Around the Loeb.NYC offices, I’ve noticed chatter about cryptocurrencies and blockchain. Given the nascent, confusing, and somewhat mysterious nature of the technology and its ecosystem, I suggested that we host Alyse Killeen for the monthly Loeb NYC Speakers Series. Alyse is a Los Angeles-based venture capital investor who focuses on data science, network infrastructure, fintech, e-commerce, and blockchain. She has contributed to two books on cryptocurrencies: “The Handbook of Digital Currency” (2015) and “The Handbook of Digital Banking” (2017).
When I first met Alyse at Michael Loeb’s Founders & Funders event in 2014, the price of a Bitcoin was around $400. Now, in late November 2017, Bitcoin’s price is approaching $10,000. With this massive surge in price (+2,400% in just three years), Bitcoin has generated major interest from the mainstream. As talent and capital have poured into the space, it’s become clear that Bitcoin and other cryptocurrencies are here to stay. One of the goals of the Loeb NYC Speaker Series is to promote company-wide understanding and discussion of new ideas. Given the amount of buzz in the space right now, hosting Alyse to explain Bitcoin, blockchain, and its implications going forward was a no-brainer.
For Alyse, the importance of blockchain technology can be boiled down to its power to decentralize structures and institutions that are traditionally relied upon to establish trust between multiple parties.
Alyse explained that Bitcoin emerged in the wake of the 2008 financial crisis, partly in response to eroding trust in financial institutions and governments. She explained that Bitcoin users can choose to transact on their own terms without the consent of any intermediary. As more people earn, buy, and use the currency, its price increases. While rampant speculation has obviously contributed to Bitcoin’s rapid price increase, adoption and usage has grown substantially as well.
Alyse explained that instead of a central institution like a bank maintaining a ledger of balances, the Bitcoin blockchain is maintained by a worldwide network of financially-incentivized “miners” — people who have set up computing hardware to verify Bitcoin transactions. Miners earn Bitcoin rewards in exchange for their participation in the network. Mining is intentionally expensive, requiring high-powered computers and substantial electricity consumption. Thus, miners have begun to set up shop in regions like China and Venezuela where electricity is relatively inexpensive.
The system is designed to work as follows: as Bitcoin’s price increases, more miners will participate in the network. As more miners join in, the faster and more secure the network becomes, ideally creating a virtuous cycle that allows for seamless, borderless, and secure exchanges of value without the need for any centralized intermediary. This is particularly important in nations without the institutional stability that we tend to take for granted in the US. In a country like Venezuela that has experienced hyperinflation, Bitcoin has become a viable alternative to its national currency. For those interested in investing in Bitcoin, Alyse had a few recommendations: only invest what you’re willing/able to lose and store your cryptocurrency in a hardware wallet like the Trezor or Ledger.
Another subject that came up was the recent Initial Coin Offering (ICO) craze. Alyse warned that a lot of these ICOs are scams but believes this financing model will ultimately democratize access to capital. To briefly explain an ICO, companies seeking venture funding can create and issue their own token as a means of financing rather than traditional equity or debt deals. Presumably, as the company grows, the value of its token will increase. Token holders are immediately liquid, unlike with traditional venture capital or angel investments. Alyse recommends doing serious diligence on ICOs before investing, as one should with any investment.
It is an exciting time in the world of cryptocurrencies. There is a lot to learn and sometimes answers to the questions you have may not even exist. From all of us at Loeb, we’d like to say thank you to Alyse! For more information about Alyse, visit her website and follow her on Twitter.
Adam is a Venture Associate at Loeb NYC, where he sources, evaluates, and pursues new business and investment opportunities. He is currently focused on fintech and blockchain. Prior to joining Loeb.NYC in 2014, Adam received his BA from the University of Michigan.