Following our regular weekly interview, the Finanser talks this week with recently elected Chairman of The Bitcoin Foundation, Brock Pierce.
Photo from Business Rockstars
Brock Pierce is an American entrepreneur and former child actor. As a child actor, he was in Disney films The Mighty Ducks (1992), D2: The Mighty Ducks (1994) and First Kid (1996). Brock has been involved in the establishment of digital currencies for some time, having founded Internet Gaming Entertainment (IGE) in 2001 and Zam in 2003. In May 2014, he was elected as a director of the Bitcoin Foundation and, in April 2015, its Chairman.
How did you get involved with the Bitcoin Foundation?
I was elected by the industry members. The Bitcoin Foundation board of directors is elected from the community. We have an entirely elected board today and there’s two different constituents that make up the foundation today. We have individual members that pay an annual fee or a lifetime fee to be a member of the foundation and these are individuals and then we also have industry members which are companies that pay an annual fee and the board of directors is half elected by industry members and half elected by individual members and so I was elected last spring by the industry members, so essentially the CEOs of bitcoin companies voted me unto the board and then more recently I was elected by the board of directors into the chairman position which is in reality just a glorified title for a board member and some additional responsibilities, but I’m not day to day running the foundation.
The current executive director, which would be the equivalent of the CEO of the foundation is a wonderful guy by the name of Bruce Fenton, so he’s got the day to day responsibilities to run the foundation. I just have slightly more responsibilities than any of my other board members.
What’s the current state of the Bitcoin Foundation? Where is it going?
When the foundation was first started, it was performing many functions on behalf of the industry, best not thought of as a foundation as it was a trade association. The original sort of things that it was attempting to do were advocacy and education; communicating what is bitcoin; why is this important; what is it used for; how is it helpful; those type of things and educating people and making them aware of what bitcoin is able to do for them. Then there’s also Bitcoin Core for the Open Source Software Project and Gavin Andersen was the lead developer for a long time. He’s now stepped out of the role of lead developer, but the foundation was financing the salaries of a few key people to support the development of the Open Source Protocol. Then the last piece was policy, which is paying attention to how governments are looking to regulate this and trying to influence those regulations in a way that will proceed positively.
As the industry has matured, additional groups of people have come together to step in and try to fill some of those roles fortunately. The one role that we stepped out of is policy, which I’m very happy with because the bitcoin community has got a very broad array of people and use. When you’re supporting policy there’s no possible way to make everyone happy and so you’ve got some very different organizations. But if some of those organizations merge to support those activities, such as Coin Center which is run by Jerry Brito and the Digital Chamber of Commerce which is run by Perianne Boring, then you have progress.
They’re doing most of the policy work in the capital here in the US, and that’s something that we’re no longer active in because other organisations have stepped up and volunteered to essentially do that work.
In terms of core development, we continue to support that and one of the things that we discovered throughout this process – when having talked to all of the large parties that could support us with substantial funding – is that we need to get really big cheques that will allow the industry to have the capital it needs to support the underlined development of the protocol itself. We would like to see that residing within an academic institution. After we did a long tour of talking to everyone that would be a large cheque writer, they liked the governance structure and fortunately Gavin and the team were able to join MIT’s media lab which is a perfect solution that should open up additional capital to support those efforts, but we continue to support core development. Gavin continues to be the chief scientist of the Bitcoin Foundation and it’s an area where the industry needs all the help it can get and I hope other academic institutions get onboard. I hope that other companies operating this space support a developer on payroll like Bitpaidit with Jeff Garzik for a very long time. You want as many people working on this as possible, preferably people that are capable and dedicated, they’re not doing it in a moonlighting type fashion. Hopefully the resources to support core development continue to increase and more and more industry participants contribute in that way. And the main function at this point is continuing to do advocacy and education work.
A lot people I’ve talked to in banking now say, “bitcoin-bad, blockchain-good”, what is the current state of the cryptocurrency marketplace and bitcoin itself? Is it healthy?
