Pitches from six local cryptocurrency startups:
Saturday, 6 p.m.
Bitcoin & Crowdfunding Panel
Mark Easley, Moderator / Nick Bhargava, Groundfloor / Steve Reaser, Funding Launchpad / Adam Draper, BoostVC / Dave Babbitt, SWARM
Bhargava is co-founder of Groundfloor, a peer-to-peer marketplace for people to come together and syndicate loans to construction projects and developers. The lower end of the market has been pretty much abandoned by banks, and Groundfloor is seeking to fill that space. The company has closed loans for several projects in Georgia and will expand to other markets. He was previously involved in an effort to help promote federal legislation that would allow for crowdfunding. There are parallels between this effort and the current effort to regulate and permit usage of Bitcoin.
Steve worked to pass legislation for equity crowdfunding. His best advice for working with regulators is to do their job for them - draft the legislation and walk through it with them. One of the things that emerged fairly quickly was a need for a collective voice for the whole industry to explain the issues, learnings and how to address challenges, rather than an individual company appearing to promote its own interests.
Pono Music is an example of a company that used Kickstarter to pre-sell its product, and then moved over to equity crowdfunding to sell shares of the company. Accredited investors can now make private equity investments online. What are the best practices that can be followed by Bitcoin to have a similar outcome with regulators?
Draper started an equity crowdfunding site, but circumvented the laws that had yet to be established by not taking any fees. Instead, he invested in FundersClub.
Babbitt is the founder of SWARM, which lets you design your own coin to use for equity. He's looking for a business model that is permissible by regulators. SWARM is an international company so it has to deal with not just the SEC but also foreign government rules. SWARM uses the blockchain to provide proof of ownership in a company and the holder receives a custom coin.
AngelList is a crowdfunding site that took the leap of do it first and ask for forgiveness later. Easley thinks Bitcoin entrepreneurs will have to follow suit. AngelList kept doing things, essentially establishing their own regulations, and asked permission from the regulators along the way.
Reaser: AngelList took a hard look at the things that would cause significant issues, evaluated them significantly, and then tried to create a framework they could reasonably operate in. They made it clear to the SEC that because they were dealing with high net worth individuals, no one was getting hurt by their platform.
Bhurgava: The experience of going to speak with regulators is easier if you create a coalition. When it came to the Federal Jobs Act, there were five or six bills in Congress that touched on reforming securities regulations in different ways. It was expedient to put those bills together as a package to get them approved at once. What helped get traction was bringing a lot of voices to the table, even though at times those voices weren't speaking in unison. There were actually four or five different draft bills floating around, but eventually they got distilled into one framework that was passed in the House.
It wasn't just startup founders or people who would directly benefit from the provision, but rather people who represented a broad swath of the community. Product makers were not direct stakeholders but were beneficiaries of crowdfunding. Small business advocates got involved and brought a lot of firepower, chambers of commerce, other groups helped push things through. Turning Bitcoin into a populist movement that speaks to all walks of people - raising waters lifting all boats - is key to getting traction politically.
Draper believes that you should do nothing obviously wrong, but build your business and ignore regulations until you reach scale, because regulators will ignore you until you have some real traction. If you're a two man team and one person is spending full time lobbying it slows down progress.
Q: Will regulators provide a pathway for companies to go public?
In the space, it's a niche knowledge base so the first acquisitions are acqui-hires. Draper believes it's a world-changing technology so he believes that regulators will ultimately approve them. He thinks BitPay and Coinbase are three years from IPO.
Q: Use of bitcoin for micro payments?
Easley: Crowdfunding sites are already servicing third world lending, why not replace those with Bitcoin to avoid transaction fees and challenges getting money to people?
Reaser: Most entrepreneurs just want their money - they didn't care about the mechanics. There should be crowdfunding platforms that accept bitcoin, what the entrepreneurs care about is what they can do with bitcoin vs. regular currency. A partner at Lightspeed Ventures was convinced that micropayments were the ideal use case for Bitcoin. Issue is it's a huge change of behavior - going from advertising to micropayments.
Q: Opinions on unaccredited investors and whether Jobs Act will be implemented soon?
Reaser: It's unlikely to be approved as written. Needs a groundswell effort for approval.
