Growing Population in China Views Bitcoin as a Safe Haven, Says BTCChina’s Greg Wolfson

Bitcoin Magazine
Growing Population in China Views Bitcoin as a Safe Haven, Says BTCChina’s Greg Wolfson
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This week, the Chinese yuan has devalued to a four-year low against the U.S. dollar while BTC/CNY echange rate has risen from 1,633 yuan to 1,690.36 yuan. Is the devaluation of the Chinese yuan triggering a surge of bitcoin growth in China?

Not necessarily.

“Generally, if bitcoin behaved like other commodities, it would decline in price with the devaluation of the Chinese yuan, since BTC would be more expensive in CNY terms, which would reduce overall market demand,” Greg Wolfson of BTCChina told Bitcoin Magazine. “In fact, for the past five years, we’ve seen a strong bear market in commodities, and part of that trend is driven by structural changes in China. Bitcoin prices have also declined over the same period, although it hasn’t been shown that this is correlated with traditional commodity indices.”

However, there are quite a few people in China who are enthusiastic about bitcoin and think of the digital currency as a stable alternative to the Chinese yuan. Some businesses purchase bitcoin due to its relatively high international exchange rates and to avoid times of economic uncertainty.

“The CNY devaluation is significant as a policy signal, but the actual devaluation wasn’t very large in relative terms,” Wolfson said. “However, there are a growing number of people who feel that bitcoin is a safe haven of sorts, analogous to the role that gold played historically. If this is true, economic turmoil in China could cause speculators and perhaps some businesses to buy more bitcoin in a ‘flight to safety.’ Bitcoin has some properties that make it attractive during times of economic uncertainty, and uncertainty in Chinese stock markets, foreign exchange rates, and the overall economy could create more demand for bitcoin and buoy prices.”

Bad Reputation

Despite the space of opportunity that the devaluation of the Chinese yuan has left open for bitcoin, the digital currency has been suffering from bad press in China. Due to a large number of bitcoin fraud/Ponzi schemes such as MyCoin and hacking incidents involving the digital currencies, bitcoin has been portrayed negatively in the general Chinese population, as a tool for illegal trades and programs.

“Chinese are highly skeptical of anything that could be perceived as a scam,” Wolfson told Bitcoin Magazine. “Bitcoin’s unclear legal status and its association with hacking, gambling and online dark markets have hurt its perceived legitimacy. We need to do a much better job with public relations, helping people understand bitcoin’s utility, and, most importantly, actually making it commercially useful to people.”

For bitcoin to reach mainstream adoption in China, Wolfson says that valid and relevant applications that make sense in China have to be developed. All payment systems, restrictions and regulations function in a unique way in China, and, therefore, it is hard to predict how Bitcoin will grow and gain traction as a payment method for domestic transactions.

However, Wolfson explained, “‘Mainstream adoption’ isn’t necessarily limited to payments. Given the amount of mining and exchange that occurs in China, bitcoin is arguably more mainstream in China than anywhere else in the world.”

 

Photo Christopher / Flickr (CC)

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Matthew Roszak on Bitcoin’s Killer App: “Don’t Sell Drills, Sell Holes.”
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I had the pleasure of talking with Matthew Roszak, Founding Partner of Tally Capital, for an interview series on my newsletter, Crypto Brief. If you’re ever starting to doubt how much energy you’re putting into the industry, just listen or read some of the things he’s said about it and you’ll feel your excitement rejuvenated.

A little background on Roszak: He was named one of the “Who’s Who of the crypto-currency world” by The Wall Street Journal and has been in private equity and venture capital for more than 18 years, investing more than $1 billion of capital in a broad range of industries from startup to IPO. He serves on the boards of BitGive, Blockchain Capital, Chambers of Digital Commerce, Dunvegan Space Systems, Factom, Noble Markets and Romit, among other companies.

Recently, he founded the Chicago Bitcoin Center, which is an incubator based out of 1871. He acted as a producer of the Bitcoin documentary, The Rise and Rise of Bitcoin.

How did you get your start in Bitcoin?