I think it’s continuing to be healthy. If you look at the capital that’s coming into the industry over the last 12 to 18 months, you’re looking at roughly a billion dollars in capital that’s been invested. That shows that the underlying infrastructure that’s being developed by the companies is working, because you’ve got the Open Source Protocol and then you’ve got all the companies that are building up the infrastructure to make it easy to use. Think of it as the bridges, the roads, the tunnels in the TCP/IP analog. To being with, t was all about building the browsers and e-mail clients, and the sort of things that you needed to make the Internet usable by normal people. That’s what that capital is doing for bitcoin, but it takes time for that capital to be deployed and turned into products and services that make this safe and easy for a broader array of consumers. So that capital is being deployed and it’s being turned into products and services that I think will be great for the industry.
Meanwhile, the bitcoin price is down which is quite negative. The largest contributor to that was Mt. Gox and, unfortunately, it did create a lot of negative fallacious headlines which the media likes. I don’t think in the long run it will have a negative impact but, in the short run, when Mt. Gox collapsed, I said, “I think this is going to set the industry back by a couple of years” and I believe that’s been the effect.
Let’s turn to the positive view of financial inclusion. What’s happening there?
That’s the main benefit of this technology and the main point I try to make is that there are five billion people on the planet that don’t have access to basic quality financial services. This technology is going to democratize the global financial system in a way that every human being on the planet has equal access to fast, secure and cheap financial services.
When I’m talking to people in the developed world and they say: “I don’t understand. Why would I need this bitcoin thing?” I explain to them, “Well, you’ve probably never left the United States where you have a bank account, you have a credit card, you’ve got rule of law that’s guaranteed to protect you, you’ve got faith in the system.”
This isn’t a product that you need and, to see mass adoption of a technology like this, it needs to be improving the lives of the people that use it. That is why we’re seeing major growth in markets like Latin America – in Venezuela and Argentina in particular – or places like Africa where they have very little infrastructure, income and infrastructure. These emerging economies are leap frogging telecommunications infrastructures and skipping straight to wireless. For these reasons, I think the developing world could actually surpass the developed world in a matter of years, in terms of financial infrastructure. They won’t have to spend hundreds of billions of dollars implementing it either, whether using something like bitcoin or blockchain technology.
The Philippines is looking at putting mobile payments on the blockchain, which would create broad financial inclusion of everyone in that country. You’ve got roughly 100 million people there and only five million credit and debit cards. So you’re looking at what may be three or four percent of the population that have financial services like we have. This is why bitcoin has the ability to have a substantial impact on a country.
If you look at the GDP of the Philippines, something like 28% comes from remittances. If more of that remittance money ends up in the hands of the people, that could have a very positive impact on the Philippines as a country. This is why I think people are definitely waking up to the idea of fast, cheap, secure settlements.
How do you see blockchain technologies developing, and is it going to be the Bitcoin blockchain or something else eventually playing out as the central payments’ infrastructure of the world?
I believe the answer to that is, “Yes”. I don’t know if it’s Bitcoin’s blockchain or something else. I run a small venture fund called Blockchain Capital. We’ve just closed 36 investments and we look a lot like an index fund because, from my perspective, we are investing in the equivalent of the Internet in 1994. I don’t know who the winners are going to be but if I bet on all the best companies I’ll end up with eBay and Amazon and Google and PayPal and a bunch of these great companies in my portfolio. I don’t know how to pick the winners yet. I also don’t know how the industry is going to develop, but I do have a strong view that yes, we’re going to end up with this type of infrastructure becoming the underlying backbone of the financial system for the world.
Talking about Blockchain Capital, I’m interested to know how you personally get involved in bitcoin and all this change of technology? It’s not really in your space as you came from TV and film, so how did this excite you?
Yes, so I started out my life in the entertainment industry. I was an actor from the ages of 3 to 16 and then I was dabbling, because I was really an entrepreneur that happened to be an actor. I was building every lemonade stand imaginable – every business imaginable – as a kid. In the world I’d grown up in, being on set and spending most of my time with adults because there weren’t often other kids on set, most of my friends were directors or screenwriters or other actors. The people that I was working with for months at the time and, in the world I’d grown up in, I wanted to be an entrepreneur. From that perspective, I wanted to go be the executive producer. I wanted to pull projects together and create films.
