Flash forward to today and the Bitcoin Foundation board member and founder of VC firm Ribbit Capital can find more than a few reasons to be optimistic about the future of bitcoin, even in the face of continued price declines, issues in the mining community and questions about the commercial viability of bitcoin technology.
Before it can propel itself forward to new highs, however, Malka believes bitcoin must first account for mistakes made during its impressive hype cycle that began at the end of 2013. He predicts we’ll see a “reshuffling” of the ecosystem, as sectors like mining are forced to recover from a bullish run of investments founded on lofty expectations.
Suggesting that this might be another transitional year for the bitcoin market as a whole, Malka told CoinDesk:
“There’s going to be an adjustment in the market, and now my expectation is this is a year when we’ll see more clarity and guidance from regulators around the world.”
This period, he expects, won’t be marked by any impressive leaps forward, but rather a steady build-up of trust between consumers and businesses and a potentially transformative technology.
Building consumer trust
Through most of the conversation, Malka returns to his bedrock belief, that building consumer trust is essential for the bitcoin ecosystem.
“We always thought that you had to have consumer-centric brands that the general public will trust, the same way they trusted PayPal in 1999,” Malka explained. “If you look at our portfolio, they are all companies that are building consumer brands and that create trust.”
Despite his status as a bitcoin advocate and investor, Ribbit Capital, the company he runs with Nick Shalek and Nikolay Kostov, has made few moves in the bitcoin ecosystem to date, a factor Malka attributes to this philosophy.
Malka pointed to Coinbase and Xapo as two brands that have succeeded at building trust, even amidst a sometimes turbulent bitcoin ecosystem, noting the partnerships Coinbase has secured with tier-one merchants.
“This reinforces trust over time and like in any sector, when it starts to mature, some companies become the clear leaders in the category,” he added.
Malka went on to suggest that this process is already visibly underway, comparing the issues experienced this year by bitcoin exchange Bitstamp, with that of the implosion of the former market leader Mt Gox in 2013.
“Fast forward a year and companies go through troubles, but you see how Bitstamp managed its problems, how they were transparent, how they said what happened and how they committed to getting capital to make it up to all the clients,” Malka said. “That’s astonishing.”
Silk Road spectre wanes
Alluding to the ongoing, high-profile court case, Malka suggested that there is a broader understanding in the mainstream media that bitcoin and the online black market Silk Road, while intertwined in history, are not correlated.
Smart companies, Malka argued, have always built bitcoin business with the understanding that bitcoin needs to be regulated – as Coinbase and Xapo, two companies that act as custodians for customer funds, have always recognized.
“Each one of the entrepreneurs that we’ve backed, they understand that their business is one that, one way or the other, will have some regulation, because that’s what happens, and they have to be willing to work in that environment,” he said.
Malka cited Xapo CEO Wences Casares as an example given his long experience as an entrepreneur working within regulatory environments. Casares’ previous work includes projects like the Lemon digital wallet, which was sold to LifeLock for $42m in December 2013.
Further, he indicated that Coinbase founders Fred Ehrsam and Brian Armstrong always demonstrated a willingness to work with banks, a factor that set them apart from other younger entrepreneurs Ribbit Capital considered.
Still a venture space
Despite the growth and maturation he’s seen, Malka believes that the bitcoin ecosystem is still one best suited to venture capitalists, not more risk-averse investors.
Notably, he ended by referencing the existential risk the bitcoin ecosystem faces, suggesting that for all the work, bitcoin could still prove an impressive failure.
“The chances of things blowing up is still very high, it could be a price drop, it could be the government blows up … so we have to be aware of that, the risk is still that it can go away,” he cautioned.
Still, Malka seems convinced that these risks, while real, won’t come to pass. Instead, he believes that those involved in bitcoin’s development will look back on current developments with a wistful nostalgia that exposes how truly impressive its evolution has been.
“We’re going to look back and say, ‘Oh the government was trying to get bitcoin to auction, they consider it an asset’ … ‘Oh wow, Fortune 500 companies were starting to back companies,” Malka said, adding:
“Those are the things that are changing. Those are very powerful experiences that will take a while for people to realize.”