Given that you are a Y Combinator startup, would you be able to post a Y Combinator style "Lessons Learned" or "What went wrong" style reflective post.
As a community of budding entrepreneurs, PG often tells us we can learn a lot more from failure then success.
> With the dip in bitcoin interest among Silicon Valley investors, we weren't able to generate enough venture capital interest to continue funding Buttercoin.
It sounds like they didn't/wouldn't have enough traction to be cash flow positive on their own, and couldn't attract enough investors money to keep the lights on otherwise. Of course there's probably a more interesting story to it than that.
I'm not sure the dip in interest from SV investors was really it. It's certainly true that investors won't throw money at bitcoin as easily as they would have in 2013-2014 when growth rates were off the charts. The past year or so has been slow for bitcoin from a consumer growth pov.
But that doesn't mean interest really dipped in absolute numbers, it's just different. Thing is, in 2013 the average quarter raised about $25m. In 2014 that went up to about $70m.
But guess what happened this quarter in 2015? Over $200m.
The difference is that in the past 2 years we saw lots of smaller seed/series a funding, lots of $1m, $5m, and a few $15-30m here and there. This quarter we saw a ton of <$2m, a single $15m, and two giant (for bitcoin) $75m and $120m investments. In other words we're already seeing some 'winners' and investors consolidating around those companies, and a lot of low-risk experimental seed rounds.
Buttercoin was never one of those winners. And in the exchange market, it's really hard to suddenly become one, when another company like Coinbase exists that's present in multiple markets, has engineers from places like Facebook and Airbnb, finance guys from Goldman Sachs, VPs from Paypal, $100m in funding and domination in various bitcoin product categories.
Especially when running an exchange, which is sort of a commodity. Branding etc aren't big differentiators. So let's look at what an exchange needs:
Bitcoin Exchanges need liquidity (uphill battle as a late-comer)
They need to allow buyers & sellers to easily move fiat money on and off the platform (uphill battle to convince a US bank to service you)
They need to comply with all the regulations (difficult for any money transmitter, as you need licenses in all but two states. Very hard to be a startup when you face $1-5m in legal costs to get licensed. Plus, states are coming out with Bitcoin regulations that double the regulatory load as they don't replace, but add to existing money transmitter regulations)
They need good security (this one ought to be a possibility for startups. But it's not easy, it slows you down and increases your costs to have expertise checking every part of your software. The old bitcoin companies could fall down and learn and iterate. The new startups have to get it right from day one.)
Buttercoin came a bit too late to the game, in a world with large existing exchanges, launched in one of the most difficult regulatory environments etc.
Beyond that, running a bitcoin exchange isn't very profitable at the moment unless 1) You're one of the big guys. 2) You're spending nothing on security, fancy ui, new products, customer service etc and run a 2-man show, where every dollar you earn is pretty much income. Problem is, becoming 1 can't be done anymore without 2, and doing 2 can't be done without large investments, and investors have no interest in backing Buttercoin over say Coinbase or Circle.
So Bitstamp is one of the larger exchanges in the world and has about 5k bitcoins in daily value. At a 0.25% fee (both to seller and buyer), they take half a percent on their volume. That's a little over $2m in yearly revenue. Now imagine that Coinbase has 60 employees, if you consider that the cost per employee (salary + office, equipment, training etc) in SF is $150k, that kind of budget just doesn't fly. Even with some investment your burn rate is too high.
I think Buttercoin must have had around 10 employees, $1.6m funding, less than $500k annual revenue and limited traction. Looking forward to what they'll do next because Buttercoin worked well and was a nice product, it must have been a good team.
The thing is you can't treat those two deals like they are the new norm which is what has been happening in the bitcoin community with all the posts about "on track for a $1b year".
Once you subtract those two 'unicorns' we have ~$30m in investments for q1. If you extrapolate that out(which we really can't since we have no idea which way the trend is going but we will because) we end up with all other deals for 2015 raising about the same as 21 inc.
Realistically we have to wait a few more months to see where things are going but I think people in /r/bitcoin are definitely playing off the comment too easily. It's not like buttercoin didn't have a lot of connections with investors to poll for information on their beliefs.
Running an honest Bitcoin exchange isn't very profitable. Some exchanges don't charge commissions, so all rates are low. Coinbase doesn't charge customers commissions until they do $1m a year in business, which few do.