When the Internet boom of the 1990s started, I was watching people starting these businesses and I’m like, “I’m entrepreneurial, I’m tech savvy, I’m an actor, I can do this”, and so I started my first company when I was 17. This was a company in the digital media space, which was a nice combination of skills. I did that throughout the 1990s.
In 1999, I identified another developing and interesting insight and this was the beginning of sort of what you call “Persistent worlds” or “Online games”, such as World of Warcraft or Second Life. I recognized that these games needed digital assets, and that the digital currency that existed inside of these worlds had value. There were people that wanted to buy and sell them. This is before any game company in the world was selling these digital goods or currencies as a business.
I recognized there was a market for it however and so I started a business in 2001 called IGE, which became the primary market maker for the digital assets that existed in these persistent worlds. At the time, I had more demands for products than I had products. I couldn’t find enough sellers, so I went and encouraged the Chinese to play games professionally and to mine digital currency that I would then sell into. I ended up building a supply chain of 400,000 people over the years of 2001 to 2006, that were playing video games professionally and that mined digital currency. I would then go on and sell products and so I’ve been in the digital currency business almost as long as anyone.
This is how bitcoin ended up on my radar, because most anyone throughout the 2000s that wanted to experiment with anything digital currency would often come to me.
I’ve done many, many billions of dollars of business in that space.
I still do over a billion dollars a year today, and so someone pings me this bitcoin was coming out and said, “Hey, what do you think of this?”
I started playing around with it in 2009 as it emerged, not because I believed in it but because people would ask me and it was my job to know what I’m talking about. So I spent a little time kicking tires of bitcoin, and one of the things I’ve learned throughout the 1990s is a market timing lesson. This was because the first business I built was an internet television play before there was broadband, and I learned a lesson the hard way at that time. For this reason, I said: “OK, bitcoin looks very interesting, or something like it in the future” and I waited for the market to develop enough to the point that I believed critical mass and momentum was there.
When that happened I said: “OK the future’s now. I better drop what I’m doing and go spend all of my time working in this space”, and that started in 2011.
I then got concerned about regulation and, by 2012, made a decision to get into the business. I started a number of companies in this space in 2013, acting like an incubator. An incubator doesn’t scale however, and so the better approach to get broad coverage was to start a fund and that’s how I ended up running this fund.
Looking to the future, how do you see this ecosystem playing out?
Well, you’re seeing there’s a lot of different digital currencies. On the bitcoin side, over the next 12 to 24 months, I see most of the growth in the sector occurring where the users of the products don’t even realize they’re using bitcoin. Companies like ABRA, which is a bill payments company. Their approach to building a new method for paying and sending remittances, where the users don’t even realize that it’s bitcoin that’s powering those transactions, is the future I see. bitcoin as a value proposition is very fast, low cost, cross border methods of sending remittances, whether for businesses or individuals. That’s where I see most of the growth over the next 12 to 24 months. It’s in companies providing consumers and businesses with value transfers where they don’t even realize they’re using bitcoin. It’s just a mechanism by which the business is able to move money across borders faster and cheaper and that’s where I see most of the growth occurring. But bitcoin’s growth is not accelerating at a rate that I think is going to be huge in the short term and, where there is growth, that’s where I think most of the growth is going to come from.
Then you’ve got other consensus mechanisms and protocols like Ripple, which has most of the growth in their business from banks as a tool for interbank settlement. Ripple allows banks to work in real-time, rather than running at T+3. Three days financial settlement is moving to something that’s near instant and that’s a big push. Either way, I think everybody agrees that the idea that financial transactions in this day and age should be settling a lot faster than three days. Ripple is starting to see a lot of traction around banks, integrating that as a tool to accelerate settlement.
There are a bunch of different trends but then, just as you start to see a particular model working, you find things change. Some things work and some things don’t work so well. For example, think about bitcoin’s exchanges. Mt. Gox is the biggest exchange two years ago; Bitstamp is the biggest exchange last year; and Bitfinex is the biggest exchange this year. Even when you see a category where value is clearly being created, it’s hard to pick the winners because the industry is still very early on.
