Why I Bailed on Bitcoin

Even if you don't believe this e-currency is a game of monetary musical chairs, it still has issues. Bitcoins are untraceable--so is the service level. And for a currency to work, there's got to be a lot of it.

By Howard Tullman

CEO, 1871@tullman

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JPMorgan Chase CEO Jamie Dimon just called Bitcoin a fraud. Dimon is known for being blunt, but I wouldn't go that far at this point. Let's just say that Bitcoin is merely a financial farce based on something akin to a warped version of musical chairs. It's pretty much the same deal-- you don't want to be the bozo left holding the bag of booty or the guy without a seat at the table when the music abruptly stops. Or you could think of it as a version of the greater fool theory-- you want to be sure there's at least one bigger sucker than you willing to buy your goodies when you finally get over your growing greed and decide that it's time to go. I don't have to outrun the bear chasing us. I've got to outrun you.

So, you better pray that there's still someone left who's willing to hit the bid when you want to say bye-bye and get out. No one knows exactly when the opera is gonna end, but it could be any day. That's one of the reasons that I bailed on Bitcoin. Trying to time any market is never smart and catching a falling knife is almost always going to turn out to be a painful experience.

But, for me, Bitcoin had some bigger problems as well. There are scale issues and other structural shortcomings that will eventually undermine this particular house of cards. Decide for yourself, but here are a few of the concerns I had:

1. I Forgot I Owned a Bunch
I know--shame on me. But I got these things years and years ago on a lark and put them into some digital wallet on a phone that I no longer own with a number I last used in the last century and didn't remember. You might ask: how do you find an untraceable currency? When I recently went looking for my bitcoins, because the prices kept going up, it was just dumb luck that I had installed Coinbase, the digital currency trading platform, on one of my desktop machines for convenience. That program got moved forward onto each new computer mostly because I'm a lousy housekeeper and never delete stuff.

But, of course, I didn't have any way to sign in and Coinbase insisted on communicating with and sending info to a phone number I no longer owned. Eventually, I re-identified myself, waited a few days for the system to approve the new "me", and then I was able to see my account. Good thing I wasn't in a hurry or trying to do something real time. But my journey had only just begun.

2. There's No There There
Mainly for the sake of my sanity, I had also connected my Bitcoin account to a real bank account (again, it was one from years and several businesses ago), which is the only reason I ever got started with this whole crazy system. I figured that, if you could turn the bitcoins into real money at a real bank, then maybe the downside risk wasn't so bad. I could always sell (even at a loss) and get some of my "investment" back. So, in the excitement and thrill of regaining access to my account and my bitcoins, I pressed the sell button and sat back to wait the three days for my somewhat ill-gotten, but massive gains to settle into my account.

Little did I know or remember that I no longer knew what account the Bitcoin system was gonna send my money to and my Coinbase dashboard (undoubtedly for my security) wouldn't show me the full account number. And that's when I realized that it is absolutely impossible to speak to a human being at Bitcoin and maybe that there aren't any human beings there at all. Their bots are useless, their support and customer service is non-existent, and God help anyone who really needs timely answers from these people about anything important. Because there's nobody home.

Weeks passed with no answers and no results and then amazingly a statement arrived from one of my long-dormant bank accounts saying that a whole boatload of money had just appeared in the account. No thanks to Bitcoin, which still hasn't responded, but the mystery was solved and the deal was done. Suffice it to say, I won't be back buying in again. It feels like I dodged a major bullet as it is. But the insane processes and the lack of people are just more reasons to think twice about the whole deal.

3. There's Not Enough Coins to Make A Currency.

The final nail in the Bitcoin coffin has to do with scale. Not simply the rapid scaling to date-- which has made it impossible for the system to keep up with the volume of users and transactions or offer even a modicum of support. It's that once we reach the alleged end of the rainbow and all the bitcoins have been "mined" and circulated, it's going to become painfully obvious that there simply aren't enough coins in circulation to make a viable currency. You need lots and lots and lots of these things and 20 million or so just won't cut it. The U.S. Mint can finally kill the penny if it wishes (won't change my life), but what would the world be like if the minimum unit of U.S. currency was worth $4,000? Pretty hard to buy much of anything with that tender. Harder yet to make change. Gold and silver lasted a century or so (so far) and Bitcoin's in trouble in less than a decade.

