Bitcoin and block chain areas have received a lot of attention the past couple of years as investors are starting to see the massive opportunities in the spaces where they can enter into the latest of financial technology.
Financial technology, has received attention as banks cut down on branches as they try to bring their services into the 21st century. Bitcoin has caught a lot of attention but there are key things that investors in the space should know.
Number one, if you’re thinking about investing in Bitcoin, remain humble. Bitcoin doesn’t actually need your participation. Its deflationary coding will ensure that the idea of Bitcoin proliferates. Many firms in the field celebrate the same innovation they’ve made; they all make Bitcoin easier to use. In reality, Bitcoin and the core wallet is pretty easy to use anyway.
For this reason, many Bitcoin startups are redundant. Why is there a need for so many wallets? Competition for competition’s sake? What new features do they bring to the table? Most importantly: how do they profit?
Many of these concerns can be solved at Bitcoin exchanges, as well, who, like banks, must endure huge AML and KYC regulations when buying and trading bitcoin at no more than a 5% profit margin, and much more often at 1%. Bitcoin exchanges have become the same regulatory mechanisms Bitcoin participants proclaimed to overcome.
Many Bitcoin users prefer privacy over middlemen. Instead of using a startup like Coinbase, they use LocalBitcoins, an early Bitcoin company that allows users to meet in public and trade bitcoins for cash.
The biggest need for VC’s to consider in the Bitcoin industry is know your customer and anti-money laundering actions. Due to the semi anonymous nature of bitcoin, there are many questions about how the technology might be regulated.
Another issue for VC’s in the Bitcoin area has to do with the laws on the books. We’ve seen issues play out before, such as the case with Charlie Shrem, who took money from the Winklevoss twins who are the self-proclaimed founders of Facebook; only to be sentenced to prison for two years shortly after for money laundering. He sold bitcoins to someone reselling on the Silk Road, the online drug market.
For VC’s entering the area, vetting the operators of their company will be most important. As the startups, they are looking to invest into organizations run by libertarians who might ignore the regulations. Ensuring that’s not the case will prove very important to any venture capitalist on the cutting edge of financial technology.
At the end of the day, those using Bitcoin who are doing the most intellectually and consumer relevant work in the blockchain space are not those showing off, so patience in finding a diamond in the rough will be key for any investor going into the Bitcoin area, and public blockchain in general.
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