There are a few companies that have merged to become what I would call category winners. There’s a few of those that have occurred, which would be Coinbase as a consumer wallet and easy way to buy bitcoin in the USA. That is why I’m happy to be an investor in that company. This is because it’s clear that if this industry does succeed, then they are clearly going to be one of the largest players in the ecosystem.
I like other interesting trends as well. For example, I don’t know if you’re familiar with ChangeTip but they’re focused on microtransactions which, because most of the developing world cannot use the current payment systems, is going to be a key. Most of the developing world cannot use credit cards. If you have a credit card in Africa and you go online to purchase something, the merchant and the payment infrastructure and fraud detecting services and such, have to trust you. The problem is that they more or less systematically deny anyone from Africa from being able to buy anything with a credit card. It’s a trustless payment system. In this context, I think it is very compelling for allowing those excluded to be included. bitcoin, or something like it, will allow the other 70% of the planet to participate in the internet economy, which is a great thing for anyone doing business online.
The total addressable market of customers expands in a pretty substantial way for buying small products and services online. Currently, with credit cards, you can’t really process a transaction for less than 70 or 80 cents. That’s assuming that you’ve got zero cost of goods sold. This is why I like ChangeTip, allowing people to buy contents for a penny, a nickel, a dime, and offering people low transactions’ fees. These companies will enable the entire planet to participate in the internet economy, and Changetip are well along in their path to becoming a category winner in that space. But, again, it’s still early.
As mentioned, everyone’s saying “bitcoin-bad, blockchain-good” these days. What they’re really saying is the technology Satoshi Nakamoto came up with is a great technology, but we don’t like the currency. Is that actually feasible?
It probably is. What Satoshi Nakomoto achieved is that he aggregated a number of technology innovations to create a protocol that’s creating The Internet of Value or The Internet of Trust. If you think about the Internet we use today, it is the Internet of information. It’s made possible because of the communications’ protocol TCP/IP. The problem is that cannot transact value over TCP/IP without a trusted counterparty or intermediary. What Satoshi solved was the issue of a double-spend. If I sent you an email with a picture attached to it, how do you know when you receive it that I didn’t keep a copy for myself or sent it to four other people at the same time? TCP/IP is a protocol designed for that. What Satoshi Nakamoto has achieved is that he’s created a protocol that permits the transmission of value, in any form. That is a revolutionary event. Now, does bitcoin’s blockchain end up being the successful platform for all of that activity? I don’t know, but I do think that it’s interesting and dependable to be sure? I think bitcoin, as a non-sovereign math-based currency, is very interesting. It’s interesting from so many views. For example, from the developing world in places like Russia and Ukraine today or if you look at Zimbabwe and the crazy inflation that they had. It just gives people options in these places, where it is a better store of value than some of the other things that are available to them.
This is why I find bitcoin to be very fascinating and I think it’s got incredible potential. I continue to be bullish on bitcoin’s future, but the blockchain is obviously the larger innovation. I don’t know what shape or form that’s ultimately going to take. bitcoin is huge, but the blockchain is clearly going to change the world.
That leads to my final question. If you’re betting on the future, where do you see the sweet spot?
Ultimately you’re trying to end up with investments that have market caps along the lines of Uber or Facebook. The financial system is clearly a large enough ocean that there should be the ability to create businesses with that kind of value, and so that’s what we’re looking at. Where are the huge markets that can be re-architected or disrupted utilizing this new technology?
Things like insurance, money remittance, interbank settlement systems, payment processing. You really just need to take a look at the world today because we’re not creating new industries. We’re disrupting industries with new technology to do things better, faster, cheaper.
About The Bitcoin Foundation
The Bitcoin Foundation is an American non-profit corporation. It was founded in September 2012 with the stated mission to “standardize, protect and promote the use of Bitcoin cryptographic money for the benefit of users worldwide.” The organization was modeled on the Linux Foundation and is funded mainly through grants made by for-profit companies that depend on the Bitcoin technology.
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