Opinions on Bitcoin vary, but many venture capitalists are still eager to get in the game despite the admittedly large set of unknown variables. Others, however, like billionaire investor Warren Buffett, argue that Bitcoin is a “mirage” with no intrinsic value and therefore isn’t a viable investment. Many established investors, such as Buffett, feel that Bitcoin is too volatile. Even Bitcoin experts must admit that the Bitcoin exchange rate could drop to zero pending some disastrous bug or exploit being found in the Bitcoin network or any of its supporting cryptographic algorithms.
[dropcap size=small]O[/dropcap]n the other side of the coin, Marc Andreesen, co-founder of venture capital firm Andreesen Horowitz, is one investor who isn’t shy about betting big on Bitcoin.
Andreesen, co-founder of venture capital firm Andreesen Horowitz, recently invested just under $50 million in Bitcoin-related startups and believes it to be a breakthrough in computer science. “Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer,” Andreesen said. Similar to digital keys, contracts and signatures, Andreesen believes Bitcoin is a form of digital property that can be transferred securely from person-to-person without the inherent security risks posed by banks and credit cards. The key, however, is consumer buy in.
Ofir Beigel, founder of 99Bitcoins.com, believes that in order for Bitcoin to be successful, the public must have confidence in it and use it to buy and sell goods and services. He adds that it also has to be much more accessible than it is now. “Bitcoin is hard to grasp as a concept and this is one of its major disadvantages,” Beigel said. “But, the more companies there are which help customers buy, sell and understand Bitcoin, the more acceptable the currency will become.”
One major Bitcoin company, Circle Internet Financial, understands this need and has seen a boom in investors in recent weeks. The company was able to introduce its initial consumer product after collecting $26 million dollars from venture capitalist firms such as Oak Investment partners and Breyer Capital. Circle founder and CEO Jeremy Allaire says that the product is similar to a wallet service, which allows users to convert their fiat currency into bitcoins. It also provides various tools that are meant to make it more accessible and easier to spend, send and receive funds. Fred Wilson, a partner at Union Square Ventures, shares a similar sentiment with the likes of Andreesen and chose to get in the Bitcoin game early. Because Bitcoin is a globally distributed financial network, there is less of a chance that the entire system will fail if one aspect of it falls, Wilson said.
To put it in financial terms, consider traditional banking networks: If one of the major financial institutions like Bank of America were to falter, it would have wide-reaching ramifications for all banks in the country. Wilson doesn’t believe that a situation like this could happen with Bitcoin. The main focus of the company, according to Allaire, is to build a global consumer financial service and institution that will be able to firmly secure its customers’ digital assets. Security seems to be at the forefront of most investors, as well as consumers’ minds when it comes to Bitcoin. Rizzo points out that the biggest risk most people fear with Bitcoin is the lack of protections and legal recourse should investors become the victim of fraudulent activity.
As with all emerging markets, danger, risk, and reward coexist for Bitcoin in a precarious balance. As an example, many investors that jumped on board early were able to make significant financial gains. The next step, as many new Bitcoin investors in companies such as Circle have shown us, is to invest in the Bitcoin economy and protocol, as opposed to the currency itself.