
Coinbase Nabs $5M in Biggest Funding for Bitcoin Startup - conesus
http://blogs.wsj.com/venturecapital/2013/05/07/coinbase-nabs-5m-in-biggest-funding-for-bitcoin-startup/?mod=WSJBlog
======
barmstrong
Brian from Coinbase here. We're obviously very excited here to do our best in
fostering Bitcoin's growth towards mass adoption.

To those who have seen our growing pains - the full intention of raising money
is to address those pain points. We look forward to doing our best to
eliminate each of them one by one.

~~~
bithive123
Can you comment on some of the things I've heard about Bitcoin which might
prevent its mass adoption?

\- The network imposes a limit of 7 transactions per second
(<https://en.bitcoin.it/wiki/Scalability>); and the information I've seen
suggests that it typically averages much less than that
(<http://blockchain.info/en/charts/n-transactions>).

\- There is a finite number of Bitcoins, and they can effectively be lost
forever if private keys are lost. This has led to people doing things like
leaving tips in BTC which expire (<https://www.bctip.org/>).

This is disregarding the volatility of the price and the fact that it seems to
behave like a speculative commodity rather than a real currency -- what is
your vision of "mass adoption" of Bitcoin?

~~~
shazow
I don't work for Coinbase, but I'll try to answer (someone correct me if I'm
wrong):

> \- The network imposes a limit of 7 transactions per second
> (<https://en.bitcoin.it/wiki/Scalability>); and the information I've seen
> suggests that it typically averages much less than that
> (<http://blockchain.info/en/charts/n-transactions>).

The transaction volume is currently limited by two things. (1) The number of
transactions that can be included within each block by miners. (2) The
bandwidth required to keep up with the blockchain.

The block transaction cap is just a hardcoded value in the client. Like many
things that change on a monthly basis in the reference client, it can and will
be changed when the time is right. There are lots of variables which are being
adjusted as Bitcoin grows, such as the recommended minimum fee for small
transactions.

As for the bandwidth, there are a few options: First part is to only require
clients to maintain a tiny summary of each block, rather than the full ledger.
This will reduce the sync bandwidth required by at least two orders of
magnitude. This solution only applies to clients, not miners. The second less
popular plan is to encourage networks of "green addresses" (kind of like
trusted banks that don't need to verify transactions between each other) as
well as super-nodes which delegate trust by layers. And finally, there is
always methods for pruning the Merkle tree to remove unnecessary history, or
introduce periodic genesis blocks which put down the current state in stone
without requiring the history before it. These are just off the top of my
head, there are likely more initiatives in the works, maybe of which have been
planned for from the first day that the Bitcoin whitepaper was published.

> \- There is a finite number of Bitcoins, and they can effectively be lost
> forever if private keys are lost. This has led to people doing things like
> leaving tips in BTC which expire (<https://www.bctip.org/>).

Both of these things are true.

Keep in mind, a bitcoin can be divided into units of 0.00000001 (what we call
a satoshi). That is to say, the finite number of satoshis is
2,100,000,000,000,000 which should be more than enough for a long long time.
(More on that here: <https://en.bitcoin.it/wiki/Bitcoin>)

As for the question of Bitcoin being lost forever, all this means is that
everyone else's Bitcoins rise in value slightly (since you're reducing
supply).

~~~
maaku
> The block transaction cap is just a hardcoded value in the client. Like many
> things that change on a monthly basis in the reference client, it can and
> will be changed when the time is right.

No, the block size is a validation rule. Changing it will require a hard-fork.
That must happen if bitcoin is to scale. But it's not an easy change.

~~~
shazow
Do you have a link with more about that?

I recall reading a discussion on the forums about doubling the value of
MAX_BLOCK_SIZE in the near-term. I didn't realize that old clients would
outright reject larger blocks.

Either way, sounds like everyone is in agreement that this will have to happen
inevitably.

~~~
maaku
[https://github.com/bitcoin/bitcoin/blob/34d62a8efe4c51b2dd73...](https://github.com/bitcoin/bitcoin/blob/34d62a8efe4c51b2dd73d56fa03001d4accee4ad/src/main.cpp#L2053)

------
sethbannon
Key quote from Fred Wilson: “If Bitcoin really becomes the global currency
that every country and every business accepts, and Coinbase becomes the JP
Morgan Chase of Bitcoin, that could be worth a lot of money.”

