Talking Bitcoin With the Winklevosses | Disrupt SF 2013

TL;DR

Bitcoin is best understood not as currency or gold but as an API for programmable cash, letting developers build wills, escrow, notaries, dividends, and crowdfunding that ordinary money cannot. The Winklevoss twins accumulated roughly 1% of all Bitcoin, earning as much as a 10x return, and view it as a binary bet worth either infinity or zero.

Transcript

kind of dark here yeah right 2013 was the year that Bitcoin kind of crossed over from being the fascination of hackers anarchists General Skeptics of the Global Financial system as it stands into something that's actually more broadly accepted by uh the mainstream public and by the financial community at large so this year was the first year that w... Read More

Key Insights

• 2013 was the year Bitcoin crossed over from the fascination of hackers, anarchists, and financial skeptics into broader mainstream and financial-community acceptance, marked by the first VC investments in Bitcoin startups and a price run-up after the Cypress banking crisis.
• The Winklevoss twins accumulated roughly 1% of all Bitcoin in circulation, buying some on exchanges and some directly from people in a scrappy, low-liquidity process, and report making a strong return including as much as 10x on part of their holdings.
• Bitcoin is fundamentally an API for programmable cash and financial transactions, letting hackers program wills, escrow, notaries, payouts, dividends, and crowdfunding functions that are impossible with normal cash.
• Bitcoin combines four distinct technologies: digital signatures, a peer-to-peer network, a distributed blockchain recording every transaction in everyone's wallet, and a proof-of-work system that prevents double spending.
• The identity of creator Satoshi Nakamoto does not matter because a mathematical theorem's validity is independent of who produced it; the open source can be cloned and inspected at github.com/bitcoin/bitcoin, and Satoshi likely holds around 10% of Bitcoin.
• The 51% attack is less dangerous than commonly believed: even controlling over half the network's nodes lets an attacker only reject future transactions, not alter past ones, and the rational incentive is to mine more Bitcoin for profit rather than destroy it.
• Bitcoin's core computer-science breakthrough is a solution to the Byzantine generals problem, enabling functions once thought to require centralized systems (like DNS via namecoin or public key infrastructure) to run in a distributed fashion.
• The main risk to Bitcoin is regulatory and government pressure plus the length of the adoption curve, since network effects require a tipping point that could arrive in two, twenty, or two hundred years.

Questions & Answers

Q: Why was 2013 a turning point for Bitcoin?

2013 was the year Bitcoin crossed over from being the fascination of hackers, anarchists, and general skeptics of the global financial system into something more broadly accepted by the mainstream public and the financial community at large. It was the first year that VCs began making investments in Bitcoin-related startups, and there was an incredible run-up in the price after the Cypress banking crisis, signaling growing legitimacy for the ecosystem.

Q: How did the Winklevoss twins get into Bitcoin?

The twins found Bitcoin totally unexpectedly while on vacation two summers earlier, where they ran into a man from New York and started talking about virtual currencies. They described the feeling as being teleported back to the early days of the internet, with an enormous promise that captured their excitement right away. They were not initially expecting to come across a new investment on that trip.

Q: How much Bitcoin do the Winklevosses own and what return did they make?

The Winklevoss twins accumulated what is probably one of the largest stakes in Bitcoin globally, holding roughly 1% of all Bitcoin in circulation. They bought some on exchanges and some directly from people in a scrappy process due to low liquidity and small market cap at the time. They say they definitely made money, including as much as a 10x return on part of their holdings, and have not sold anything because they remain very bullish.

Q: Does it matter that no one knows who created Bitcoin?

The panelists argue it does not matter. One compared it to not thinking about Tim Berners-Lee every time you surf the web. Many people have examined the Bitcoin protocol, its encryption schemes, and open source (available to clone at github.com/bitcoin/bitcoin) and found it brilliant. The validity of a mathematical theorem is not a function of who created it and can be independently checked. Satoshi also has good reason to stay anonymous, or he would be hunted like Edward Snowden.

Q: What is Bitcoin really, if not just a currency?

The panel argues people think about Bitcoin incorrectly as currency, gold, hoarding, or speculation, when it is actually an API for programmable cash and financial transactions. For the first time, hackers have access to a protocol that lets them program wills, escrow, notaries, payouts, dividends, and crowdfunding functions that cannot be done with normal cash. This concept of programmable universal cash is what makes it fascinating.

Q: What technologies make Bitcoin work?

Bitcoin combines at least four different technologies. It uses digital signatures in a clever way, a peer-to-peer network, and a distributed blockchain, which is the concept that the history and record of every transaction lives in everyone's wallet. It also uses a proof-of-work system to prevent double spending. One panelist called it the most fundamental thing since underlying internet protocols like TCP/IP, and noted it solves the Byzantine generals problem.

Q: How serious is the 51% attack on Bitcoin?

The panelists say the 51% attack is far less dangerous than people make it out to be. Even if someone controls more than 50% of the nodes in the network, they cannot destroy the currency or change past transactions; they can only reject future transactions. At that point the attacker's incentive is actually to mine more Bitcoin and make money for themselves rather than destroy it. Such an attack would also lead to a fork in the blockchain, effectively creating multiple coexisting currencies.

Q: What are the main risks facing Bitcoin?

The biggest risk identified is regulatory and government risk, since every regulator, at least in the US, is now after Bitcoin. There is a small encryption risk if a back door were found in a protocol like ripemd used underneath. The main challenge is the adoption curve, because network effects need a tipping point, and the entrenched dogma of how money should work is very strong. That tipping point could be two years out, twenty years out, or even two hundred years out.