This is the entire point of regulation. When there is information asymmetry (a natural phenomenon of these Bitcoin exchanges) honest agents are always disadvantaged compared to dishonest agents. There is very little the honest agent can do to prove their honesty that the dishonest agent can't simply lie about. That will eventually chase out a lot of the honest agents who are selling high quality and therefore pricey products. In the end you are left with a market flooded with both dishonest agents and low quality products. The idea of regulation is to combat this information asymmetry and ensure that even the bottom of the market qualititywise is not below some acceptable standard.
This is actually a great assessment of many industries. I watched this exact thing happen in the lead generation business from 2000 and continue to today. It's grown impossible to be honest, as no one trusts you anyways and it becomes difficult to compete on price. Even when you give them everything they ask for, they still don't buy because they have learned not to trust lead generators, Bitcoin marketplaces, etc.
Exactly. Coinbase takes your money but doesn't buy BTC for several days, so if the price goes down, they pocket the difference. If the price goes up, they will often cancel your order. It goes without saying that bitcoins are volatile so this isn't such a rare occurrence.
That's not what sanswork was saying. sanswork was saying that the buy price is higher than the sell price, so coinbase makes money off the price difference.
I don't think they intentionally cancel transactions as a way to make profit. You can see reports of them cancelling transactions when the price goes down as well but still refunding the full previous amount.
I also have an instant account so I can immediately get my funds with no chance of cancelling.
Thanks for the clarification. That's what I get for starting a comment with the equivalent of "This."
As to the accusation you can see is thrown around all over the place, that is possible, but my interest-free loan to them of several thousand dollars left a sour taste in my mouth regardless and it wouldn't be hard for them to make some money off of the capital, in BTC or not.
How much bitcoin and other currencies do they need to hold? If it can safely and reliably without holding much money, I imagine that it could still be worthwhile.
VCs and founders take chances all the time that a large and loyal group of users will eventually lead to an enormous revenue stream. No one really knew that search leads to a fantastically profitable ad platform. If an exchange is really good for a long time and transactions fly through at volume and cost per transaction unseen up to now, there are all sorts of possibilities.
I don't really understand bitcoin, so I could easily be totally wrong. That said, my understanding is that one of the big (or maybe biggest) advantages of bitcoin as a technology (regardless of the money supply set up and such) is efficiency, the kind of efficiency advantages that the web or bittorrent has over other communication technologies. If it potentially that eficant, it's good that transaction costs and rates are confusingly low, that lets volume be high. Let other companies build other parts of the ecosystem and let them have the advantage of near-zero transaction costs.
Basically, if bitcoin is going someplace, being a trusted exchange may very well pay off. I imagine that beyond a certain point of proven reliability and transaction volume, VCs will be willing to take some of the action off a promising horse.
Bitcoin's efficiency is "regulatory", like Uber; by transmitting money internationally without requiring KYC/AML compliance, and by putting all fraud costs firmly on the victim, it allows for nominally low transaction "fees". The fee ends up hidden in exchange spreads or covered by the losses of people who want to play with unregulated forex trading.
putting all fraud costs firmly on the victim...voluntarily.
Ideally in a mature system with various options for mitigating risk cheaply. If someone wants the (currently a tight oligopoly) 'credit card insurance scheme' why not let them have it in a more naturally competitive market?
The spreads are the spreads and if transacting costs more then it does elsewhere no one will use it. Otherwise, some positive things might happen.
Anyway, what about people who want to play with regulated forex trading?
Because everyone wants the "low cost, no fraud protection" card, until the Russian hackers steal a bunch of them. Then those people are the very ones who make the loudest noise blaming others for the problem, despite being told about the risks up front.
This is a mentality problem with America. I find banks to be terrible and high friction institutions. I don't trust that it is 'federally insured' as you are only insured to what their database/multi-page legal policy/management says you have in the account in the first place. So the system doesn't work for me. I'd love a system like bitcoin, a system that gives me the freedom to move my money as I see fit, on my terms, without a fee because I don't have enough of it. But you will always have people like above, who complain that such a system exposes me to 'risk' and because of that I shouldn't be allowed to make a informed decision in how I wish to store my money.
You say the system doesn't work for you, but in fact it does. You're insured whether you like it or not.
Bitcoin exchanges aren't free, right? They have to make their money. They will end up working almost identically to the way banks work. Or they will go out of business.
I'm not. I use cash. I'm too poor to always keep a few hundred dollars around and wait for them to make a 'policy change' that now doubles the minimum and have them take my money. I simply don't have the time to read the dozens of spam notices about 'free life insurance' they send me as well as the notices about the changes in policy.
Bitcoin already has a transaction fee built it, its reasonable and value-added. I have no problem for paying for a service that gives me value.
