Financial Cryptography

(B) The Business Choice of making a Business Investment in Bitcoin (part B of ABC)

Last month, I launched a rocket at those who invest in Bitcoin as the Coin or the Currency. It's bad, but I won't repeat the arguments against it.

For those of you who've survived the onslaught on your sensitivities, and are genuinely interested in how to make an investment into the cryptocurrency world, here is part B: the Business! The good news is that it is shorter.

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If one was to look for a good Bitcoin investment in a business, what would it be? I think you should be asking questions like these:

• The business in question has a regulatory model. It doesn't need to be right or sustainable, more that the business owners just need to understand the word. That's because, whether they know it or not, the word is coming for them one day.
• hey have a governance model. Ditto.
• You as investor understand the difference. This is where it gets messy. Most people think the above two terms are the same thing, but they are not. A regulatory model is imposed by a regulator, and is mostly about compliance with something that protects others such as the regulator or their flock (banks). Whereas a governance model is imposed by yourself, over your own operations, to protect your assets and the assets of the customer. Completely different, and completely misunderstood in the eyes of the external stakeholder community. Therefore, likely misaligned in the eyes of the Bitcoin CEO. Do you see where this is going?
• They have a Sean Parker. By this, I mean the person with real experience of this broad Internet / money / social networking business space, the guy who's been there twice before, and this time, *he's there* at the critical juncture to that 2 kids and a fridge full of beer all the way to a big business. See the Facebook movie if this doesn't make any sense.

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Signs of a bad investment:

• Wanting to be the next big exchange.
• No relevant experience in the chosen direct business model. This is distinct from the Sean Parker point above. By this I mean, if wanting to do an exchange, the people have / do not have (select one) prior experience in what a daily trading model is, what 5PM is, what governance is, what an internet security model is. E.g., Mt Gox, which traded without understanding any of these things.
• Belief that tech solves all problems.
• No knowledge of what came before the Bitcoin paper.
• Deal hinges in part on banks or regulators. For example, these guys are DITW:

  Part of laying the groundwork is bringing the establishment on board, Malka said. “We need more banks participating in this. We need regulators. I’m part of the Bitcoin Foundation – we are out there trying to educate regulators.” Getting regulators on board will help get the banks to come along, Liew predicted. “If the regulators explicitly set forth rules that say, ‘Bright line, do this, you will find a bank that is willing to take on bitcoin customers,’” Liew said.

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That's my B list so far. You'll note that it includes no conventional things, because you already have those. All it includes is pointers to the myths-of-doom peddled in the current bitcoin world as business talk. It's designed to separate out the happy hopefuls from the actual business possibilities, in a world where talking is deeper than walking.

Next up, when I get to it, is my A list: a point I believe so important I saved it for another post. Watch this space.

Posted by iang at May 11, 2014 01:38 PM | TrackBack