Talking Bitcoin With the Winklevosses | Disrupt SF 2013

TL;DR

The Winklevoss twins bet big on Bitcoin because its enormous potential reminded them of the early internet. After discovering it unexpectedly on vacation, they accumulated roughly 1% of Bitcoin in circulation through exchanges and direct purchases, earning as much as a 10x return on some holdings without selling. Read on to understand their investment and the panel’s case for Bitcoin as programmable cash.

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 did the Winklevoss twins bet big on Bitcoin?

Bitcoin’s promise made the Winklevoss twins feel as though they had been transported back to the early days of the internet. They saw enormous potential, accumulated roughly 1% of the Bitcoin in circulation, and remained very bullish without selling their holdings.

Q: How did the Winklevoss twins discover Bitcoin?

They discovered Bitcoin unexpectedly while on vacation two summers earlier. After meeting a man from New York and discussing virtual currencies, they became excited by Bitcoin’s resemblance to the early internet.

Q: How did the Winklevoss twins accumulate their Bitcoin stake?

They bought some Bitcoin through exchanges and some directly from people. Because the market had little liquidity or volume and a small market capitalization, they described the accumulation process as scrappy.

Q: How much Bitcoin did the Winklevoss twins hold, and what return did they make?

They held roughly 1% of all Bitcoin in circulation. They said it had been a very good investment, with as much as a 10x return on some of it, and that they had not sold anything.

Q: Why was 2013 a turning point for Bitcoin?

Bitcoin moved beyond hackers, anarchists, and skeptics of the global financial system toward broader acceptance by the public and financial community. The year also brought VC investments in Bitcoin startups and a major price run-up after the Cypress banking crisis.

Q: What is Bitcoin beyond a currency or speculative asset?

The panel described Bitcoin as an API for programmable cash and financial transactions. Its protocol lets developers program wills, escrow, notaries, payouts, dividends, and crowdfunding functions that normal cash cannot support.

Q: What four technologies make Bitcoin work?

Bitcoin combines digital signatures, a peer-to-peer network, a distributed blockchain, and proof of work. The blockchain keeps the history and record of transactions in everyone’s wallet, while proof of work prevents double spending.

Q: Does Bitcoin’s unknown creator undermine the technology?

The panel argued that Satoshi Nakamoto’s identity does not determine whether Bitcoin is valid. Its protocol, encryption schemes, paper, and open-source code can be examined independently, including by cloning the source from github.com/bitcoin/bitcoin.

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.