Bitcoin originally surfaced on my radar in 2011 when one of my portfolio companies, a social gaming company in Singapore, looked into Bitcoin as a potential payment source. So I read Satoshi [Nakamoto]’s white paper and became intrigued by the potential for Bitcoin’s promise. Having a currency and protocol that was open, secure and decentralized resonated with me whereby finance, industry, government and other centers of gravity can be completely re-engineered. I was also an investor in Zero Knowledge Systems, a privacy software company, which was founded by Austin Hill. Austin is now the CEO of Blockstream, a San Francisco-based blockchain startup. All of these intersections kept pulling me into the rabbit hole – and I have been digging deeper ever since.

Bitcoin and blockchain-based technologies have the potential to change the world – from enhancing the plumbing on Wall Street to providing for greater financial inclusion for the unbanked. I was drawn to Bitcoin much like my initial experiences with personal computers, mobile phones and the Internet – I had this emotional reaction when I realized the ways in which these technologies can be very powerful change agents for innovation. Furthermore, there was this clear opportunity to be on the front end of something really transformative – on the scale of railroads, automobiles, telephony or the Internet – that has the potential to make a meaningful impact on society.

I decided to dedicate my time and energy investing in and building out this ecosystem, and founded Tally Capital as an investment and operating platform. To date, Tally has invested in over two-dozen companies, including BitFury, Blockstream, Bloq, ChangeTip, Factom, MaidSafe, Noble Markets and Romit, amongst others. Beyond investing, I’ve also been active on the boards of two leading non-profits in our industry, the Chamber of Digital Commerce (the first D.C.-based trade association) and BitGive (the first philanthropic organization). There’s a ton of work to do in order to propel this industry forward – from investment and development to education and advocacy – we’re just getting started.

Where did the name Tally come from?

To truly appreciate the potential of Bitcoin, one needs to understand the history of money. The name “tally” is derived from tally sticks, a form of currency initiated by King Henry I around 1100, in medieval England. The system of tally marks consisted of notches cut along the edge of a polished wooden stick (issued by stockbrokers) to signify denominations, and then split in half so each counterparty maintains a receipt of the transaction — this is analogous to the way in which public and private key technology behaves in Bitcoin.

Over the course of 726 years, the British Empire was built and financed under the tally stick system, making it one of the most successful forms of currency in history. The Bank of England at its formation attacked the tally stick system as it realized that tallies were outside the power of the money-changers. By 1834, tallies were ordered to be burned by the Bank of England, and in the process the fire went out of control and nearly destroyed Parliament.

Do you believe the “killer app” for Bitcoin has already been invented? If so, what is it? If not, what do you think it will be?

My sense is that the killer app is upon us. It’ll take some time to surface as we’re still in the initial phase of building out the industry’s underlying infrastructure. Some of the key innovations we have seen thus far include multisig and sidechains. Multisig is in many ways more of a feature like double-knotting your shoelaces, while sidechains are just getting off the ground, albeit have the potential to be incredibly powerful in scaling the blockchain.

Furthermore, the use case of the killer app will likely not be promoted primarily as Bitcoin-based, as the technology will be leveraged and working in the background. There’s an old adage in business that says, “Don’t sell drills, sell holes.” Consumers and businesses are looking for solutions that leverage this new technology and some of its keystone attributes of security, privacy and decentralization.

A lot of the key elements needed in developing Bitcoin’s killer app, or our Netscape moment, are already in motion – including a $1 billion investment run rate, the best and brightest from Wall Street to Silicon Valley jumping into the ecosystem, and household names in financial services like Goldman Sachs, Citibank and UBS, and big tech names like IBM, Samsung and Intel, are now fully engaged. These are all of the right ingredients for innovation and experimentation to flourish.

As a venture capitalist, what do you look for when investing? What is the one sector you’re most interested in within Bitcoin?

Beyond looking at the product, market, team, etc., it used to be innovative in itself to be in Bitcoin; however, now you have to be innovative within Bitcoin. As for key investment themes, some of the areas that are of great interest include: identity, big data/analytics, messaging and bitcoin’s role in the IoT [Internet of Things.]

Identity is the standout from my perspective. Think about the issues involved with signatures, voting registration, birth certificates, passports and the like. Being able to create a permissioned identity stack for consumers and businesses with unprecedented levels of security, privacy and control can be very powerful.

Today, our identity is stored, updated and managed by governments, employers, banks and social networks – and not a day goes by where this sensitive information doesn’t get compromised. When one goes to a Target, we give them our credit card and sometimes a driver’s license is required to confirm that credit card is indeed ours. These consumer transactions require a lot more personal information than what’s truly necessary.