Bhurgava: We have the advantage of hindsight and learning, so seeing how this has all played out, we know what works and doesn't work. It's clear there are fundamental issues with the current legislature, so before we see crowdfunding as we envision it, those need to be resolved. As for when that will happen, it's already been a year and a half, almost two years, since the rules were supposed to be implemented, so hard to predict. A lot of that has to do with taking the act and finding a way to implement it so it is consistent with other rules the SEC has to enforce and abide by.
Q: Six Californias Initiative and geographic fracturing to create zones with specialized rules for Bitcoin or crowdfunding?
Draper: California specifically has 30 million residents but is 50th in education and has issues with its government due to its size. California has so many differing factions with differing needs that the goal of splitting California into six segments was to make people reconsider how to legally structure the area.
Saturday, 4 p.m.
Adam Draper on his dad's purchase of 30,000 Bitcoin in the U.S. Marshals sale of seized Silk Road coins:
"What my dad did - six months ago, he started talking to me and Vaurum (a Boost.vc portfolio company). He wanted a reason to bid. He wasn't just going to buy a lot of Bitcoin and sit on it, because that doesn't create value in the marketplace. With Boost, I'm creating use cases in order for Bitcoin to get people to use more. He wanted a reason to do this so he realized that the biggest value-add is in emerging markets such as Argentina or India or African countries, starting exchanges where they could actually hold value in a separate currency than their own. The reason he bid for it was that reason. We didn't know if we were going to win. It was an auction. But he won and he's putting it in supply in emerging markets so people in other countries have access to
Bitcoin to help solve their own world problems."
Saturday, 3 p.m.
From VC and Finance Panel, featuring Duke finance professor Campbell Harvey, Jonathan Silverman, a Duke graduate, former trader and now partner at New York's Sator Square Partners, Matthew Roszak of Toronto's Tally Capital and Aaron Gatti of MyPowers and an entrepreneur-in-residence at the high-profile New York firm Lerer Hippeau Ventures.
Overview: Bitcoin is currently too volatile to serve as a store of value. From an investment perspective, Jonathan thinks that this is an attractive feature, as once an investment is perceived to be de-risked, upside becomes limited.
Jonathan says that as there are more active participants in the space and sophisticated investors enter the asset class, volatility will decrease. Campbell disagrees and states that in practice, volatility has been demonstrated to increase with liquidity.
What qualities of bitcoin ventures are important to venture capitalists?
Gatti: Heard something like a company creating identity layer like Venmo for Bitcoin. That makes sense. We need an identity layer for this to become mainstream.
Essentially, what it's about is making it consumer-friendly, understandable, easy, secure - taking out all the negatives.
What are the negatives? Is that a disadvantage for venture capital?
Gatti: Volatility, regulation - we don't know what's going to happen. The identity layer company, part of their pitch is that it doesn't have to be bitcoin. Coinbase too. They still recognize that whether bitcoin succeeds or fails, cryptocurrency is here to stay.
What does bitcoin winning really mean?
Roszak: Transactional level volume is low. Transaction volume has to occur for the consumers to be able to get into it. I'm waiting for the iphone of bitcoin apps, like (Kenya's) mesa, that makes people understand "I load this on my phone and I can pay you." That's when it becomes transactional. There are so many obstacles. To me, winning is when I can say, "hey, you want 10?" and you can get it.
Silverman: It's not about price but what the demand for the good actually is. If we can switch from speculative value to a real intrinsic value, to use decentralized store of hashes to pay for other goods and services, that's a win.
Gatti: I don't think its about price. Adoption is still low. Coinbase took a bit step forward in usability but its still at the beginning.
Harvey: To me, bitcoin winnig is basically people get that, they udersnatd the advanteages of using it for transactions but they also realize that there is another potential out there, other things possible to do with the blockchain. That to me is the real upside. That to me is winning.
Saturday, 1:30 p.m.
Raleigh-based Shannon Code hopes to launch the first hosting service for cryptocurrency companies. He's two weeks from launching the platform called BitStrap to work on top of Amazon Web Services, Rackspace and CenturyLink, so it's easy enough for someone to use without hiring an expert. He believes he's the first to build a service like this.