So, if the stuff isn't usable in our daily lives, who's gonna want to pay a fortune for the bitcoins? This should drive the price of the things right through the floor because it will become increasingly clear that they have no intrinsic value apart from being used in a rigged game by a bunch of speculators. It's a little like the fancy chips you get in the casino. Maybe good for a souvenir, but basically worthless as a means of exchange outside the casino.

Once the creation cap is reached and there are just a bunch of morons passing these digital chits around, it's hard to imagine why anyone would pay up for these things any longer. Looks to me like a race to the exits will shortly ensue. I'm already out; can't wait to watch the stampede.

The Merchandise Mart Re-Branded

New Chicago Bitcoin Center sees future in digital currency

The future of digital currency is evolving, and a new bitcoin-focused incubator has launched at 1871 to support startups dedicated to influencing it.

By Amina ElahiBlue Skycontact the reporter

The future of digital currency is evolving, and a new bitcoin-focused incubator launched Friday at 1871 to support startups dedicated to influencing it.

The Chicago Bitcoin Center will work with companies focused on the development of blockchain technologies, which provide a secure and trusted network for transmitting and transferring bitcoin and other forms of value, founder and CEO Matthew Roszak said. Roszak is also founding partner at Chicago-based Tally Capital, a venture capital firm focused on investing in block chain technology and in bitcoin.

The Center counts among its advisers some experienced finance and venture capital leaders, including Don Wilson, founder and CEO of DRW Trading; Andrew Filipowski, founding partner of Tally Capital; Ezra Galston of Chicago Ventures; and Perianne Boring, founder and president of the Washington-based Chamber of Digital Commerce. Filipowski is the Center’s chairman.

Howard Tullman ⇒, CEO of 1871, said the viability of digital currency is increasing. He said 1871 now accepts payments in bitcoin but that “we’ll be rushing to the bank to convert it to dollars,” since some may have concerns about holding payments in digital currency.

Tullman cited Citibank’s revelation this week that it is developing a digital currency called Citicoin as evidence of growth in that sector.

“When you have the biggest banks in the world starting to acknowledge that this is a viable currency and everybody has to be involved in it, we think it’s going to have implications for our companies,” Tullman said. He said the Center is one part of 1871’s fintech offerings, which will include a retail incubator whose launch date is not yet known.

Entrepreneurs who work with the Center will have access to its office space in 1871, as well as mentors and public relations and government affairs services. The first group of companies includes Glidera, which gives merchants a secure way to buy or sell bitcoin, and Red Leaf, which is creating a network of bitcoin ATMs across Chicago.

Roszak said he aims chiefly to connect blockchain entrepreneurs to his network of experience technologists, marketers, advocates, investors and others. These people will help the entrepreneurs navigate the development and regulatory challenges of building a blockchain or bitcoin company, he said.

Tullman said the work of blockchain companies could transcend financial technology.

“The whole blockchain-based technology space is really going to be used beyond currencies pretty soon,” Tullman said. “We think the next thing you’ll hear is cyber security.”

Copyright © 2015, Chicago Tribune

Bitcoin center launched at 1871 in Merchandise Mart

WRITTEN BY MITCH DUDEK POSTED: 07/10/2015, 09:34AM

The Chicago Bitcoin Center was launched Friday. | Getty Images

A portion of office space at 1871 — a hub for digital startups at the Merchandise Mart — will now house entrepreneurs focused on expanding the new field of technology surrounding the digital currency Bitcoin.

The launch of the Chicago Bitcoin Center, described as “an incubator to serve as Chicago’s key resource and center of gravity for blockchain-based technologies,” was set for Friday morning at the Inside Bitcoins Conference at Navy Pier.

“The Chicago Bitcoin Center is open to designers, developers, entrepreneurs, and all those dedicated to building tomorrow’s next chapter of financial technology,” said Matthew Roszak, founder and CEO of the Chicago Bitcoin Center and founding partner of Tally Capital, a Chicago-based venture capital firm.