Identity needs to be completely re-imagined. There should be discrete slices of our identity stack that dynamically populates the right information in the appropriate circumstance – not to mention for a predetermined amount of time. For example, if you’re purchasing alcohol, all that needs to be verified is your age. If you’re headed to a job interview, employers only get a specific set of information. Mortgage application? That’s a different part of the stack. Hospital? Way different.

This new blockchain identity model can also turn the entire advertising industry upside down. Consumers will no longer be forced to look at ads, unless we provide express authorization. In return, consumers get compensated directly from advertisers and cut out the middleman (like Facebook and Google). Fast forward this movie further, and you can see how this model can turn high impact advertising into a smart contract residing on the blockchain.

Strengthening identity and personal privacy protections with blockchain-based technologies is a game-changer, and one of the greatest opportunities in Bitcoin.

Do you believe that BitLicense will have a significantly negative impact on Bitcoin businesses or will the increased regulation provide some validation for the businesses?

BitLicense has created clarity as to what it takes to operate in the State of New York, which is a good thing. On the other hand, the processes and requirements to adhere to BitLicense are extremely detrimental to early-stage companies. Many other states and even countries will look to BitLicense as a model regulatory framework, which will only make it harder and more expensive to operate in this industry.

From my perspective, BitLicense is akin to a big boot compressing the air hose of innovation – and will make entrepreneurs and investors think twice about doing business in New York. This may also lead to jurisdictional arbitrage, and perhaps create new power centers for Bitcoin companies in places like London, Toronto or Singapore, which have shown to be much more accommodating during these early days.

Fred Wilson owns a small amount of bitcoin but, for the most part, is more interested in investing in Bitcoin companies. Are you more focused on the companies, the currency, or a mixture of both?

 My investment thesis is comprised of both bitcoin and companies in the ecosystem. The majority of Tally’s capital resides in bitcoin, the currency. I do not check the price of bitcoin every day – this is a long-haul investment, and my sense is that it will take 5-10 years for things to materialize. To date, Bitcoin has been a speculative flywheel on the currency. Miners sell their bitcoin winnings to help fund electricity bills and next-gen chips, while investors buy and hoard hoping the price goes up. That dynamic has been relatively ho-hum over the recent past as evidenced by the relatively stable, or more like boring, price range of bitcoin. The key in all of this is to have the blockchain’s flywheel get moving with innovative applications that help drive utility, throughput and transactions. Once that happens, the price of bitcoin will react accordingly.

Where do you see the price of bitcoin going over the next few years?

 I think bitcoin is one of the greatest mispriced assets I’ve seen in my career. I am extremely bullish on bitcoin. Given the investment capital and human capital dynamics pouring into this ecosystem, I believe bitcoin is one of the greatest generational opportunities for investors and entrepreneurs. The easiest way for people to invest in this ecosystem is by simply buying bitcoin – which I like to characterize as a tracking stock representing this exciting, new frontier in technology, and well beyond.

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Coin Center and the EFF Square Off Over Proposed California Digital Currency Business Licenses
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The ongoing debate about the role of governments in regulating digital currencies isn’t going away anytime soon. While the dustup over New York’s BitLicense program continues, another front has opened up in California where a member of the state assembly has introduced a bill to regulate California’s digital currencies businesses.

The Washington, D.C.-based Coin Center and the San Francisco-based Electronic Frontier Foundation (EFF) each have lobbied hard against the New York Department of Financial Services attempts to regulate New York businesses with its controversial BitLicense program.

But with the proposed California law, the two organizations have taken two separate forks in the advocacy road, with Coin Center supporting the California legislation and EFF adamantly opposed.

Coin Center supports while EFF opposes proposed California law

Coin Center is now supporting the proposed California legislation, saying it is the best possible compromise under the circumstances and would prevent a worse law – the current money transmission law – from being the default in regulating bitcoin.

Peter Van Valkenburgh, director of research at Coin Center, told Bitcoin Magazine the proposed California law is a “model for sound regulation in this sector,” not as flawed as the New York BitLicense regulations, and is much better than the status quo.

“A Bitcoin company that actually holds all of the private keys for some user is acting just like a bank or a money transmitter. It’s very difficult to convince politicians that between two companies with very similar risk profiles, one that holds peoples bitcoins and one that holds their fiat, the Bitcoin business should get special treatment,” he said.

