Real money starts to pour into math-based currencies like bitcoin

Real money starts to pour into math-based currencies like bitcoin

By Zachary M. Seward — 1 hour ago

Chris Dixon, a partner at the venture capital firm Andreessen Horowitz, posted this brief observation on Tumblr the other day:

Three eras of currency
Commodity based, e.g. Gold
Politically based, e.g. Dollar
Math based, e.g. Bitcoin

Now Dixon’s firm and several other well known investors are putting some money—in this case, politically based US dollars—behind their conviction that the future of money is in “math-based” currencies like bitcoin. OpenCoin, a San Francisco startup that runs its own math-based currency, just announced a round of funding from Andreessen HorowitzFounders FundLightspeed Venture PartnersVast Ventures, and Bitcoin Opportunity Fund. News of the round was embargoed until this morning, and its size wasn’t disclosed.

The currency operated by OpenCoin is called “ripple.” Like bitcoin, it’s both a currency and a network for facilitating payments that relies on cryptography to run smoothly. Thus, math-based currencies: They are backed by one’s faith that the math works rather than trust in government or a metal’s inherent value.But Ripple uses a different method of verifying that the network is sound and takes a novel approach to payments, allowing for transfers between other currencies, as well—from euros to bitcoins to heretofore fictional currencies that you might invent among friends. (Chris Larsen, CEO of OpenCoin, demonstrated to me a currency he created based in bicycle wheels that he trades with a coworker over the Ripple network, a sort-of absurd but logical extreme of what’s possible.) Bitcoin is also a payment system but only for transfers of bitcoins; exchanges with other currencies are done elsewhere.

There are 100 billion ripples—yes, that’s completely arbitrary—currently trading at about 1,000 ripples per US dollar among 3,349 accounts, as of this writing. That makes it much smaller than bitcoin, in terms of participants and transaction volume, but on the bright side, trading in ripples is less volatile than bitcoin.

OpenCoin intends to hold onto 25% of all outstanding ripples, Larsen said, with its business model staked on the hope that the value of the currency, or future currencies it may create, will rise. So in a sense, the venture capital firms investing in OpenCoin are investing in virtual money.

But another way of thinking about this round of investment is that Andreessen Horowitz and others foresee a day when math-based currency won’t just make your head hurt. They’re betting that it will be a mainstream way of thinking about money. As Dixon wrote in another recent blog post, which mentioned bitcoin, “What the smartest people do on the weekends is what everyone else will do during the week in ten years.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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