Funding for the new center was provided by four investors who are placing a bet that the digital currency is the future of the global economy.

The new incubator will cater to innovators who want to explore new ways to use the digital currency and revolutionize the way people send digital assets online.

It will foster entrepreneurs through mentorship by industry leaders. Advisers also will help with public relations and governmental affairs.

“The financial industry is a key vertical that is profoundly affected by technology, and the Chicago Bitcoin Center establishes a leadership position for 1871 and Chicago in this important field,” 1871 CEO Howard A. Tullman said in prepared statement. “We are excited to welcome the Chicago Bitcoin Center and its first cohort of startups to 1871.”

The industry is in its infancy. Bitcoins were invented in 2009. As of Thursday, a single Bitcoin — which can be used as currency at a growing number of retail centers and online merchants — was worth $270.

Many of the world’s largest financial institutions are also exploring how to implement the technology.

Contributing: Becky Schlikerman

Chicago Bitcoin Center Launches at 1871

Chicago Bitcoin Center Launches at 1871

Chicago’s First Bitcoin Incubator Officially Launces at 1871, Welcomes Inaugural Class of Startups Focused on Blockchain-Based Technologies

CHICAGO (INSIDE BITCOINS CONFERENCE) July 10, 2015 — Prominent Chicago entrepreneurs and investors today announced the launch of the Chicago Bitcoin Center, an incubator to serve as Chicago’s key resource and center of gravity for blockchain-based technologies. Opening its doors today at 1871, Chicago’s hub for digital startups, and officially announced at the Inside Bitcoins Conference in Chicago, the Chicago Bitcoin Center will work to foster a new wave of technological innovation on the blockchain. The Chicago Bitcoin Center is dedicated to education, innovation, and development of blockchain-based technologies.

“Chicago has a rich history and DNA in financial technology, and the blockchain has the potential to provide a new, open-source rail for FinTech innovation,” said Matthew Roszak, founder and CEO of the Chicago Bitcoin Center and founding partner of Tally Capital, a Chicago-based venture capital firm focused on blockchain-enabled technologies and currencies. “The Chicago Bitcoin Center is open to designers, developers, entrepreneurs, and all those dedicated to building tomorrow’s next chapter of financial technology.”

The launch of the Chicago Bitcoin Center at 1871 provides a number of resources and opportunities for startups focused on blockchain-based technologies.  In addition to office space in the Chicago Bitcoin Center, incubator companies will have access to mentorship by leading Bitcoin entrepreneurs, technologists and investors. The Chicago Bitcoin Center also provides a full suite of public relations and government affairs services to member companies. This incubator is one of many efforts being undertaken at 1871 to foster innovation around financial technology.

“The financial industry is a key vertical that is profoundly affected by technology, and the Chicago Bitcoin Center establishes a leadership position for 1871 and Chicago in this important field,” said 1871 CEO Howard A. Tullman. “We are excited to welcome the Chicago Bitcoin Center and its first cohort of startups to 1871.”

In conjunction with the launch of the Chicago Bitcoin Center, 1871 has announced that it will now be able to accept payment in bitcoin. Additionally, members will be invited to pay their rent in bitcoin, should they so desire. This is one of several steps 1871 will be taking to promote the use and acceptance of bitcoin.

“At the Chicago Bitcoin Center, I look forward to working with FinTech entrepreneurs to build on the growing momentum in the FinTech industry, while drawing on the city's deep legacy of financial innovation," said Jonathan Solomon, who serves as the first executive director of the Chicago Bitcoin Center.

The Chicago Bitcoin Center’s Board of Advisors includes: Andrew Filipowski, chairman of the Chicago Bitcoin Center and founding partner of Tally Capital; Don Wilson, founder and CEO of DRW Trading; Jeff Garzik, bitcoin core developer and founder of Dunvegan Space Systems; David Johnston, managing partner of Decentralized Applications Venture Fund; Perianne Boring, founder and president of the Chamber of Digital Commerce; Josh Metnick, CEO of Navier; Luke Sully, director of advisory services at PriceWaterhouseCoopers; and Ezra Galston, venture capitalist at Chicago Ventures.

