By Dominik Zynis, Head of Business Development, Mastercoin Foundation
The Mastercoin Foundation is heavily invested in the success of Bitcoin, as most of our funds are denominated in bitcoin with the exception of the development Mastercoins which vest over eternity. So we are generally concerned about the price of bitcoin and whether ecosystem is evolving in a way that will increase that price and therefore lower our burn rate.
It is difficult to attribute direct causal relationships to events like the rise of bitcoin price in 2013. However, factors such as the following would appear to be major factors contributing to the double bubble that happened in 2013:
- the halving in late 2012
- the emergence of ASICs which are predominately produced by Chinese manufacturers
- an influx of interest by high net worth individuals,
- continued merchant adoption coupled with consumer adoption
So this begs the question of why the stagnation in price over the last 6 months even though we are seeing even more investment activity in the space.
If one views this from the perspective that the market is a guiding force perhaps one can deduce some patterns that affect the price leading to boom and bust periods.
I propose that this is due to two particular patterns:
Pattern #1: The change in the ecosystem’s absorptive capacity of investment capital. Primarily, investors using BTC as a funding mechanism for their investments,
Pattern #2: The trans-formative capability of the crypto economy to communalize new regulatory burdens, the same way that miners communalize the transaction validation function.
When one reviews the two run ups that began in late 2012 and culminated in the high of December 2013, one can see a lot of “investment” activity in the mining space but also in innovative marketplaces that were shut down due to inability to comply with SEC regulations (i.e., Bitfunder, BTCT.co, etc).
In order for one to participate in those one needed to have BTC to make group buys or ASIC’s, for example, or invest into various securities offerings. But today with the many cloud mining options on the market get away with using Mastercard and Visa to purchase Bitcoin mining power.
Long gone are the days of yore when random strangers on Bitcointalk.org were organizing group buys of yet to be produced ASIC chips and collecting 1000s of BTC to get the most advantageous prices. Parallel to this the cloud mining companies no longer being tied at the hip to BTC transactions.
We are also seeing a large number of bitcoin economy companies receiving professional venture capital, but unlike in the past when businesses were raising funds in BTC form either through message boards, Bitfunder or BTCT and others, they are raising US Dollars… totally by passing the bitcoin economy.
In the meantime the compliance costs and personal time involved for sites like Bitfunder and BTCT proved too high, as well as the costs for exchange sites, folks like Casascius Coins were practically shut down, ATM makers face huge legal hurdles and costs, and so on.
But importantly rather then the community coming up with solutions for using blockchain technology for address compliance issues as is the core lesson of Satoshi’s white paper if you abstract away all the techno details, instead we see VC’s investing in companies that are using regulatory costs as barriers to entry presumably. Go innovation!?
So what factors will bring the next boom?
Sure we have a bunch of ATMs coming out, but they need to be able to take money in and out. Furthermore the store of value needs to be decoupled from the transaction processing.
Today one only has bitcoin as a store of value on the bitcoin network (with the exception of Mastercoin and Counterparty, but few people see these as stores of value at the moment), however most of the population over 30 will take many years to learn what a bitcoin actually is and to trust it.
The way to gain their trust and drive mass adoption is to decouple the currency from the transaction processing. More recently we have talk of the development of fiat (or near fiat proxy) based coins that ride on the bitcoin blockchain.
Fiat Coins: Enhancing Bitcoin’s Store of Value for Mass Adoption
I’ve had one on one conversations with 100s of people in different parts of the world about what Mastercoin and Bitcoin is.
To get mass adoption with disruptive innovations one can only change one thing at a time. First people need to be able to trust Bitcoin’s transaction processing system, and later they can trust bitcoin as a store of value. Normal people react to change one step at a time.
Protocols like Master Protocol still use bitcoins (and usually pay mining tx fees) to send around electronic representations of dollars, euros or yen sitting in some bank account. People get to just understand what a private/public key for their ATM card (btw you guys may want to make sure your ATMs use plastic cards, too) without having to risk putting value into a new asset they barely understand. Later on when people see bitcoin accepted at their local grocery store or gas station they can go back to that ATM and opt-in to use bitcoins.
Thus any bitcoin ATM provider that is the first to adopt a fiat based coin will get way higher adoption rates and develop their brand with consumers.
It’s all about used experience and making it seamless; and giving consumers choice. Furthermore, once fiat monies has digital representations on the blockchain they can be quickly integrated into crypto exchanges to arbitrage away regional differences in price.
Using Bitcoin for AML and KYC
Yes we all know these are a pain to deal with and they cost a lot of time and money, perhaps the laws will change that drive these but don’t hold your breath.
However be that as it may for now, and the financial burdens it places a company like Coinbase, or any bitcoin exchange doing KYC, could easily create identity tokens using Master Protocol since they already have identity information and their API could then be integrated with Bitcoin ATMs that use Master Protocol based tokens which are digital representations of fiat currencies.
What is very cool about this is that someone like Western Union or Paypal could extend their affiliate network and monetize their KYC/AML operations to Bitcoin ATM providers, bitcoin exchanges, soon crowd-funding of securities, and defend their business against new entrants like Coinbase, while not only extending their market reach but their market size and possibly even lowering their internal transaction costs.
Raising Money and Open, Transparent Securities Markets
So now that we have fiat coins, we have tokens for identity, we’re only a few small steps from being able to take over the crowd funding and securities industries with open and transparent electronic markets. Entrepreneurs need to be able to raise money not just buy doing pre-sales of software licenses, like with MaidSafecoin, but actually being able to offer other contract types where investors actually get a piece of the company, and not necessarily the product.
To do that the rules crowd funding of regulated securities in the USA are going in place this year and the major crowdfunding companies will certainly go after this market. However as usual their are regulatory costs and the biggest burden is identifying investors across platforms to ensure that they are investing within their income limits.
Guess what technology would be great for enforcing those rules as cheap as possible without cutting corners and not prone to human error?
Bitcoin can and will be used to make investment and commerce easier, faster, cheaper and more transparent. but we need to constantly ask ourselves two questions. Are we acting like monopolists playing a Zero-Sum Game? I’d say the current price of bitcoin can be attributed to the latter. Or are we leveraging the technology as much as we can in our operations and partnering with our community members to BUILD VALUE.
I would like to give special thanks to Taariq Lewis for some of the ideas that went into writing this.
If you would like to speak about these opportunities you may reach me on skype at dominik.zynis or firstname.lastname@example.org.