To fund the project, he kicked off a crowdsale yesterday. He'll pre-sell 150,000 to 450,000 Bitcoin worth of services in order to test them with early users. Eventually, users will pay a monthly hosting fee.
Code has spent 10 years in software development and Internet security in the Triangle, and four months ago joined the cryptocurrency industry as security officer for the (virtually-operated) Mastercoin Foundation. His spare time is spent BitStrap, which he built after experiencing problems hosting security tests for Mastercoin.
Saturday, 12:10 p.m.
Key Takeaways from the Bitcoin Regulation Panel
Edmund Moy, Director of US Mint / Carol Van Cleef, Attorney in DC for Banking industry for 15-17 years / Tyler Gibbons, CPA / David Aylor, Attorney who represented first person to have his Bitcoin seized / Andrew Beal, Attorney
1. Regulation is unavoidable. According to Edmund: "One thing that defines governments is their ability to make their own currency. Bitcoin challenges that monopoly and governments won't give it up quickly. From that perspective governments will not allow no regulation. There is currently no law that regulates Bitcoin, and that allows each regulatory agency to create law that would regulate Bitcoin for their component. This produces a hodge-podge of regulations that don't coordinate with each other and even have some conflicts."
2. The IRS says Bitcoin is not currency and is subject to capital gains and losses.
3. Bitcoin can be used for many things. Use case determines regulatory approach, and it can be a currency, a unit of account, an asset, a commodity or more. According to Carol: "When you sort out the different way it can be used you have different regulatory players. This is the reason for much of the challenge with using a broad brush for regulation."
4. Bank of America and the Federal Reserve have issued letters on Bitcoin. They said that a central agency might use Bitcoin for an internal purpose such as replacing check processing to save money.
5. Edmund: "A penny costs 3 cents to make the Federal Reserve buys it for 1 cent. For every penny that goes into circulation, taxpayers subsidize it by 2 cents." Edmund: The government is going to be asking the question"How can we co-opt parts of it to make our jobs easier and to benefit taxpayers?"
6. Bitcoin can be an alternative way to do transactions more quickly. Carol: "We have digital cash. The problem and question is, do current payment systems function quickly enough to satisfy users?" For example, NACHA isn't able to do same-day settlement yet.
7. How the states are responding. Texas department of banking has said that the owner of a unit of crypto-currency has no right or guarantee to convert that unit into sovereign currency and therefore it cannot be considered money under the current definition. States like South Carolina and Kansas agree that it's not money and has no monetary value. David says this is a concern and creates more confusion because other states will use a copycat approach without realizing the limitations of drafting regulations too early.
8. Andrew says that states with a position that Bitcoin isn't money actually make it easier for some businesses because then they aren't subject to as many regulations and rules. It could cause problems down the line though if you build a business model and policies change. But in the short-term, it provides definite guidance for today.
9. Q: If you buy a flash drive that has Bitcoin on it, are you buying the flash drive or Bitcoin? People are selling these on eBay. Carol says that it depends on the state and who is involved in the transaction. If you sell one of these flash drives, depending on state law, you need to be concerned if you are involved in the money transfer business. Especially depends on who the buyer is and what they plan to use it for.
10. Andrew thinks that mining will become more centralized over time and as those centralized bodies become more powerful, there will be a loss of anonymity. At some point, it will be a company or large enterprise. Miners may be subject to money-transmitting licenses and regulation.
11. There are best practices for successful legislation. Edmund: multi-pronged approach. 1) Education. If you want better regulations the people who write them need to understand them. This is a multi-year process. 2) Provide a self-regulatory model to give guidance to people. The more you self-regulate and provide transparency the more positive model you give to the regulators to follow so when they do put out regulations they will make more sense.
12. Panel agrees that you can't wait for regulation to come out. Advise entrepreneurs to continue to innovate and make a best effort to self-regulate in advance of formal positions, but to keep moving forward.
Saturday, 10:20 a.m.
ExitEvent writer Bill Bing sits down with Silicon Valley VC Adam Draper, ambassador for Bitcoin and operator of the accelerator Boost.vc (and son of famed VC Tim Draper). Read our preview story on Draper.