~~~
blantonl
The JP Morgan Chase of Bitcoin could also become the single largest target of
technical and crypto attacks that the technology industry has ever seen. Ever.

Advances in cryptography which once were targeted to breaking encrypted
messages could be focused on breaking the entire world economy in one fell
swoop (provided Bitcoin gets real market traction)

~~~
patio11
It's highly unlikely that high-profile Bitcoin busts will require meaningful
advances in cryptography: they're far, far more likely to be appsec work --
perhaps inspired appsec work -- of the kind routinely conducted by
intermediate programmers with weeks of specialized training.

Let me put some round numbers on the cost of various attacks:

Major result in cryptography: $X0 million to $X00 million+ (nation-state
adversary)

Subtle bug in the Satoshi client C code: $100,000 (trivially within the reach
of organized crime or a single highly motivated attacker)

Bust any Bitcoin-using Ruby on Rails (&tc) application: $20k probably, upper
bounded by $100k where you'd produce (as an industrial biproduct) a RCE on any
arbitrary Rails site

Compromise the security of a non-trivial number of Bitcoin users via
spearphishing / targeted malware / etc: $1,000

If you're a thief who doesn't have access to any computer skills or the above
sums of money, have no fear, it is likely that the Bitcoin economy still has
multiple options for you to get in on the ground floor of exciting new ways to
steal things.

[P.S. I'm routinely pessimistic about Bitcoins for a lot of reasons, but the
software security angle keeps coming back to me because it's so easy to
explain. If you think I'm overly pessimistic, consider the track record on HN
of "people who know what the threat environment banks operate in looks like"
versus "Bitcoin advocates" has been in predicting observable future outcomes
of e.g. Bitcoin bucket shops in advance.]

~~~
wslh
Sorry, I don't understand your reasoning. What is the difference of running a
bitcoin app to, say, a forex site in terms of security? and what do you mean
with major result in cryptography? Other cryptographic protocols can be broken
too. What makes bitcoin special?

~~~
ISL
SHA256 underpins Bitcoin. Break SHA256, and you win.

~~~
nadaviv
Break SHA256, and you can cause hash collisions that allows you to easily mine
blocks until 51% of the network switches to a better hashing algorithm (which
should happen pretty quick, because it'll be obvious that someone broke it).
To steal users money, you'd have to break ECDSA.

Edit: I wasn't 100% exact. It gives you more [1] than easily mining blocks,
but still not that much power so that I would call it "Winning".

[1]
[https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...](https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power)

~~~
betterunix
Compute hashes faster than the rest of the network and you win. The "51%
attack" is a polynomial time attack, which is not an acceptable security
margin in cryptography.

~~~
reedlaw
It seems the "51% attack" can be mitigated simply by waiting for 6 or more
confirmations before sending off merchandise or in the case of an exchange,
allowing withdrawal of funds. Those who can't wait that long can rely on 3rd
parties who attempt to take on fraud in exchange for transaction fees, similar
to the current credit card system.

~~~
betterunix
That is not true. The attack works regardless of how many confirmations you
wait for.

~~~
reedlaw
How so? Isn't a double spend only possible if the attacker's blockchain fork
endures for the customary 6 blocks it takes to confirm a transaction? A single
block fork would be ignored by the majority chain and thus the attacker's
chain transactions would be useless.

------
tibbon
To the naysayers- there are 100 potential problems with Bitcoin. All reasons
why it can "never" work.

Yet, I can also list 100 problems with all sorts of things that we use on a
daily basis: cash currency, vehicles, firearms, libraries, etc....

\- Cash can be stolen, destroyed, counterfeited. It isn't easy to divide (I
need quarters at the laundry machine, but I have a $5 bill). Cash is dirty. Do
you know how many people have touched that dollar bill?

\- People could drive in the wrong lane, drive drunk, ignore all rules of the
law. People might get killed!

\- People could do incredibly stupid things with guns. They might misfire or
jam. You can miss and hit the wrong target easily.

\- People could steal books from libraries. They could burn. They cost money
and make no money.