Summary

This video is a discussion with a panel of bitcoin enthusiasts and investors. They talk about the growing acceptance of bitcoin by the mainstream public and financial community, as well as the potential of the bitcoin ecosystem. The panelists share their experiences with investing in bitcoin and their thoughts on its future. They also discuss the origins of bitcoin, its underlying technology, and the security risks involved.

Questions & Answers

Q: How did the panelists accumulate such a large stake in bitcoin?

The panelists unexpectedly found out about bitcoin while on vacation in Ibiza. They met someone from New York who introduced them to virtual currencies. They were immediately fascinated by the promise of bitcoin and accumulated their stake through various means, including buying on exchanges and direct purchases from individuals.

Q: What kind of return have the panelists made on their bitcoin holdings so far?

The panelists state that they have definitely made money on their bitcoin holdings and have not sold any of their bitcoins yet. While they don't provide specific numbers, they do mention making a 10x return on some of their investments. They remain very bullish on bitcoin and view it as a good long-term investment.

Q: How do the panelists overcome the fact that the original creator of bitcoin is unknown?

The panelists believe that the identity of the creator of bitcoin, Satoshi Nakamoto, is not important. They argue that the underlying technology and encryption schemes behind bitcoin have been thoroughly examined and are considered to be brilliant innovations. The fact that Satoshi or the group behind his identity holds a significant amount of bitcoin does not concern them. They view bitcoin as a groundbreaking invention that has the potential to revolutionize the financial industry.

Q: What made the panelists comfortable with bitcoin and its underlying technology?

The panelists took the time to familiarize themselves with the various aspects of bitcoin. They dove into the technical details and studied the underlying technologies, such as digital signatures, peer-to-peer networks, distributed blockchains, and the proof-of-work system. They were impressed by how these concepts came together to create a secure and decentralized system. They also appreciate the personal freedom and programmability offered by bitcoin.

Q: Do the panelists believe that bitcoin is the final form of digital currency or a precursor to something better?

The panelists believe that bitcoin will likely be augmented rather than replaced by future math-based currencies. They mention the possibility of incorporating technologies like zerocoin into the bitcoin blockchain to enhance anonymity. They also see opportunities for other alt chains and decentralized systems to coexist with bitcoin. Overall, they see bitcoin as a significant technological advancement and view it as a long-term investment with great potential.

Q: What risks do the panelists consider when investing in bitcoin?

The panelists see regulatory and government risks as the biggest concerns. They acknowledge the uncertainty around regulations and the potential impact on banking relationships with bitcoin startups. They emphasize the importance of healthy regulation to provide clarity and encourage more investors to enter the bitcoin ecosystem. Additionally, they recognize that the adoption curve for bitcoin may take time, and the network effects needed for widespread acceptance might require years or even decades to materialize.

Q: How do the panelists view the startup ecosystem surrounding bitcoin?

While the panelists have not invested directly in bitcoin startups, they see potential opportunities in the space. However, they caution that the total value of the bitcoin ecosystem is still small compared to publicly traded companies. They believe that investing in bitcoin itself is a more efficient way to allocate funds across the entire ecosystem. They mention that exchanges and simple mobile wallets are attractive areas for potential investment.

Q: At what point does the market cap of bitcoin become interesting enough to invest in a startup?

The panelists believe that when the market cap of bitcoin reaches the range of $3-5 billion, it could be a good time to start considering investments in bitcoin startups. They suggest that balancing investments between bitcoin itself and bitcoin startups may be beneficial. They also highlight the importance of creating incentives for the entire ecosystem and investing in increasing the price of bitcoin.

Q: How high could the price of bitcoin potentially go?

The panelists provide a range of possibilities based on calculations. They state that if bitcoin replaces or comes alongside gold as a speculative store of value, its price could increase by thousands of times. They give examples of potential scenarios where the price of bitcoin could be worth $10,000, $100,000, or even $3 million per bitcoin. However, they caution that these are speculative scenarios and should not be seen as guaranteed outcomes.

Q: How can retail investors play in bitcoin?

The panelists mention the creation of a bitcoin ETF (Exchange-Traded Fund) as a way to make bitcoin more accessible to retail investors. They believe that this would allow retail investors to have exposure to bitcoin as an investment without directly buying and storing bitcoins themselves. They highlight the potential of the ETF to bring new investors into the bitcoin world.

Takeaways

The panelists see bitcoin as a revolutionary technology with the potential to transform the financial industry. They emphasize the programmable and decentralized nature of bitcoin, which allows for new possibilities in financial transactions and services. They acknowledge the speculative nature of bitcoin investments and the risks associated with regulation and adoption. However, they believe that the promise and potential of bitcoin make it a worthwhile investment for those willing to understand and navigate the complex ecosystem.

Summary & Key Takeaways

• 2013 marked Bitcoin's shift from a hacker and anarchist curiosity into something accepted by the mainstream public and financial community, with the first VC investments in Bitcoin startups and a price surge following the Cypress banking crisis, prompting a panel of investors to assess where the ecosystem was heading.

• The Winklevoss twins discovered Bitcoin unexpectedly on vacation two summers earlier after meeting a man from New York, feeling as if teleported to the early internet. They accumulated roughly 1% of Bitcoin through exchanges and direct purchases, made a strong return including 10x on some, and remain bullish without selling.

• Panelists reframed Bitcoin as an API for programmable cash built from digital signatures, a peer-to-peer network, a distributed blockchain, and proof of work. They discussed the overstated 51% attack, the Byzantine generals breakthrough, alt chains like namecoin, and future augmentations such as zerocoin, while naming regulation and slow adoption as key risks.