The Chicago Bitcoin Center’s inaugural incubator companies include: Bloq, a blockchain technology company; Glidera, a digital currency merchant services provider; Red Leaf, a bitcoin ATM operator; and OasisCoin, a bitcoin remittance provider.

About the Chicago Bitcoin Center

Leveraging Chicago's rich history and DNA in financial technology, the Chicago Bitcoin Center is an incubator focused on blockchain-enabled technologies and provides a platform for education, innovation and development. The Chicago Bitcoin Center is sponsored by a group of Chicago-based technology entrepreneurs and investors, and is located at 1871 Chicago. For more information visit: www.chicagobitcoin.com.

About 1871

1871 is the home of more than 325 early-stage, high-growth digital startups. Located in The Merchandise Mart, this 75,000-square-foot facility is also the headquarters of nationally recognized accelerators, Techstars Chicago and Impact Engine; half a dozen industry-specific incubators in key areas such as real estate, education technology, food and financial technology; several emerging tech talent schools (Flatiron, The Fullbridge Program, Designation and the Startup Institute); and the state's leading technology advocate, the Illinois Science and Technology Coalition. It is the second home to Chicago-based VCs Pritzker Group Venture Capital, MATH Venture Partners, Hyde Park Angels, OCA Ventures, OurCrowd and Chicago Ventures, as well as satellite offices for Northwestern University, University of Illinois, University of Chicago, Loyola University Chicago, Illinois Institute of Technology, and DeVry. 1871 has fast become recognized as the hub for the city’s entrepreneurial/technology ecosystem and has been featured in TechCrunch, Wall Street Journal, The New York Times, Chicago Tribune and Crain’s Chicago Business, among other top media. 1871 is the flagship project of the Chicagoland Entrepreneurial Center.

1871 CEO HOWARD TULLMAN APPEARS ON TASTY TRADE TALKING ABOUT SUPER BOWL, UBER, AND BITCOINS

Why Bitcoin is and isn't like the Internet

Jan 18, 2015

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In the post that follows I’m trying to develop what I see to be strong analogues to another crucial period/turning point in the history of technology, but like all such comparisons, the differences are as illuminating as the similarities. I'm still not sure how far I should be stretching the metaphors, but it feels like we might be able to learn a lot about the future of Bitcoin from the history of the Internet. This is my first post about Bitcoin and I’m really looking more for reactions and new ideas than trying to prove a point. Feedback and links to things I should read would be greatly appreciated.

I’m fundamentally an Internet person -- my real business life started around the dawn of the Internet and for most of my adult life, I’ve been involved in building layers and pieces of the Internet, from helping start the first commercial Internet service provider in Japan to investing in Twitter and helping bring it to Japan. I’ve also served on the boards of the Open Source Initiative, the Internet Corporation for Names and Numbers (ICANN), The Mozilla Foundation, Public Knowledge, Electronic Privacy Information Center (EPIC), and been the CEO of Creative Commons. Given my experiences in the early days of the net, it’s possible that I’m biased and everything new looks like the Internet.

Having said that, I believe that there are many parallels between the Internet and Bitcoin and there are many lessons from the Internet that can help provide guidance in thinking about Bitcoin and its future, but there are also some important differences.

The similarity is that Bitcoin is a transportation infrastructure that is decentralized, efficient and based on an open protocol. Instead of transferring packets of data over a dynamic network in contrast to the circuits and leased lines that preceded the Internet, Bitcoin’s protocol, the blockchain, allows trust to be established between mutually distrusting parties in an efficient and decentralized way. Although you could argue that the ledger is “centralized”, it’s created through mechanical decentralized consensus.

The Internet has a root -- in other words, just because you use the Internet Protocol doesn’t mean that you’re necessarily part of the Internet. To be part of THE Internet, you have to agree to the names and numbers protocol and root servers that are administered by ICANN and its consensus process. You can use the Internet Protocol and make your own network, using your own rules for names and numbers, but then you’re just a network and not The Internet.