Despite these problems- all of these things more or less work. Yes, Bitcoin
has problems. Yet, I don't see any of them as being actually bigger than the
potential problems with things we use daily anyway.

~~~
betterunix
Shouldn't the goal be for Bitcoin to have _reduced_ problems compared to the
systems it is meant to replace? Why should we go from one problematic system
to another equally problematic system?

~~~
tibbon
I think it just has _different_ problems. I don't think there's any way to
create a perfect system, which is what many people seem to expect. It does
solve several problems that no other currencies have managed to solve, but has
cropped up some new _potential_ issues in the meantime.

While I think the problems inherent to current currencies are well known, I
think some of the problems with Bitcoin still remain theoretical, with at
least 50% of them being due to misunderstanding of the system or that its very
early and we still lack some infrastructure (enough exchanges, etc)

------
fossuser
Coinbase is by far the easiest service to use (something that I think is
vastly undervalued from the complaints on HN). As long as bitcoin continues to
do well I think they have a good chance of being very successful.
Congratulations on the funding.

------
blantonl
Quote from the article:

 _“We need 10 people yesterday,” said Ehrsam, a 24-year-old former Goldman
Sachs trader._

"10 People" in this case == security and crypto engineers - like the best the
world can get.

If you want to lead the largest exchange for a decentralized, anonymous
currency, you better have an NSA quality-type security team that can address
the intricate mathematics of the problems they will certainly face. I'd
suggest they hire a very senior and experienced economist as well.

$5m of funding? 500K per hire. Sounds about right.

~~~
betterunix
"If you want to lead the largest exchange for a decentralized, anonymous
currency, you better have an NSA quality-type security team that can address
the intricate mathematics of the problems they will certainly face"

Their first question would be, "What is the formal definition of Bitcoin's
security?" Then they would notice that polynomial time attackers can double
spend Bitcoin currency and stop bothering with the entire system.

This is the sort of work in this field that top-notch crypto people create:

[http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.44.8...](http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.44.8279)

<http://link.springer.com/chapter/10.1007%2F11889663_20>

<http://ieeexplore.ieee.org/xpls/abs_all.jsp?arnumber=5443458>

~~~
nazgulnarsil
Chaumian cash requires a central trusted authority just like every other non-
bitcoin scheme anyone has ever come up with. The success of bitcoin and the
repeated failure of "better" systems shows that your analysis of which
properties people care about is wrong.

~~~
betterunix
The central authority in Chaumiam systems only issues the currency and accepts
deposits. It is not required to process transactions.

It is worth pointing out that Digicash survived longer than Bitcoin has even
been around -- twice as long, in fact. The reasons for its failure are not as
simple as "people just did not care." There were forces in the US government
actively working against _all_ civilian use of cryptography, especially those
systems that might thwart law enforcement investigations. Patents on
cryptography (ironically, this includes patents held by Chaum himself) did
what they typically do: prevent systems from being deployed on a large scale.
There were bad management decisions, like Chaum's refusal to accept a huge
monetary offer from Microsoft to integrate his system with Windows 95 and
another large offer from Visa.

Yes, there was a general lack of concern on the part of credit card users
about the security of their card data. That lack of concern is largely fueled
by all the legal protections bank customers get -- nobody actually feels the
pain of credit card fraud, except for the money mules:

<https://research.microsoft.com/apps/pubs/?id=143095>

That lack of concern is equally challenging for Bitcoin. I suspect that most
people do not really care about any of the issues Bitcoin is trying to solve.
Few people are seriously worried about runaway inflation of the US Dollar or
of the Euro. Bank fees aggravate merchants, but those same merchants are
generally unwilling to accept anything other than their nation's currency, and
deal in Bitcoin only through intermediaries that perform currency exchange.

In another four years, if the news about Bitcoin is something other than,
"Bitcoin trading at all-time lows," or "Analyzing the failure of
cryptocurrencies," you can at least claim that Bitcoin fared better than
Chaum's systems.

