
Growth in VC funding to Bitcoin startups slowed substantially last quarter - prostoalex
http://www.bloomberg.com/news/articles/2015-10-26/the-bitcoin-startup-boom-comes-back-down-to-earth
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IkmoIkmo
Anyone could've predicted that, really.

I mean think about it, the entire bitcoin market cap (to the extent one can
use that term) over the past quarter averaged $3.7 billion. And roughly $1b
has been invested VC invested into bitcoin companies.

Of course it has to slow down. The companies have money to burn now, VCs need
to see some traction over the next few years before, it just makes no sense to
invest more than a billion in a small market. Or rather, there just aren't any
new companies that can get any traction that aren't already funded (e.g.
competing with Coinbase) because the market is already saturated with decent,
well funded startups. Developing countries are the exception.

Bitcoin has its ups and downs. It doesn't report for example that the price is
up by 33% from 7 days ago.

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px1999
I'm curious to see if many of those that did invest in non-exchange startups
have seen much return to date. A lot of the ideas seem (at least to "regular"
folks) to be a bit... strange...

In the post they mentioned Dunvegan Space Systems, which as far as I can tell
is trying to sell computing power where the server is physically located in
space. They can broadcast radio, and in theory the signal should be harder to
shut down, but that's the sole useful purpose - broadcasting something that
someone may want to shut down - a problem for which we already have
terrestrial solutions (eg pirate bay).

The blockchain has a lot of promise, but it seems like much of that is
theoretical and far-future.

