Remember Bitcoin?

Remember Bitcoin?

About six years ago I helped a fellow Cornell Business School alumnus launch a new venture capital fund. It was to be focused on Fintech or financial technology companies, an area that held a great deal of interest to me since the democratization of finance had been a topic of thought by me and those around me during my career for a long time. The penultimate Chairman of Bankers Trust Company, the formative employer in my career, was Charlie Sanford (rest his soul). He gave a speech to a Federal Reserve gathering to which he was asked to speak, which was about “Quantum Finance”. That concept was basically that we were moving into a new era of financial transactions where digitized finance would be taking over the world and money, per se, would become more and more virtual rather than real. We were, at that time, largely living in a world where most money was held in virtual or digitized accounts rather than backed by or held in a physical form such as gold or silver. The safety and soundness of this reality had been debated for years, but the growth of humankind made it inevitable that a vastly expanding global economy required a more flexible and ephemeral understanding of wealth creation and wealth recognition. Charlie’s Quantum Finance notion was a way for him (and perhaps more likely his key acolyte, Gene Shanks, a Stanford Ph.D. in finance) to express the view that the world needed a better and more fluid means of allowing value to flow around the world consistently and seamlessly in digitized form. I actually have a copy of that speech in my files and occasionally reread it to marvel at the foresight it predicted about the advent of cryptocurrency and the likely path it would take to becoming the basis of the next world economy.

My Cornell colleague wanted to launch this new venture capital company and, as is the convention in the alternative investment space, he wanted to lean on all the track record he could for the launch and my Beehive Ventures (venture capital fund from the “class of 2000”), which had, so far, had a very successful 8X outcome on its investments. He therefore asked me to invest in and become a General Partner and Chairman of the new fund. I agreed and made a substantial investment. I was actively engaged in other activities, so I could not join him as an active partner, but I went onto the investment committee as a GP. Within the first year of the fund’s life, a very prominent gentleman in the financial payments space decided to get directly involved with the fund as he had recently retired as Chairman of a major financial company. He was the perfect person to be Chairman of this Fintech fund and he was willing, so I passed over my title to him with pleasure. I had only taken the spot to help my friend. At the upcoming first annual investor gathering for the fund (to be held in San Francisco), it was planned that the new Chairman would give the keynote speech on the subject of Bitcoin. I was scheduled to fly to SFO and act as moderator of a panel of investors during the gathering. The day before the meeting I was called by my friend and told that the new Chairman had undergone some minor surgery and was not up to making the speech and that I needed to step in and give the keynote address on Bitcoin. The only problem was that I knew very little about Bitcoin and was not particularly a buyer at that time of the cryptocurrency dream, which was then reaching “Gold-Rush” enthusiasm in the popular press.

We all do what we gotta do in life, so I got a copy of the planned speech and got on a plane to SFO, spending my next five hours trying to get as smart as possible on Bitcoin. When I arrived in downtown San Francisco, I had three hours before the speech and was able to take my modified speech and get the slides reordered to facilitate my tweaked version of the speech. When I got to the lecture hall (in the offices of a top Silicon Valley law firm) I was greeted by a roomful of attendees. Instead of the 150 or so expected attendees, we had about 400 and the room was bursting at the seams with every seat taken, standing room only and even people lying on the carpet between me and the audience. It seemed that Silicon Valley had decided that Bitcoin was their technological space rather than a financial space to be controlled by Wall Street. To say that interest in the topic was brisk would be a gross understatement. I gave my speech and only by virtue of my years of public speaking experience, was I able to pull off this charade of expertise, keeping my comments vague and general while trying to sound as authoritative as possible. I will never forget the coming-of-age of Bitcoin thanks to this sweaty-palm moment for me.

My oldest son, generally prone to leading edge things where fortunes can be made in a moment, had already been “playing” in Bitcoin. One of the things he did was give a Bitcoin (then trading at about $200 as I recall) to his younger brother. Last year we had a big family laugh about the fact that my youngest son owned a Bitcoin that had appreciated to $15,000 in value and couldn’t remember how to access it. You see, Bitcoin is a “bearer” instrument in that it is owned anonymously by whomever holds the coin in digital space, but it is a “registered” instrument in that it must be held in a digital wallet from which it can be transferred by ID and Password.

Today I read that there is Silicon Valley programmer who owns over 7,000 Bitcoins that have an estimated, but albeit volatile, value of about $220 million, a nice tidy sum even by Silicon Valley standards where tech billionaires roam all the hallways. This fellow has been quite prudent in placing his Bitcoins in a proper digital wallet rather than simply having a safe with bearer holograms with his Bitcoin registry certificates. Access to the digital wallet is further controlled through a digital “safe” for which only he has the password. One of the features of this digital safe is that it gives him 10 chances to input the wrong password and then assumes that someone other than him is trying to breach it and it shuts down…permanently. He has used up eight of his password attempts and only has two left. The dude has forgotten his password and doesn’t know how to remember it. He is stumped and does not want to use up his last two tries so he is publicizing his dilemma in hopes that someone out there in digital tech land can help him retrieve his Bitcoin gains.

I don’t know whether to laugh or cry about this situation, but it does make a rather loud statement about life in modern times. I’m inclined to think that one idea he might pursue is to auction off his digital safe to the highest bidder. There is undoubtedly some geek out there that can figure out how to get inside of this thing and extract the value of his Bitcoin horde. What a great story it is and statement of value creation on these times that so much wealth is created out of thin air and yet all the natural digital security that it purports to bring to the table has confounded its access. Easy come, easy go and I think this has now replaced my speech as to how I will remember Bitcoin.