Despite the record levels of venture capital pouring into the bitcoin ecosystem, there is still one determining factor that is holding back overall ecosystem development – the inexperience of the technology's entrepreneurs.
At least, that's the opinion of FirstMark Capital managing director Lawrence Lenihan, who, despite overseeing his firm's first bitcoin investment in Coinapult this October and being a self-described "bitcoin bull", argues that many current bitcoin entrepreneurs fail to understand how the traditional financial system works.
Lenihan, whose firm has backed marquee startups such as Lumosity, Pinterest and Shopify, indicated that this knowledge gap has impacted his firm's ability to capitalize on its own interest in the bitcoin ecosystem.
Lenihan told CoinDesk:
"I think, honestly, a lot of people in bitcoin don't understand money. They might understand bitcoin because they read about it and were early on it, but they don't understand how the global money system works and that's when this thing really takes off. In terms of FirstMark's investment, we need industrial-strength businesses and I want to see industry-strength entrepreneurs start them."
Despite his critique of the ecosystem, the SecondMarket board member indicated that he first learned of bitcoin through that company's chairman and former CEO Barry Silbert, and remains convinced of the technology's long-term potential.
"I am a gigantic believer that, once you get through all the bullshit around bitcoin and the pretense, you're going to see how unbelievably instrumental this is going to be as a currency, as an asset and as a platform," he added.
Threat from traditional finance
To bridge this gap and grow bitcoin to its full potential, Lenihan suggests that entrepreneurs with an established knowledge about the financial system are needed.
"The guys who work with money now, understand it," Lenihan said. "They can learn bitcoin. I think it will be harder for the bitcoin people to really learn about money in the way that these financial institution people do."
Lenihan, however, acknowledged that bitcoin entrepreneurs are not "burdened by historical bias", a factor that potentially enables them to innovate. Still, he asserted his belief that those with traditional training who are able to begin to think more openly about bitcoin will be best positioned to tackle challenges that garner investment from firms like FirstMark.
"The companies that we want to back, I want to see people who understand the security consequences around money, the transactional consequences around money," he added.
Coinapult, he said, met and exceeded this requirement. Lenihan went so far as to call the team "the best of the technologists and the tinkerers in the bitcoin world," adding:
"It was a no-brainer to take a stake in them."
Locking in value
Lenihan argued that the key differentiator for Coinapult is how it aims to reduce bitcoin's volatility through its LOCKS product, which allows users to lock in the value of their bitcoin to another asset, be it gold or US dollars.
Calling it an innovative consumer application, Lenihan stated that he believes more products like this are needed to help introduce consumers to bitcoin. Notably, LOCKS is only available to consumers outside the US.
"The success of bitcoin is going to happen when no one knows it's bitcoin," he said. "With LOCKS, what you have is portable money that you can spend wherever you are and it removes you from the volatility risk that's inherent in bitcoin at this point in time."
Lenihan suggested that such solutions wouldn't be needed should bitcoin payroll be more common, but that as long as US dollars and bitcoin co-exist, consumers will want to be protected from price fluctuations between the two currencies.
"If I'm paid in dollars and I have bitcoin, that value is changing every single day. I don't want that, that's not why I'm using it, I'm using it to spend," he continued, echoing a belief issued by thought leaders in the space.
Playing a waiting game
Ultimately, Lenihan indicated that while "everyone" in venture capital is looking into bitcoin, he's comfortable waiting for choice investments given the long growth timeline the technology will likely take.
"Everyone is taking a look at bitcoin, but I don't think it's going be the next big thing," he said. "I think it will look like it's never going to be a thing, then it will be the most gigantic thing."
Lenihan went so far as to envision a future where bitcoin disrupts the highest levels of the established financial infrastructure, adding: "Before you know it, you're going to see governments that aren't going to try to print money, they're not going to have dollars, they're going to distribute bitcoins because all the people have cellphones."
As for the question of how this transition will take place, Lenihan was less specific, suggesting it may take a "cataclysm that roils governments" for bitcoin to be more widely adopted.
"Will we have something like that in the next five years? Yeah, I think so. But, it's going to take something like that to really make that happen."
Lawrence Lenihan image via FirstMark