Similarly, you can use the blockchain protocol to create alternative bitcoins or alt.coins. This allows you to innovate and use many of the technological benefits of Bitcoin, but you are no longer technically interoperable with Bitcoin and do not benefit from the network effect or the trust that Bitcoin has.

Also like the beginning of the Internet, there are competing ideas at each of the levels. AOL created a dialup network and really helped to popularize email. It eventually dumped its dialup network, its core business, but survived as an Internet service. Many people still have AOL email accounts.

With crypto-currencies, there are coins that don’t connect to the “genesis block” of Bitcoin -- alt.coins that use fundamentally the same technology. There are alt.coins that use slightly different protocols and some that are fundamentally different.

On top of the coin layer, there are various services such as wallets, exchanges, service providers with varying levels of vertical integration -- some agnostic to whichever cryptocurrency ends up “winning” and some tightly linked. There are technologies and services being built on top of the infrastructure that use the network for fundamentally different things than transacting units of value, just as voice over IP used the same network in a very different way.

In the early days of the Internet, most online services were a combination of dialup and x.25 a competing packet switching protocol developed by Comité Consultatif International Téléphonique et Télégraphique, (CCITT), the predecessor to the International Telecom Union (ITU), a standards body that hangs off of the United Nations. Many services like The Source or CompuServe used x.25 before they started offering their services over the Internet.

I believe the first killer app for the Internet was email. On most of the early online services, you could only send email to other people on the same service. When Internet email came to these services, suddenly you could send email to anyone. This was quite amazing and notably, email is still one of the most important applications on the Internet.

As the Internet proliferated, the TCP/IP stack, free software that anyone could download for free and install on their computer to connect it to the Internet, was further developed and deployed. This allowed applications that ran on your computer to use the Internet to talk to other programs running on other computers. This created the machine-to-machine network. It was no longer just about typing text into a terminal window. The file transfer protocol (FTP) and later Gopher, a text-based browsing and downloading service popular before the web was invented, allowed you to download music and images and create a world wide web of content. Eventually, permissionless innovation on top of this open architecture gave birth to the World Wide Web, Napster, Amazon, eBay, Google and Skype.

I remember twenty years ago, giving a talk to advertising agencies, media companies and banks explaining how important and disruptive the Internet would be. Back then, there were satellite photos of the earth and a webcam pointing at a coffee pot on the Internet. Most people didn’t have the imagination to see how the Internet would fundamentally disrupt commerce and media, because Amazon, eBay and Google hadn’t been invented -- just email and Usenet-news. No one in these big companies believed that they had to learn anything about the Internet or that the Internet would affect their business -- I mostly got blank stares or snores.

Similarly, I believe that Bitcoin is the first “killer app” of The Blockchain as email was the killer app for the beginning of the Internet. We are in the process of inventing eBay, Amazon and Google. My hunch is that The Blockchain will be to banking, law and accountancy as The Internet was to media, commerce and advertising. It will lower costs, disintermediate many layers of business and reduce friction. As we know, one person’s friction is another person’s revenue.

One of the main things we worked on when I was on the board of ICANN was trying to keep the Internet from forking. There were many organizations that didn’t agree with ICANN’s policies or didn’t like the US’s excessive influence over the Internet. Our job was to listen to everyone and create an inclusive and consensus-based process so that people felt that the benefits of the network effect outweighed the energy and cost of dealing with this process. In general we succeeded. It helped that almost all of the founders and key technical minds and technical standards organizations that designed and ran the Internet worked together with ICANN. This interface between the policy makers and the technologists -- however painful -- was viewed as something that wasn’t great but worked better than any of the other alternatives.

One question is whether there is an ICANN equivalent needed for Bitcoin. Is Bitcoin email and The Blockchain TCP/IP?

One argument about why it might not be the same is that ICANN fundamentally had to deal with the centralization caused by the name space problem created by domain names. Domain names are essential for the way we think the Internet works and you need a standards body to deal with the conflicts. The solutions to Bitcoin’s centralization problems will look nothing like a domain name system (DNS), because although there is currently centralization in the form of mining pools and core development, the protocol is fundamentally designed to need decentralization to function at all. You could argue that the Internet requires a degree of decentralization, but it has so far survived its relationship with ICANN.

