I recently spoke with Cameron and Tyler Winklevoss, whose new company Gemini offers a licensed and regulated exchange for bitcoin, the digital currency that has exploded in popularity (and skepticism) in recent years.
Here’s a transcript of our conversation, lightly edited and condensed.
Q: I buy a lot of stuff online. I have nothing to hide, but care about my privacy. I really have no problems with the current payment system. My biggest question about Bitcoin is that I’m still not sure what problem it solves for me. Where am I wrong?
A: People had the same questions about the Internet 20 years ago — how is this going to affect my life? The truth is, in the short-term it very well may not. But in the long-run, it will in more profound ways that any of us can imagine.
Bitcoin is Internet money. It is money purpose-built for the Internet. Credit cards and ACH, on the other hand, are payment systems that were invented in the 1950’s and 60’s before the Internet even existed.
Using them on the Internet is like trying to fit a square peg into a round hole. Bitcoin is a money protocol that has transformed money into packets that now travel over the Internet, not the balkanized rails of the legacy banking system.
If we look at how other protocols have affected our lives, we can start to see a glimpse of Bitcoin’s potential. Think, for instance, about how email protocols such as IMAP and SMTP changed the way we send mail or voice protocols like VoIP changed the way we make phone calls. You send an email today instead of a postcard or make a call around the world on Skype virtually for free because of the invention of these protocols.
Bitcoin’s utility lies in the eye of the beholder. In the first world, Bitcoin will make its first dent as a settlement mechanism, not as a payment system that helps you buy a cup of coffee. Paper, middlemen, and cumbersome back office operations will go the way of the dodo.
In other parts of the world, Bitcoin will have a different immediate meaning. Payment systems may not appear “broken” through a first world prism, but they are by no means efficient and borderless. Try sending money to someone in Sri Lanka, for instance. Credit cards are only really popular in about eight to 10 developed countries and expanding the existing network is costly and infrastructure-heavy. Similar to how developing countries leapfrogged the installation of telephone poles and landlines with the adoption of cellular phones, Bitcoin will allow them to skip forward to a next generation, Internet-centric payments network without waiting for legacy networks to arrive that have little interest and/or ability to service them anytime soon.
In countries like Argentina, where the national currency is habitually debased, bitcoin will be seen as a better store of value and celebrated for its gold-like qualities. For citizens looking to circumvent draconian capital controls in search of greener pastures, bitcoin will represent their chance to exit.
Ultimately, however, Bitcoin will fundamentally change the way humans and machines exchange value.
Computers can’t open up a bank account at Wells Fargo, but they can plug into protocols. This, in addition to the fact that it is practicable to transfer fractions of pennies over the Bitcoin network or other blockchains built on top of it, will enable lightweight economic transactions that the existing payments system will never be able to facilitate, let alone contemplate. As a result, Bitcoin will create new avenues of human-to-machine and machine-to-machine trade that were previously not possible and usher in the first forms of artificial life.
In the future, you will summon an autonomous agent (self-driving car, drone) to pick you up and take you to your destination. You will be able to pay your fare in bitcoin, which an agent will happily accept, and you will also use bitcoin to pay other agents such as roads for road-space or other self-driving cars to move out of your way if you want to go faster.
It’s fun and easy to come up with endless examples of what is now possible. Bitcoin will bring the Internet of Things to life, making devices not just smart but also intelligent (i.e., rational economic actors). As the invention of money itself fundamentally evolved the circuitry of the human brain, programmable money will rewire the neurological pathways of the Internet forever.
Q: So where is Bitcoin 10 and 20 years from now? What’s the bullish scenario, and what probability do you put on this being a fad?
A: Bitcoin will replace gold. In the scheme of the universe, gold and other precious metals are not even remotely finite. In fact, there are asteroid databases that estimate the composition and profit of mining over 600,000 asteroids in our solar system and it turns out that earth’s chemical elements are quite abundant when you look at the larger picture. Once we achieve cheap access to space, which seems like a real possibility in the next decade or two, gold will no longer be scarce. The only fixed, commodity-like asset with money-like qualities left will be bitcoin.
Today, bitcoin is already a better gold. Taking into account the nine characteristics of money — scarcity, durability, portability, divisibility, verifiability, storability, fungibility, difficulty to counterfeit, and adoption — bitcoin matches or beats gold across the board in every category. The only thing gold has on bitcoin right now is a 10,000 year first-mover advantage — but there is no divine reason why gold couldn’t eventually be replaced in the free market by a synthetic digital gold that was engineered to have superior qualities. That being said, first-mover advantages are powerful so it may take until asteroid probes confirm empirically and incontrovertibly that gold is in fact plentiful (which may not be that long from now), for bitcoin to unseat gold.
Not only could bitcoin replace precious metals in an investment portfolio, its upside potential might be even greater.
Bitcoin is not just an asset. It is also a protocol and a global network similar to the Internet itself, but for exchanging value. If you own bitcoin, you own a piece of the entire Bitcoin ecosystem. It’s like owning an asset that tracks the entire Bitcoin market. This is not the case if you own gold, you do not also own a piece of the mining and services sector, for instance. This was also not the case with the original Internet — you couldn’t go out and directly buy a piece of it. Bitcoin is very different, you don’t have to bother sorting the winners from the losers, there is little chance a Bitcoin company succeeds and bitcoin doesn’t. Owning bitcoin is not just owning a better gold, it is also like owning a call option on the most exciting technology space and innovation in the world today.
The probability of bitcoin being a fad seems low. The Bitcoin blockchain is the most secure, permissionless, decentralized public ledger in the world. Anyone presented with the choice will chose to build and entrust their data on the Bitcoin blockchain because it is leaps and bounds more secure than the next most secure blockchain of its kind. As a result, there are significant network effects and first-mover advantages at play here in favor of Bitcoin. If it is a winner-take all landscape, which it is looking like it increasingly is, then the Bitcoin blockchain could be the core foundation on top of which most digital currencies and digital currency applications are built. If this is the case, then bitcoin will become the global digital reserve currency.
Q: What are Bitcoin’s biggest problems, and how does Gemini solve them?
Bitcoin’s biggest bottleneck right now is a lack of regulated on-ramps. Companies that want to comply, can’t comply, because they haven’t been told how to. Such uncertainty is arresting in the financial world and has severely limited the traditional economy’s ability to interact with the Bitcoin economy and help grow it.
The world’s leading economies tend to also be of the most regulated, and as a result, their financial institutions (i.e. hedge funds, banks) simply can’t or won’t do business with businesses that are not yet fully regulated. The large exception is China, where Bitcoin companies have to date been able to integrate with the traditional financial system. Unsurprisingly, 80% of all bitcoin trading volume today is happening in China.
When we founded Gemini, our vision from the start was simple: build a bridge into the Bitcoin economy that both individuals and institutions can use. Our principles were, and still are, pretty straightforward: 1. Become licensed in the U.S. under a regulatory framework that allows us to service both individual and institutional customers. 2. Do not operate until such licensing has been achieved (ask for permission not forgiveness). 3. Establish a U.S. banking relationship so customer fiat funds are eligible for FDIC insurance and never leave the country. 4. Build our tech stack with a security-first mentality from day one. 5. Hire only the A-team. 6. Keep hiring only the A-team.
We believe we have stayed true to our principles and as a result think Gemini stands to be a significant long-term Bitcoin catalyst. If Bitcoin is going to go mainstream on a global scale, Bitcoin entrepreneurs are going to have fill in the critical pieces of the Bitcoin infrastructure puzzle. We think we’ve started to do that with Gemini and look forward to helping build the future of money for years to come.
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