It's not surprising that VCs are waiting for a bit of a return (or indication
that their capital's going to result in return at some point) first.

~~~
IkmoIkmo
> A lot of the ideas seem (at least to "regular" folks) to be a bit...
> strange...

I've got the opposite impression really, a lot of the companies are recreating
a lot of the old, boring, payments infrastructure and services, but using
bitcoin and digital currency rather than building it on old technology like
SWIFT, ACH or plastic cards with passwords to money vaults written on them
(credit cards) that doesn't really work great in a digital age.

Things like processing payments online for merchants, things like offering a
wallet/vault/bank to store money for consumers, remittances for migrant
workers, exchanges to trade different currencies for investors and locking in
your price (i.e. if you buy $100 of bitcoin and the price of bitcoin changes,
you'll always keep $100 of bitcoin because you locked it in. Another boring
hedging feature that makes digital currency look more familiar to users
because it's denominated in their own fiat currency they're familiar with even
though it's built on bitcoin). None of these things are new, many are hundreds
of years old, and they're the big focus for bitcoin companies and investors.
(e.g. Coinbase, Bitpay, Circle, Bitstamp or Kraken Blockchain.info, all have
received (tens) of millions in funding, one even topping $100m and they cover
the above areas). The idea of using digital currency may be a bit scary to
some, but the underlying products and services from the big companies are
quite boring at the moment. For example I've ordered pizza a few times with
bitcoin, did a bit of trading, donated to charity, bought two games and a
bracelet. Ordinary stuff really.

Then there's indeed Dunvegan Space Systems, but it's not a bitcoin company.
It's a space communications network company by way of satellite, and one of
their usecases can be bitcoin, but it can also be SpaceX or wikileaks. The
company only has $100k of funding afaik, most of it from the founder itself
who paused the project for now. The bitcoin-related product they offer isn't a
consumer product, it's really for companies or even the industry to invest in.
How it works is, short and simplified, that bitcoin is decentralised, it works
on the basis of many different nodes that all share blockchain data. The issue
is that if all nodes, somehow, would be able to get compromised and send out
fake data (say because a government controls the internet), that the bitcoin
system falls apart. But this is only the case if all nodes are compromised. So
as long as even just a single one has honest data, bitcoin can keep working
(because you can't fake your way around evidence of POW!) That's why the
notion of having a node in space, in a satellite that broadcasts to everyone
and that everyone can pick up on for free, is interesting. It's not essential
because the chance that all nodes all over the world are compromised at the
same time is extremely unlikely, but putting a few nodes in space would make
everything that much more secure. The cost per satellite launch is just $1m,
so for an industry that's worth tens of billions at some point, it makes sense
to launch a small fleet for global coverage at all times. That's one of the
products his company offers, but it's really a bitcoin agnostic, satellite
communications company. It's a really tiny player in the space and mostly a
(very cool) pet project by Garzik that'll probably become reality if bitcoin
is still kicking in like 2020, it's not an essential project because most
governments look to bitcoin quite favourably, there's no real other pressure
that can knock out all thousands of different nodes running different software
on different hardware behind different routers in different countries. Still
it'd be cool to see happen someday.

Anyway, return? No, don't count on it. But VCs didn't expect that going in,
either. Facebook had 5 years of losses before it turned a profit and that's a
ridiculously successful company. Bitcoin is barely 5 years old, let alone its
companies. But some probably do have a decent return already. Take Bitstamp
for example, averaged volume of about $150m a month, its fees structure starts
at a base of 0.25% which applies to both sides (seller/buyer) of the trade, so
on any trade it's 0.5%. That puts it at an annual revenue of around $10m.
They've traditionally had a small team of less than 10 core people, with
probably an equal amount of lower paid in support staff. And they're based in
Slovenia where a software engineer on $60k is quite above average and support
staff are probably around $15k a year. I wouldn't be surprised if they've got
a team of around 20 people that cost on average say $50k each, or about $1m.
Add your office (Slovenia), your servers, outsourcing some work (like
pentesting, legal support etc), all kinds of employee benefits etc etc, you
can easily imagine they're making a few million in profit every year and it's
not like they had much to invest in. In fact I'd be surprised if they haven't
been profitable since day one back in 2011 when they were basically a 2 or 3
man team, they probably were somewhere nearly that small back in 2013 when
they had times where they were doing $750m of volume in a month, and that's
when their base fee was 0.5%, or 1% as it applies to both sides of the trade.
$7.5m in revenue in a month and I bet they could count the number of team
members on the fingers of their two hands, or maybe even one, for what is
purely a software company with a bit of SEPA handling every now and then.

Anyway you can run the numbers for various bitcoin companies but most have
chosen growth over revenues. Coinbase for example has a massive team, topping
100 people it looks like, all based in SF, they're probably burning $15m a
year easily on costs, they waive a lot of their merchant's fees and have a $75
referral programme if you sign up friends who buy a fraction of a coin. They
may not be generating a return (although they do look to have decent
revenues), but with $100m in funding and revenues easily topping $10m a year,
it makes sense to burn a few million every year to grow. If Coinbase played it
careful they'd have a few million in profit per year, it's peanuts for $100m
VC investment, they can get triple that in a normal investment portfolio. VCs
demand rapid growth and are willing to burn money to get it. But with $1b
invested, I doubt we'll see much more money flow in this year.

------
roymurdock
> Investors are now more interested in bitcoin’s underlying technology, called
> the blockchain.

No stats on blockchain-based startups which I imagine would be attracting much
more attention than those limiting themselves strictly to Bitcoin.

------
djsumdog
Good riddance. Bitcoin is rubbish. It takes more resources to create a coin
than it's worth and the market has pretty much fallen out.

I'm sick of all these libertarian, "It's better money" idiots. Money is
horrible. It's a bad measure of value, it's debt based and designed to keep
things in a closed controllable system. We don't need better money. We need an
end to resource scarcity so we no longer need money at all.

~~~
grandalf
I am not sure if you are trolling or if you are serious. I'll humor you...

Of course ending resource scarcity would be nice, but chances are there would
still be scarcity, since some resources would still be difficult to copy and
thus scarce.

Money is not a measure of value, it is used as a store of value and a way of
transmitting value, but it has no intrinsic value.

~~~
laotzu
>Money is not a measure of value, it is used as a store of value and a way of
transmitting value, but it has no intrinsic value.

This seems self contradictory. How can a piece of paper be used to "store
value" but have no intrinsic value at the same time? That would mean it is a
measure of value.

~~~
grandalf
Money can be counted and comes in standard unit sizes, so when money is used
as a store of value and traded for something else, you can count the amount of
money necessary to make the exchange.

You are not measuring anything, just finding an equivalence. There is nothing
"rulerlike" about money.

The idea of measurement as my comment's parent used it, is at best a very
sloppy way of thinking of what is going on. This may make sense in a
colloquial sense, but it does not reveal anything about the mechanism that
gives money value.

To give you an example, notes from a failed currency are worth only whatever
the paper is worth, and do not (like silver coins) have alternate purpose as
dental fillings which gives them intrinsic value.

~~~
laotzu
>Money can be counted and comes in standard unit sizes

>There is nothing "rulerlike" about money.

rulers have standard unit sizes which can be counted