~~~
nazgulnarsil
"only issues the currency"

This is not an "only". The central issuer also apparently makes management
decisions that lead to the success or failure of the scheme, as the anecdote
about Chaum relates.

~~~
betterunix
There is a difference between the design of the protocol, and the realities of
deploying it. Bitcoin is not immune to this: despite its supposedly
"decentralized" protocol, the Bitcoin developers have enormous power over the
system. A bad decision by the Bitcoin developers could kill Bitcoin, and
_inaction_ by those developers could also kill Bitcoin. Were it not for the
early efforts of the developers, Bitcoin would never have received any
attention at all.

It is also important to remember that Chaum's poor management of Digicash did
not exist in a vacuum; the patents on the digital cash concepts and protocol
designs were key in ensuring that _only_ Chaum could deploy the system. Were
there no patents, Microsoft might not have bothered to make an offer; they
could have just implemented a digital cash protocol themselves. There is no
_single_ reason for the Digicash failure, but rather a list of reasons that
collectively doomed the system.

------
Aloisius
When I first heard that VCs were putting money into Bitcoin companies,
frankly, I balked. Then I realized that I felt the exact same way years ago
when I first saw one of those companies selling gold at inflated prices to
people.

There is clearly a market for Bitcoin. Between the large black markets, the
anti-government libertarians/anarchists and the speculative traders, there is
little doubt there are fortunes to be made.

I just don't know if I'd care to be in such a business.

------
bradhe
Is "nabs" really the right word here? It makes it sound like they sneakily
grabbed $5M from someone's pocket.

~~~
wmf
We're talking about Bitcoin; it's gotta be a little shady.

~~~
JoeKM
How is Bitcoin shady?

~~~
betterunix
It is largely used in black market transactions, it exists without any
regulations at all, and there are almost no mainstream businesses that
actually deal in it (and even those that do are doing so through an
intermediary service that is giving them dollars/etc.). For most people, it
sounds more like a scam than something they can trust their money with.

~~~
kiba
_It is largely used in black market transactions, it exists without any
regulations at all, and there are almost no mainstream businesses that
actually deal in it (and even those that do are doing so through an
intermediary service that is giving them dollars/etc.)._

Please provide citation that silk road and other black markets are the
majority of bitcoin's economy.

~~~
pbreit
My guess is that "black market" transactions make up the vast, vast majority
of the economy (as in 80%, 90% or more on a txn basis and probably even on a
volume basis) (assuming trading is not included). Is there any other use case
for Bitcoin?

~~~
kiba
That is not evidence that black market transactions make up the vast majority
of the economy. You need actual numbers, or you're just guessing.

~~~
pbreit
I'm not the OP but wanted to back him/her. Sometimes the data is not
available.

------
rdl
Is this Fred Wilson's first new investment in 18 months?

~~~
fredwilson
yes, but more like 21 months <http://www.avc.com/a_vc/2013/05/off-the-
schneid.html>

------
alloftheabove
“They have competitors doing the same thing."

So are most of these bitcoin startups just banks/exchanges? Is there anyone
doing anything more unique with bitcoin?

Since it is hard to judge the true value of a bitcoin since it fluctuates so
much, perhaps bitcoins would be best suited to pay for services and goods that
are hard to judge in value?

Someone should create a bitcoin based fiverr or mechanical turk.

It would also be interesting to see something completely close the loop when
it comes to bitcoins. For example, raise bitcoins to pay for the production
costs of a movie, pay actors and staff in bitcoins, charge bitcoins for movie
download, and repay investors in bitcoins.

------
Egregore
Quote from the article: “Hackers are the animals that can detect a storm
coming or an earthquake,” he said. “They just know, even though they don’t
know why, and there are two big things hackers are excited about now and can’t
articulate why–Bitcoin and 3D printing.”

But from reading HN it seems that there is a lot more controversy about
bitcoin than about 3D printing.

~~~
kyledrake
Let me fix that for you. [http://motherboard.vice.com/read/click-print-gun-
the-inside-...](http://motherboard.vice.com/read/click-print-gun-the-inside-
story-of-the-3d-printed-gun-movement-video)

------
yumcoin
Congratulations!

Previously: <https://news.ycombinator.com/item?id=5663327>

------
rdl
Wow. Congratulations.

------
LifeIvy
Buy into weakness | Sell into strength. Hello profit.

------
venomsnake
Why didn't they get them in Bitcoins?

