emotions have reached their zenith. In the case of Bitcoin, I was a rookie and I had paid the price of inexperience.
In order to supplant my ignorance with knowledge, I began to research Bitcoin as a currency. If Bitcoin was a new type of currency, then the logical place for me to start my journey was from a familiar point of view. Since Bitcoin was designed to have a finite money supply – only 21 million coins will ever exist – it appeared to be akin to digital gold. The process of mining fit with this analogy, and the fact that miners received free coins was intriguing. However, unlike gold, bitcoins were being used to purchase everything from pizza to Tesla automobiles. As a medium of exchange, bitcoins were fulfilling at least one of the three functions of money.
Like many other Bitcoin explorers, I had my “aha” moment when I realized that if people could buy a pizza with bitcoins as easily as a credit card, then Bitcoin was also a payment system. This disruptive technology was a free payment system – no credit card fees for those who indulged in the pizza pie or the pizza shop. Not only was this technology disruptive but it was happening in my industry. I was hooked; I needed to know everything. It did not matter that by now I could sell my bitcoins for a small profit; I was in too deep to turn back.
Bitcoin Enlightenment
My path to Bitcoin Enlightenment careened between cryptographic hash functions and the simple balance sheet that is the beating heart of Bitcoin. Searching for the mysterious creator, Satoshi Nakamoto, made for interesting reading, but it wasn't until I looked at Bitcoin as smart money and a social network that I truly understood the revolution.
Removing the middleman has a long history of disruption in business – the personal computer placed mainframe computing power on the desktop, while the Internet enabled peer-to-peer communication. The collision of personal computers and the Internet spawned companies like Apple, Netflix, Twitter, and Facebook.
The Bitcoin Big Bang is a story of evolution. It is the evolution of currencies, payment systems, how money is used, financial services, and even the way business is organized. It is that moment when you realize the world has changed, permanently and forever. Evolution is a laborious grind, until BANG – everything changes at once.
Even though I knew Bitcoin was game changing, it was still in its infancy. If I became evangelistic about the technology, I risked appearing to be a kook who thought he saw a unicorn. Perhaps it was self-doubt or an innate longing to be part of a crowd, but I would be restless without validation. Then, seemingly out of nowhere, I stumbled on a series of quotes from venture capitalists who were committing big money to Bitcoin. My sanity was restored.
Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn't more obvious from the start.
What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014.
Marc Andreessen is not only the inventor of the Web browser; he is also a founding partner of the venture capital firm Andreessen Horowitz, which has invested $50 million in Bitcoin-related companies, including my wallet service, Coinbase.
In 2010, BusinessWeek named Chris Dixon the top angel investor in the technology industry. In 2012, Mr. Dixon joined Andreessen Horowitz, and by 2013, he wrote these words:
Like a lot of people I initially dismissed Bitcoin as a speculative bubble (“Internet tulip bulbs”) or a place to stash money for people worried about inflation (“Internet gold”). At some point, I had an “aha!” moment and realized that Bitcoin was best understood as a new software protocol through which you could rebuild the payments