I can handle myself in the real world, If I give money to someone who steals it from me? My bad, I'll eat my mistake. Don't steal from me and tell me its for my own protection.
Ugh, that page breeds SO much misinformation it's saddening. I wish they'd stop calling it 'cost per transaction'.
Imagine you build a bridge for $1m and 1 person drives on it. Does that bridge cost $1m per user?
No, it's just an average metric. There isn't actually a marginal cost of $1m for every person that drives on that bridge. It just happens that the bridge is underutilized and that the average cost appears high.
Blocks are like that. If the block holds 0 transactions, the block reward is paid out. If the block holds 1 trillion transactions, the block reward is paid out. Either case, it's 25 bitcoins. In other words, a transaction does not carry a marginal cost in block rewards, as block rewards are paid out regardless of ANY number of transactions.
Transaction fees are the marginal cost, and those are pennies.
As for the block's capacity to hold transactions? That's interesting. If the $1m bridge could only ever move 1 person, then the cost of driving on that bridge was indeed $1m.
But blocks have quite large capacities. Currently 1mb, they're set to go to 20mb probably this year, and grow to hundreds of megabytes over time. Read about it from Chief Scientist at TBF on bitcoin [0].
The roadmap is that in 12 years according to the work that's being put in the protocol right now, you can fit a little under 400 million bitcoin transactions in a single block, using technology that's as expensive as the one that's running bitcoin nodes today. (cheap consumer grade home computers.) In 12 years, bitcoin will have had nearly 4 more halvings, meaning block rewards are by then only 1.5 bitcoin per block.
In other words, in roughly a decade bitcoin's block rewards will be a tiny tiny fraction of a fraction of a penny.
And even then, it's STILL not a 'cost per transaction'. It's not even an 'average cost per transaction', because the sender doesn't actually pay. The block reward bitcoins are created out of thin air, not paid by the senders of the transaction, which means it's a cost to all owners of bitcoin, regardless if any transactions are made, in the form of inflation of the money supply that devalues existing money by a tiny bit. Hey, just like say, every single currency in the rest of the world, whose money supply increases (aka everyone, including the dollar).
And this money supply is, unlike the dollar, which is printed every year in gigantic amounts, set to go to 0 by design, by software, and there's absolutely no way to change it except by consensus (moving to a new bitcoin blockchain).
> The block reward bitcoins are created out of thin air
Its a value redistribution by diluting all the existing holders of bitcoin. Bitcoins may be created out of thin air, but the value that makes them a reward is not.
> And this money supply is, unlike the dollar, which is printed every year in gigantic amounts, set to go to 0 by design
Which means that to continue to give miners an incentive to validate transactions, actual transaction fees will have to pick up the slack of providing value as the block rewards decline.
> Its a value redistribution by diluting all the existing holders of bitcoin. Bitcoins may be created out of thin air, but the value that makes them a reward is not.
What's your point? I said so in my post. Maybe I'm missing something. We're both saying the same thing, which means that this value dilution is not actually a transaction cost. It happens regardless of whether any transactions are made. And it's similar to the dollar, in that daily/yearly new money supply dilutes the value of all dollars. Bitcoin isn't unique. It's only unique in that this new money supply eventually ends, while the dollar and any other currency keeps diluting forever.
> Which means that to continue to give miners an incentive to validate transactions, actual transaction fees will have to pick up the slack of providing value as the block rewards decline.
Agreed. And that can easily happen. Bitcoin is very tiny, it's maybe used on average like once a month by 1 million people. It can easily scale 100x in use case, meaning 10 million people use it every few days. It'd still be tiny. But if that'd happen, the price would likely be at least 10x higher. At that point you could literally cut out all block rewards, the transaction fees (in the pennies) would already be enough to pay for the miners. And seeing bitcoin, a global currency, scale to 10m users in the next few decades as mining rewards taper off, is a very very tiny expectation. If it can't even do that, then who cares if the economics work out, nobody wants to use it anyway. But if it scales because people want to use it, to 10m people or 100m people or even to the order of the billions of users that people like Marc Andreessen think it could be used by one day, then block rewards are completely unnecessary, and you can pay miners a shit ton of money on transactions that cost pennies.
And again, if it doesn't scale because nobody wants to use it, then who cares if block rewards go to 0 and suddenly transaction fees have to be $20 per transaction... It's like saying 'if by 2015 typewriters won't be used by millions of people, they will become super expensive'. It's completely irrelevant. Nobody cares. And if it does scale, you can keep transaction fees cheap and pay miners with larger volumes of transactions.
