Bitcoin (and Blockchain)

1. Institutional acceptance

Patience, please — ‘legal’ Bitcoin is actually only one year old! That is, even though the Bitcoin source code was posted to the Internet in 2009, it was only clearly legal for American institutions to get involved with it after the IRS tax guidance was published in March 2014 (as late as December 2013, the New York Times had published articles predicting and/or calling for a ban). But just a few short months later, former and current officials now publicly laugh at such a thought and have openly embraced Bitcoin.

So the clock has just begun on Bitcoin’s acceptance more broadly. Crash or no crash, we should expect a significant increase in the level of institutional adoption this year. Specifically, a large number of companies will put together groups focused on what Bitcoin means to them — and as early as next year we’ll start to hear people ask “What’s your Bitcoin strategy?” in much the same way people asked “What’s your social media strategy?”

2. As a new rail, Bitcoin enables new kinds of payment workloads

Bitcoin is as different from the wire transfer system as the modern Internet is from phone lines. You wouldn’t expect the phone lines of 1988 to easily accommodate hundreds of millions of tweets and likes per day, nor multi-gigabyte file transfers or P2P apps. Moreover, the primary use of Bitcoin may not be doing “better wire transfers” anymore than the primary use of the Internet was VOIP.

Instead we should expect totally new kinds of applications, because Bitcoin is good for transactions that are very small, very large, very fast, very international, and/or very automated — unlike the legacy payment rails. It probably starts with low stakes, digital goods that the dollar can’t colonize right now due to the requirements of credit card companies … basically business models that are just too low stakes, or too weird, or too international.

3. Bitcoin as infrastructure

Let’s define an intrinsic value app as an application of Bitcoin that does not include any explicit price dependency or reference to price. These are apps that typically use Satoshis to write data to the Blockchain, and work equally well whether the price is $1 or $1,000.

For example, one can use the Blockchain as an identity provider, or as a distributed database where you can log proofs of existence. Given their robustness to price volatility, I expect these kinds of apps to be among the first popular Bitcoin tools.

– Balaji S. Srinivasan

 

 

 

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Our crypto newsletter is coming soon

Sign up to be the first to get it.