Friday, 6:30 p.m.
REEDS Jewelers executives talk about their decision to become the first fine jeweler in the country and largest multi-site retailer to accept Bitcoin. The first purchases were made with the currency in June. Our story here.
Friday, 5:45 p.m.
Check out excerpts of the first panel at Cryptolina, Bitcoin and the Developing World.
Friday, 4:30 p.m.
Another attempt to get Bitcoin and cryptocurrencies in the (digital) wallets of masses: Prypto. The Irish company created plastic cards that are loaded with Bitcoin or other cryptocurrencies and can be purchased as gift cards at retail stores or branded by companies to sell themselves or give away as awards to customers/employees. The recipient simply scans a QR code, or enters the codes on the card to redeem the coins.
The company has a local reseller in chemist Jason Carleski. So we might just see them at local retail stores soon.
Here's a video explaining Prypto's Crypto Scratch Cards:
An N.C. State computer and electrical engineering senior is raising $150,000 to grow GreenCoin, a new cryptocurrency built around carbon reduction and renewable energy creation. Founder Lorenzo Walz is pretty proud of the fact that he can let you own carbon if you own GreenCoin. Owners of solar arrays or other renewable energy sources earn GreenCoins daily based on the amount renewable energy they create and the amount of carbon they sequester.
Walz envisions GreenCoin as a way to incentivize more people to embrace renewable energy and reduce carbon emissions. And his estimates (based on GreenCoin's algorithm that assigns GreenCoins based on amounts of carbon sequestered) show that GreenCoin pays producers up to 20 times as much as the government would for that energy. GreenCoins can also be sold via exchanges.
The awarding of GreenCoins will be handled by a GreenCoin Foundation, planned to be governed by a board of directors made up of executives from the renewable energy industry, government entities and nonprofits with interest in the field. Much is contingent on the funds-raise happening now.
To build some buzz around the company, Walz is offering a deal to any Cryptolina attendees who are generating renewable energy - 500,000 GreenCoins out of his own wallet.
Friday, 2:45 p.m.
A local IT consultant at Cisco is behind a fast-growing crypto currency retailer called WeSellCrypto. Greg Cronheim partnered with a Swedish developer to launch a prototype, WeSellDoges, in late April. Their goal was to allow people to buy and sell Dogecoin (a coin established in Portland, Ore. in late 2013 with a goal to reach a broader population than Bitcoin) at first, and eventually any cryptocurrency, instantly and with minimal verification. Because PayPal began allowing cryptocurrency transactions on its platform in March, they decided to use its verification and checkout process. Coins are delivered to a buyer's wallet within 10 seconds.
They've since sold 1.2 billion dogecoins, representing just more than 1 percent of available dogecoins to 3,500 unique customers in 76 countries.
WeSellRedd went live July 23, and has sold more than 240 million Reddcoins in 623 transactions. The vision for WeSellCrypto is to have a drop-down menu where any type of coin can be purchased.
Cronheim also hopes he can help bring crytocurrencies into the mainstream. He'll soon partner with VoidSpace, the first game to use Dogecoin as in-game currency, to get currency from WeSellDoges into the game.
"Mass adoption is key to success, especially for alt-coins," he says.
Friday, 2:15 p.m.
Triangle Bitcoin Meetup member Jameson Lopp has a project he hopes will help create a more transparent and secure network of Bitcoin nodes, by providing developers mining on those nodes real-time data about the network.
It's called the Statoshi Project (a play on the name of Bitcoin's founder Satoshi Nakamoto), and it launched in March. Lopp was inspired to collect and distribute metrics about the nodes when he found it to be the one aspect of bitcoin not transparent and open. He can measure amount of bandwidth, the number of connected peers and the types of peers connected to, as well as any misbehavior on the network. His goal is to determine the normal state of the network so it's clear when something abnormal happens. He'll then automate messaging around those abnormalities.
Lopp borrows lessons from seven years of building and scaling the email marketing software-as-a-service platform at Bronto Software in Durham. He's helped grow the company from seven to hundreds of servers allowing hundreds of millions of emails to be sent daily. And metrics and automation have been key to pleasing the people who use the technology created by developers.
More details can be found in this article from BitcoinX.