Was there a previous announcement? 4 days seems awfully short. (granted, it's fairly trivial to setup a local wallet or an address on Blockchain.info, but still)
Yeah, it's as if there should be a Bitcoin equivalent to the Ibrahim Prize. You're eligible if you shut down an exchange without your customers losing their money. b^)
This is awful! I just want to give a shoutout to the Buttercoin team. They really nailed the serive. I remember signing up and thinking, "well, I'll just look," but by the time it came to transfer money, it was so easy, I just had to continue. Everything after that followed a similar pattern. Even the order form was well done. I'll miss you guys!
Btw, their matching engine is on GitHub and it's a good read!
> Btw, their matching engine is on GitHub and it's a good read!
But it hasn't been updated in 2 years... They could definitely open source parts of their current stack if they want to help bitcoin, maybe seeking a "Docker effect". It would be an AWESOME farewell. Bitpay knows how important this is, they are opensourcing a lot of cool stuff...
Edit: I've just realised they open sourced a newer matching engine built with scala (I was looking at the old node-based)
Only tangentially related, but, provided the founders know what they are doing, is there any kind of bitcoin startup that can eventually become cash flow positive on its own today? Because I've been thinking a lot about bitcoin startups and it seems to me that barring a massive stroke of luck, with the adoption that there is today, one could only survive if backed by hopeful investors. Namely I can't picture bootstrapping an exchange, a payment processor or an ATM provider. Then again you could argue than "get lucky or go home" applies to any kind of startup, but to me it looks like it's specially harder in the case of bitcoin.
South America, Africa, a few Asian markets, yeah quite likely. But you'll need to be scrappy, low-cost. i.e. it might mean having you and 3 others working in someone's living room and manually processing money.
But in the US, nah I doubt it, it's really hard. I wrote a bit about some of the issues if you're late to the came, Ctrl F my name in this thread if you'd like. In short, there's a huge regulatory burden, very difficult to get a bank relationship, competition is pretty fierce while volume isn't exploding, you need quite a few employees to succeed, and that means you need a certain amount of revenue to break even, and you can only get that if you capture 10-30% of the market, a market with the likes of Coinbase ($100m+ investment).
Things completely change when bitcoin is in a hype cycle. Exchanges make money on volume, and trading volume when the price is volatile is so much larger. Late 2013 trading volumes were about 20x what they average today.
Add to that the price being 4x what it is today, and you essentially know that total exchange revenue in late 2013 was close to 100x what it averages today. That's such a gigantic difference, it's like the number of internet users drops by 99% and we wonder if internet companies can stay alive, or new ones thrive.
That doesn't say all that much about bitcoin's future in general by the way. Usage, transactions numbers & volume, wallets, payments, those are all up compared to 2013. But exchanges need fiat-bitcoin and bitcoin-altcoin transaction volume and a big part of that volume was speculation. The speculative trading has disappeared for a large part, or quieted down, while use of bitcoin has grown. (not explosively, but still quite significantly)
> South America, Africa, a few Asian markets, yeah quite likely.
Today? Isn't the demand in those markets for bitcoin even lower than what it is in the US? I understand it is speculated bitcoin has a better chance of penetrating those markets, but currently, if one were to open an african bitcoin exchange, I don't think one would see enough volume to become cash flow positive in a very long time.
Thing is, there's potentially a bigger use case in these markets. Plus these markets are underserved. Plus the cost basis for employment like customer service and manual money processing is a bit better. And lastly, the regulatory burden is often lighter. In the US to get money transmitter licenses in all states is already a few million, and much more in surety bonds (which you can pay for yourself for many millions, or buy, but very few companies want to offer a surety bond to a bitcoin company right now, and virtually nobody to new startups)
I mean I agree, it's true that the US/Europe are the large markets. But there are so many exchanges serving this market that a new exchange can barely get customers/volume, and therefore it's hard to be cash flow positive. And you're competing for financial services with modern banking, Paypal, Stripe, Creditcards etc. And you're competing with the dollar, a stable currency.
But in various African markets, there's no modern payment system and volatile high-inflation currencies. In those markets a bitcoin exchange, linked to say a dollar-pegging service like Bitreserve, is an interesting use case. And there's few other exchanges competing for those customers.
If I want to send money to family in France, it's literally free from the Netherlands. Bitcoin isn't super useful for this kind of transaction. But sending money back to say family in the Phillipines can often cost me 5% or so, while bitcoin exchanges in the Phillipines allow me to buy bitcoin here for 0% or near 0%, send it there for near 0% costs, and sell it there for 1-2%. Bitcoin actually undercuts banks in many countries outside the OECD. In OECD countries like the US or Europe, bitcoin is less useful.
