All this week, Marketplace Tech is talking about the digital currency Bitcoin. Yesterday, we found out that like most forms of currency, Bitcoin is "a massive hallucination we all agree upon." But it's also a techy idea -- a network where computers with a shared record of transactions can trade long strings of letters and numbers to keep track of who has what. Whether that description sounds simplistic or overly complicated, there's a company in Silicon Valley called Coinbase designed to make sure we don't ever have to worry about it.
Coinbase is getting big money in venture capital funding -- another $25 million announced just last week. Venture capitalists like Coinbase because they think it might be the company to bring the use of Bitcoin from the nerds to the rest of us. Bitcoin co-founder and CEO Brian Armstrong certainly hopes so. He characterizes his company as a sort of PayPal for Bitcoin, that both connects merchants with consumers, and allows people a way to store their money online.
"We are serving three completely different segments of the Bitcoin market," Armstrong says. "We have a consumer wallet. We have merchant services, helping businesses accept Bitcoin. And we also will have a developer platform that 3,000 developers have built apps on it. So, yes, it's a challenge, but many parts of the Bitcoin ecosystem work better when you have multiple parties talking together."
One unique service that Coinbase provides is it allows people who hold Bitcoins to cash out, Armstrong says.
"We allow people to both buy and sell Bitcoin on Coinbase," he says. "We're still the only company offering it, essentially, where people can connect any bank account in the U.S., and they can convert dollars into and out of Bitcoin."
Lately, as Bitcoin has been getting more media attention, the cryptocurrency has also come under the scrutiny of governments from the United States to China. But Armstrong doesn't worry that if Bitcoin goes mainstream that it will get saddled with the sort of baggage its supposed to be disrupting -- like credit card-style service charges.
"I don't think it will ever have the same characteristics of proprietary payment networks, like credit cards or wires or bank transfers before it," Armstrong says. "The reason is that it's fundamentally an open system. So let's look at email as an example. If you ever didn't like your particular email provider that you were using, you could switch to another one -- and economists might call that 'low switching costs' -- but the net effect to consumers is that the price of those services always has a downward pressure on it. It's a competitive market because the underlying platform beneath it is open, and anyone can participate on it."
Armstrong says Bitcoin has put us on the precipice of a massive new infusion of wealth into our society, and that a newly enriched segment of the population could significantly shape our future.
"There's a lot of people who have gotten in early on Bitcoin, right? They might have been early adopters, or people who were particularly interested in the currency for one reason or another, and there's going to be a massive amount of wealth generated amongst people who were early into the Bitcoin ecosystem. What happens when a sort of techy nerd segment of society -- for lack of a better word -- has a massive increase in wealth in the next 5 to 10 years? What does that mean for public policy or education or government or anything?"