“[T]he losses suffered by customers of Mt. Gox and other failed exchanges provide all the rationale they need to treat bitcoin custodians exactly as they would treat the legacy industry,” Van Valkenburgh said. “So what we’re left with, the sensible strategy, is to make sure that non-custodial and highly innovative uses of the technology, like multi-sig, sidechains, the lightning network, are exempted.”

The proposed law would require digital currencies businesses to obtain a license from the California Department of Business Oversight (DBO).

“Everybody — even Coin Center — acknowledges that this bill has serious flaws,” EFF Activism Director Rainey Reitman told Bitcoin Magazine. “But the biggest problems aren’t for large, established Bitcoin companies like those backing Coin Center. Many of those aren’t affected by this bill, either because they already qualify for a license exception or they have the resources to overcome the regulatory hurdles.”

What happens now?

The proposed legislation has passed through the California Assembly (although the vote was split), and through the Senate Banking and Financial Institutions Committee, and is due to be voted on in the California Senate in the near future.

Meanwhile, Coin Center will work to educate people on how the law will work.

“Coin Center has been transparent from the start when it comes to bill AB 1326,” Van Valkenburgh said. “While the bill began its life unfriendly to Bitcoin and blockchain innovation, it has evolved into a model for sound regulation in this sector, even if it can still be improved.”

EFF will be fighting the proposed bill through its online activism campaign.

Reitman noted the possible repercussions of this law.

“I don’t think this will stop in California. If this bill passes, I suspect it will be replicated in future states, with potentially worse provisions. That’s why this battle is so important,” she said. “Our mission is clear and we will continue to work on behalf of Bitcoin startups, innovators, and users of future virtual currency technologies that may never exist if this law is passed. EFF has to argue for the wider public interest.”

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KnC Miner Pays 30% of Employees Using Xapo Debit Cards
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This week, KnC Miner began offering each of its employees Xapo Debit Cards for salary payouts. So far, around 30 pecent of its employees are participating.

KnC Miner is a bitcoin mining company, and therefore, most of its employees already have their own selection of bitcoin wallets, cold storage solutions and investments. The company decided to use Xapo Debit Cards for its convenience, since Xapo Debit Cards can be used anywhere that accepts MasterCard or Visa.

“A large percentage of our staff are real Bitcoin aficionados and of course they already own bitcoins and operate their selection of wallets, cold storage solutions etc.,” Nanok Bie of KnC Miner told Bitcoin Magazine. “Some have also invested in Bitcoin via the instrument Bitcoin Tracker One listed on NASDAQ/OMX in Stockholm, issued by a subsidiary to KnC. The Xapo Debit card is just another convenient solution, as it can be used to pay for goods and services anywhere in the world where Visa is accepted.”

Other Options

Since 2014, several bitcoin debit cards have been introduced in Australia and the United States. The most recent bitcoin debit card launch was the Bit-X debit card, which allows anyone to pay with bitcoin at Visa-accepting outlets or point-of-sale machines. Despite a long list of options, KnC Miner chose to work with Xapo due to its insured vault storage and convenient services.

“We feel the debit card solution is an interesting ‘bridge’ between the current paradigm and the bitconomy of the future,” Bie told Bitcoin Magazine. “This is a beta program and we are partly doing it for research purposes, and we’ve already collected interesting data as many of our staff have been using these cards for months now. Choosing Xapo was an easy choice as they were the first to offer a comprehensive set of services connected to a debit card, and there’s also the option of using their insured ‘vault,’ all easily accessible in their mobile app.”

Offering

The company offered all of its staff and employees Xapo Debit Cards, and those who accepted the offer are starting to have parts of their salaries paid through Xapo Debit Cards.

But the company is based in Stockholm, Sweden, and its local government has restricted the amount of bitcoin withdrawals per day. Because of the heavy regulations in Sweden, KnC employees cannot withdraw all of their salaries at once.

“We offer this service as an opt-in and currently around 30 percent of our staff has accepted the offer, and then they can specify themselves what percentage of their salary should be paid out in bitcoins directly,” Bie said. “Due to Swedish regulations around salaries they cannot immediately convert all of the current salary to bitcoins, but when changes to their salaries are made they can opt-in to receive a part of it in bitcoins.”

KnC Miner is taking this opportunity to test the efficiency of bitcoin debit cards and whether it could be a convenient payout solution for large companies in the bitcoin industry.

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