Seattle entrepreneur mines Bitcoin phenomenon

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by RENAY SAN MIGUEL/KING 5 News

KING5.com

Posted on January 20, 2014 at 1:30 PM

Seattle entrepreneur Will O'Brien started learning about the Bitcoin digital currency technology in late 2012. He said it didn't take him long to realize that what was really at stake was the transformation of the financial services system.

"This was the beginning of the Internet all over again," said O'Brien, a former executive in charge of corporate business development at Big Fish Games who is now CEO of www.BitGo.com. "This was something magical, where companies could be built and an entrepreneur wanting to take a big risk could go after an opportunity here."

Those are strong words about a form of virtual cash that many people outside of the technology world still haven't heard of or can't understand. They're also what you would expect from a startup CEO invested in a new technology.

But some key 2013 events regarding Bitcoin may add value to O'Brien's statements:

* The infamous Silk Road marketplace, which allowed bitcoins for buying drugs and other illegal activities, was shut down by the FBI. The Bitcoin technology itself, however, didn't fade away.

* A U.S. Senate committee heard testimony about Bitcoin's risks - but also heard about the potential benefits for global commerce from no less an expert than then-Federal Reserve Chairman Ben Bernanke.

* Large and small companies started accepting bitcoins as payment alternatives for goods and services. "We're seeing tens of thousands of merchants accepting bitcoins today - from Wordpress to Overstock to Zynga," O'Brien said. "You can buy a grilled cheese sandwich at a food truck in Seattle. You can buy a ticket on Virgin Galactic."

* Some regulatory clarity started to appear, including initial guidelines from the U.S. Treasury's Financial Crimes and Enforcement Network stating that anyone doing business in digital currencies like bitcoins must register as money services businesses.

These events helped take Bitcoin to its next level of growth, said Patrick Murck, a Seattle attorney who is general counsel for the global Bitcoin Foundation (www.bitcoinfoundation.org). "Some of the uncertainty around it, some of the experiments that have happened...a lot of those have been answered now," Murck said. "Now is question is okay, who's going to build the core infrastructure that's going to enable people to really develop advanced services? That's what we're seeing happening now."

O'Brien wants BitGo to help with that mission. The company's technology involves multi-signature digital wallet security. "You need two signers - just like two missile keys or two signers on a bank account - to unlock or transfer the (Bitcoin) funds," he said. "With that foundational technology, we believe we can build a suite of services for both businesses and consumers around monitoring and managing your portfolio, around corporate treasury services, around escrow and other types of services that need to be part of the core infrastructure around financial services based on digital currency."

The company includes former executives with Netscape and early investors in Twitter and Tesla. It has raised Series A financing.

Does O'Brien fear a Bitcoin bubble? He knows the dawn of the Internet brought about many companies with bad business models. Yet it also gave birth to Amazon and Google.

"We're going to have incidents like Silk Road," he said. "We're going to have regulatory uncertainty followed by clarity, and we need to build a sustainable business model. We need to build trust with both consumers and corporate customers."

Bitcoins, which are like gold or cash, have value and can be mined, traded and stored. They were initially designed to facilitate online payments. But unlike currencies managed by governments or banks, bitcoins are based on mathematical equations, cryptography, peer-to-peer transactions and open source software. No personal information is attached - just Bitcoin addresses and private keys for decoding.

The total number of bitcoins will never exceed 21 million, and there is a record of every transaction. Even though bitcoins can still be hacked or stolen, their anonymous nature has appeal in an age of credit card fraud and data breaches.

"What you have is a credit card system which is not developed for e-commerce, it's not built for e-commerce," Murck said. "It's very traditional and you have to give away a lot of information to retailers. That doesn't make a lot of sense. You're giving them access in one central server, so the economics for someone who wants to attack a site are stacked in favor of the attackers."

Bitcoins are more of a "push" transaction like cash with no personal information passed along. "You've decreased the attack surface for people who want to steal from you."

So why the wild swings in bitcoin pricing as seen over the last six months on exchanges like Mt.Gox? A new retailer adding Bitcoin to its payment options can send the stock soaring; bad news from governments can slash the price in minutes.  "It's completely a supply and demand marketplace, it's thinly traded right now," Murck said. "I think the best thing that can happen to ease that volatility out of the system is the core infrastructure that needs to get built out right now."

O'Brien says people who do use bitcoins are excited to spend them, because they want to put more of them into the economy. But getting them to trust the Bitcoin technology will be key in 2014. If O'Brien hopes to makes BitGo "the Charles Schwab of bitcoins," he'll need more major brands to join the digital currency party, and more regulators to weigh in.

"As more people use bitcoins we're going to see the overall stability of the price and the stability of the infrastructure supporting it," he said.

 

 

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