Gadget Cavity

It wasn't until I came across Coinbase in August in 2012 that I felt I must look at Bitcoin and virtual currency in depth. I was rooting for bitcoin so I looked for all the evidence that shed a positive light on the new age currency. It seemed like more and more legitimate businesses had started to accept bitcoin as payment, but still no large commerce players. The sheer media attention was creating an upward spiral. While wallets had been hacked, the bitcoin system remained intact. At $10-15/bitcoin the total market value was over a quarter of a billion dollars. One thing that really stood out for me was its cross border functionality. Seeing the number of people and businesses that lose money converting USD to Indian Rupees with their family or subsidiaries, I thought this was one of bitcoin's killer features. This quality would be the area that would grow fastest and create at least a niche market. This "niche" however is MASSIVE, with Western Union alone doing $80 billion annually in consumer to consumer transactions. But these transactions don't have to be done through bitcoin given competitors like ripple or copycats like litecoin could end up having better security or better features. In technology investing I'm always a little nervous of who wins:Yahoo vs Google vs alta vista, lycos, 100s others, Friendster vs Facebook vs Myspace, Xbox vs playstation vs Wii battles. I rather pick 2 top horses than just bank on 1.

So then the big question was, is it smarter to just invest in the infrastructure around bitcoin, namely wallets and exchanges rather than the currency itself? I decided at the time that selling the picks and shovels were better to invest in rather than attempting to mine gold! So in September I made an investment in Coinbase.

For the rest of 2012, I tried to come up with ways to do business in bitcoin based on the hype. By February 2013 with the sharp price rise in the value of bitcoin to the $20s I made a decision to overcome my fear in connecting my bank account, the belief that multiple currencies would compete with bitcoin, the idea that bitcoin's intrinsic value is based on its "true" usage for non-speculative transactions and that Bitcoin's surge would be short-lived. I did a quick calculation with the assumption that if bitcoins are used only in the money transfer market  via platforms like Coinbase then a reasonable prediction of a $1 billion market value in the next 2 years was likely. Thus dividing it by the maximum potential bitcoins outstanding, 21 million, the implied value would be ~$50. Furthermore, I figured like all growth stories, the pendulum often swings far away from reality and thus it could end up going to $70 or $80. Thus purchasing some bitcoin via a secure Coinbase wallet in the mid $20s would give me at least a 2x return or a 40% IRR. Given the over 100% increase over the last 2 months and the amount of volatility, I figured I'd space out my purchases over a month:

 What I didn't predict was that my Valentine's Day purchase would keep increasing by over 10% on some days to hit $50 within a month of my purchase!

Soon after my first bitcoin purchase, Union Square invested $5 million in Coinbase. My investment was at a seed round that converted at that point. By November, bitcoin started hitting the $500s or 20x of what it was in Feb '13 and 50x from September '12 when I invested in Coinbase. I started feeling like my decision to invest in the wallet over the currency was clearly a bad one, until Andreessen Horowitz, my favorite venture firm, invested in Coinbase at a $140 million valuation in Dec '13. ~20x! On the surface, this valuation actually makes no sense to me, Coinbase has grown dramatically but I don't know how they got to such a steep valuation. I guess I can't complain.

My ears have always perked up when it comes to digital currency. Everything from food delivery (seamless, peapod) and TV (netflix, Hulu) to education (MIT online, university of phoenix) and socializing (facebook, linkedin, zynga) has been disrupted through the internet. Surprisingly, currency is one area that hasn't been changed much since the advent of the credit card mid last century. So whether it's zynga, facebook or amazon money, whenever someone has gone after currency I've tried to ascertain it's staying power. I came across bitcoin sometime in 2011 but hadn't had the time to do much research.

Around the same time I came across a neat play in the digital wallet/platform space called Dwolla. I was keen on starting to use it but frankly I had a nagging fear of piracy in adding my bank account details even though 2 years before I was perfectly fine giving a startup called Mint all my bank and credit card username and passwords. So I never went past this:

Later that year, Bitcoin came back on my radar when Dwolla became a platform for Bitcoin users to connect with Mt. Gox, the largest bitcoin exchange at the time. It was then that I did a little research trying to figure out where I can use bitcoins. What was fascinating at the time was that on many forums users actually gave away bitcoins that they had mined just to start others off. My first thought was, I need to get someone to give me a whole bunch and my second was, well if it's being given away for free, does this currency have any value? These two points, along with the fact that I still was a bit confused as to how to buy the bitcoin via dwolla, made me walk away from bitcoin again.

How ridiculously cool! The folks at National Geographic decided they'd build a house and make it fly using balloons for their show "How Hard Can it Be"! Holy crappp! It Exists In Real Life—and It Flies!

[via Gizmodo]

While by now traditional newspapers are aware that their demise in print is only a matter of time, I would go further and state that even successful forays of the New York Times Online and Wsj.com will falter due to real-time conversations.

What is the purpose of a newspaper whether online or in print? Well to provide you with news, of course. So how does it do that? Before we delve into that, lets talk about how we get news aside from newspapers or as defined in the dictionary: information about recent and important events. We have friends that provide us with the ongoings of social affairs, work colleagues that enlighten us about what's going on in the company, or competitor and we ourselves often discover news in doing work.

Thus your neighbor may tell you about the creepy guy walking around last night, and your friend might be able to tell you about the new mistress your local mayor has, and your boss at Apple may tell you about the iPhone 5, but who will tell you about what's going on in your native country or the gossip of your friend's friend's friend's friend and what about what's going on with Exxon?

Someone has to aggregate all these sources of news, and verify their accuracy. Furthermore, they have distill it into the most important for their audience. That is the job of newspapers today. However, with the advent of the internet, blogging and Twitter, I don't believe we need newspapers. I believe we now can go directly to the source of the information and get it real time. If for example you are interested in Exxon, well you can follow them on twitter or you can follow a specific employee.

Of course, we do need some kind of general aggregation, which is where I think there is opportunity but I don't think we need 400 people at a news organization to feed us. Now we have more direct sources through millions of tweets and blogs or tweeters that link to blogs. The reporters at the NYT may still be privy to information but why buy NYT, why not just follow specific journalists?

While, we are still far from completely letting go of the traditional news model, I think we're on the cusp of acceleration towards a completely new model on how to get news.

UPDATE: This article via Techcrunch really lays out some of my thoughts.