I'm always a little worried when the Financial Times echoes something that I am already thinking. It means that either I might have, inadvertently, had a good idea or that I am having the sort of ideas that are supported by the Financial Times. Either way, a surprising finding. But they are indeed stating something I agree with today. That even if one buys into the ideas of the digital currency brigade why would you invest in Bitcoin, which is looking a bit toppy, rather than one of the other digital currencies?
Buying Bitcoins while their price is so bubbly is nothing more than a gamble. Investing in other online currencies, or in companies that can help the Bitcoin economy develop, looks like a sensible use of a venture capitalist’s money.
Certainly some of the VCs are moving this way. We've only just had the announcement that Andreessen Horowitz has invested in Coinbase:
If you’re a bitcoin doubter, you might want to turn away. The doors to venture funding in bitcoin startups are about to swing wide open.
Andreessen Horowitz has led a $25 million Series B investment in San Francisco-based Coinbase, the companies are announcing today, in what may very well be the largest-ever venture investment in a bitcoin-related company. Coinbase previously raised nearly $7 million.
As with the old stories about the gold rush. It was the people selling the spades and the food that made all the money, not the miners themselves scrabbling away in the ground. So it might well be with Bitcoin, it's going to be the people building the ecosystem, selling the tools to make it work, who will make money over the longer term.
But a few weeks back I had a thought: just how difficult is it to build one of these digital currencies for yourself? For me, with my skills, of course it would be impossible. So I rounded up some of the good tech guys in this corner of the Czech Republic I'm in and sent them off to come up with a work estimate to build a variation of Bitcoin (or Litecoin, Finecoin, whatever really too their fancy). The answer came back as a surprisingly small amount of effort. The basic ideas are all established now and it's really a matter of finding a desirable change to make. Some differentiation to make a new currency that little bit different. Then there's the building of the basic infrastructure, providing wallets and so on. And this could all be done for perhaps 3 or 4 man months of intensive effort.
This wouldn't be work for script kiddies of course, it would be high level work. But you would certainly see change out of $100,000 (or, to be perverse, this could all be done for 100 Bitcoins) even if you were paying people full market rates to build this new currency.
And it's at this point that I start to wonder about the entire field. Imagine that Bitcoin does become vastly valuable? Well, then there's going to be a never ending stream of people attempting to replicate that success. And the perceived values in Bitcoin of anonymity, speed of transfer and so on will start to become worth less and less as there are so many different currencies that offer the same things.
I'm fairly certain that if we wanted to go ahead with this project (we don't, there won't be a Worstallcoin anytime soon) we could gain the necessary Angel money. And I'm absolutely certain that in some parts of the world at the moment you could gain investment with the following business plan:
1) Create new digital currency.
2) Allocate 10% of new coins to investors.
3) Profit!
So I'm not sure that I see anything to stop a near endless invention of new digital currencies. And given that I don't I can't see what value most to all of them are going to end up having.
I can certainly see the value of being an early adopter but that would be on the basis of that famous company from the South Sea Bubble. You know, the one with the plan for a great profit "but no one to know what it is". That company promoter did indeed get his money and walked away with nothing else ever heard from him.