One other important function that ICANN provides is a way to discuss changes to the core technology. It also coordinates the policy conversation between the various stakeholders: the technology people, the users, business and governments. The registrars and registries were the main stakeholders since they ran the “business” that feeds ICANN and provides a lot of the infrastructure together with the ISPs.

For Bitcoin it’s the miners -- the people and companies that do the computation required to secure the network by producing the cryptographically secure blockchain at the core of Bitcoin -- all in exchange for bitcoin rewards from the network itself. Any technical changes that the developers want to make to Bitcoin will not be adopted unless the miners adopt them, and the developers and the miners have different incentives. It’s possible that the miners have some similarities to the registrars and registries, but they are fundamentally different in that they are not customer-facing and don’t really care what you think.

As with ICANN, the users do matter and are key for the network effect value of Bitcoin, but without the miners the engine doesn’t run. The miners aren’t as easy to identify as the registrars and registries and it’s unclear how the dynamics of incentives for the miners will develop with the value of bitcoin fluctuating, the difficulty of mining increasing and the transaction feels being market driven. It’s possible that they will develop into a community with a user interface and a governance function, but they are mostly hidden and independent for a variety of reasons that are unlikely to change for now. Having said that, one of the first publicly traded Bitcoin companies is a miner.

The core developers are different as well. The founders of the Internet may have been slightly hippy-like, but they were mostly government-funded and fairly government-friendly. Cutting a deal with the Department of Commerce seemed like a pretty good idea to them at the time.

The core Bitcoin developers are cypherpunks who do what they do because they don’t trust governments or the global banking system and are trying to build a distributed and autonomous system, one that is impervious to regulation and meddling by anyone at any time. At some level, Bitcoin was designed to not care what regulators think. The miners have an economic interest in Bitcoin having value, since that’s what they’re paid in, and they care about scale and the network effect, but the miners probably don’t care if it’s Bitcoin or an alt.coin that ends up winning, as long as their investments in hardware and plant don’t disappear before they make a return on their investment.

Regulators clearly have an incentive to influence the rules of the network, but it’s unclear whether the core developers really need to care what the regulators think. Having said that, without some sort of buy-in by regulators, it’s unlikely to scale or have the mainstream impact that the Internet did.

Very much like the early days of the Internet, when we saw the power of Internet email but hadn’t yet invented the Web, we are just imagining the potential uses of concepts such as crypto-equity and smart contracts … to name just a few.

I believe it’s possible that over-regulation could cause Bitcoin or the blockchain to never achieve its full potential and remain a feature of the side-economy, much in the same way that the Tor anonymizing system is extremely valuable to people who really need privacy but not really used by “normal people”... yet.

What helped make the Internet successful was the lack of regulation and the generally inclusive and permissionless nature of innovation. This was driven in large part by free and open source software and the venture capital community. The question I have is whether the fact that we’re now talking about “money” and not “content,” and that we seem to be innovating at a much higher speed -- venture capital investment in Bitcoin is outpacing early Internet investments, the dialog in popular media is growing, and governments are very interested in Bitcoin -- makes this a completely different game. I think ideas like the five-year moratorium on Bitcoin regulation proposed by US Representative Steve Stockman are a good idea. We really have no idea what this whole thing is going to turn into, so a focus on dialog versus regulation is key.

I also believe that layer unbundling and innovation at each layer, assuming that the other layers will sort themselves out, is a good idea. In other words, exchanges and wallets that are coin-agnostic or experiments with colored coins, side chains and other innovations that are “unbundled” as much as possible allow the learnings and the systems created to survive regardless of exactly how the architecture turns out.

It feels a lot to me like when we were arguing over ethernet and token ring -- for the average user, it doesn’t really matter which we end up with as long as in the end it’s all interoperable. What’s different is that there is more at stake and it’s moving really fast, so the shape of failure and the cost of failure might be much more severe than when we were trying to figure out the Internet and a lot more people are watching.