And there already are exchanges in South America, Africa, Asia btw, which are doing fine. But it's definitely not a goldmine, don't get me wrong. It's just that you can hardly start a new exchange and compete in Europe or the US anymore, while other continents aren't easy either, it's comparatively easier to become cash flow positive.
Had so much expectations seeing the backer list, when I joined late last year. It seems most VCs are being less futuristic by playing it safe or am I missing something? "dip in bitcoin interest among Silicon Valley investors".
Without another speculative bubble, running a bitcoin exchange is likely to be a terrible business. Competing with Coinbase in that terrible business in that terrible business is potentially disastrous.
One of the tenets of competitive advantage is the ability of a business's competitors to enter the market. Running a Bitcoin startups has extremely high fixed costs that cannot be mitigated (contrast with typical startups with mostly variable costs); if VCs aren't giving them funding, as is apparently the case with Buttercoin, then there's no way they can even create a reasonable Bitcoin service, especially one that could compete against Coinbase and its mountain of funding.
It's hard to compete with a similar company if they have a load more money than you. Take Uber. Maybe you build a better taxi app but they have $5bn raised and you don't. Then they can subsidise, run at a loss, spend loads on ads and so on.
> With the dip in bitcoin interest among Silicon Valley investors, we weren't able to generate enough venture capital interest to continue funding Buttercoin.
It doesn't seem too much of a stretch to think that a lot of companies hedged their investors money in Bitcoin and hemorrhaged investment when the bubble burst, leading to colder responses when other companies later went back asking for more. That would seem to fit with stories like this.
They had zero profile in the bitcoin community. Essentially a non-entity. So I can't imagine they had that all-important growth graph investors need to see.
Investment in Bitcoin related companies increased in 2014 to almost $1bn, from around $300m in 2013... not sure what went wrong at Buttercoin but interest in cryptocurrencies in general has never been higher.
They got google ventures amongst many other investors. Now they are shutting down just 3 months after launch? Hopefully they have funds left to do something else.
Out of curiosity I fired up IE to see what they were blocking. I'm not sure I can think of a good reason to block IE 10 (7 and 8 I can understand, 9 is barely tolerable), I've never run into a major problem with that version compared to Firefox or Chrome.
In 99% of cases there's no reason to blanket block any particular browser.
If you have features that cannot be implemented (e.g. vector graphics, WebGL), I'd say that directly to the user, i.e. "Sorry, this website requires a WebGL-enabled browser such as X, Y, or Z." This should be based on JavaScript feature detection targeting the specific feature you're looking for, and not the web browser version number.
If it's just text and CSS there's no reason why you can't at least display something. It may not look correct in IE <=8 but at least the user will see something intelligible in most cases.
Eh, this is a little bit of a tangent because there's no reason to block users ever I feel (and in this particular case blocking IE 10+ is stupid), but honestly? It's rarely worth the time to go through and make sure your site works on older browsers. Or that it degrades gracefully.
Yeah, if my site uses canvas, I should probably have a fallback for IE8. But in practice, and I know I'm not alone here: Unless I see that IE8 makes up a significant part of my site's traffic, fuck it.
There are already enough vendor issues between the latest versions of the big 4 (Chrome/FF/Safari/IE), spending more time going through old versions of those 4 will drive you bonkers.
It's rarely worth it and spending any amount of time catering to those users is almost assuredly not a good use of your time.
Perhaps, however in this case it just seems to be blanket block on IE. I'm using the most recent release of IE on Windows Phone (AFAIK) and it's still blocking me. Furthermore, I can understand warning people, but blocking them completely seems a step too far.
If you have a dynamic IP, it could be that the previous user of that IP was running an TOR exit/VPN.
If you have a static IP, I strongly recommend researching whether the router you are using has any known security problems. Lately unsecured routers have been abused as a (poor) black hat's proxy a lot.
Source: I run a filesharing service and lately we have seen a lot of abuse from IPs who after an nmap reveal themselves as routers with known security problems like publicly known (default) service control panel passwords.
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<h2>Uh oh, it looks like you're using Internet Explorer.<br>For the best experience on Buttercoin we recommend using a<br>modern browser, like Google Chrome, which you can <a href="https://www.google.com/chrome/browser/">download here</a>.</h2>
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As a community of budding entrepreneurs, PG often tells us we can learn a lot more from failure then success.