I Listened to the Winklevii So You Don’t Have To

130916130417-winklevoss-twins-620xaYesterday, at the New York Times’ annual Dealbook conference, financial columnist Andrew Ross Sorkin sat down with Cameron and Tyler Winklevoss, who long ago moved on from their battle with Facebook to become enthusiastic backers of the digital currency bitcoin.  

Little wonder: The twins began buying bitcoins at $9 apiece in the summer of 2012.  As of April, the value of bitcoins had shot to $120, making their investment worth $11 million. Fast forward to today, when bitcoins are trading at around $385 each, and you begin to appreciate the brothers’ fondness for this latest, financial phenomenon. Indeed, the twins – who hope securities regulators will let them move forward with an exchange-traded fund that would hold only bitcoins – say that they now believe bitcoins could enjoy up to a $500 billion market cap.

At the outset of yesterday’s interview, Sorkin offered that he’s still “perplexed” by bitcoin. Because a few of you might be, too, it seemed worth sharing some of the brothers’ insights.

* Speaking about the history of bitcoin, Cameron Winklevoss recalled the story of pseudonymous programmer Satoshi Nakamoto, who in 2009 released the source code of bitcoin to the world. “Effectively, it [created] a digital currency with a fixed set of bitcoins at 21 million that’s divisible out to eight decimal points,” he said. In an effort to simplify his point, Winklevoss added that there’s no reason to be concerned by the apparently limited supply of bitcoin, as it’s “divisible out to a large, large amount.”

* On how bitcoins are digitally “mined,” Cameron Winklevoss noted that while an individual could, theoretically, mine a bitcoin, there are “a lot of mining outfits that are building huge data centers and computers with applications that are specifically built toward trying to mint bitcoins.” (Put another way, he suggests leaving the mining to the professionals.)

* On how they got into bitcoin investing, Tyler Winkelvoss said the brothers were on vacation in Ibiza (of course), when a friend of a friend suggested they look into the digital currency. They followed up and soon realized it was a “pretty incredible invention.” (I was hoping for more from this anecdote, but there you have it.)

* On why bitcoin might be used to transfer money, rather than good old-fashioned dollars, Tyler Winklevoss compared the technology to email. “Bitcoin is a protocol, and just like [email protocols]…allow you to send an email free and instantly, you can now send money from [the U.S.] to anywhere for free, as opposed to wiring money through Western Union [and] paying a 10 percent clip, or going through banking systems that take maybe three to five days. The old legacy rails of the banking system…are slow, inefficient, and costly. So the promise of bitcoin is to bring technology to financial services like it did for email…”

* On regulation around bitcoin — or the lack thereof — Cameron Winklevoss said, “That’s the point. It’s based on your trust in math and cryptography. It’s not based on trust in an individual, or the back-room dealings of, let’s say, the Federal Reserve… This is an open-source code; everyone knows what’s going on. The rules are set in stone.”

* On whether bitcoin features an anti-government strain, Tyler Winklevoss acknowledged that there is “definitely a libertarian strain [of individuals] that gravitates toward this, [along with] certain economic schools of thought…But it’s more a response to a financial system that’s frankly very buggy. I don’t think it’s a bet against the dollar,” he said. “I think it’s a healthy check and balance that makes it better.”

* Asked about concerns that bitcoin isn’t traceable and therefore likely to be used for illicit purposes, both twins smiled. (They’d been waiting for this softball.) Tyler Winklevoss quickly noted that “you can’t track cash,” either.

* On what happens if U.S. regulators determine that bitcoin is too risky, Cameron Winklevoss suggested that the U.S. will be left behind if they do. China, he noted, “has implicitly given its blessing to bitcoin,” including by allowing Chinese search engine Baidu to accept it as a form of payment. He also noted that bitcoin has been declared “legal, private money” in Germany and that other countries, including Belgium, see “no problem with it. Said Winklevoss, “If there’s a scenario where bitcoin is regulated out of existence in the U.S., I think bitcoin continues to thrive in other places in the world.”

Photo courtesy of CNN.

Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

Filed Under:

Don’t Miss Out!

Sign up today to receive a free daily email with everything you need to start your day. Plus, keep track of the companies and personalities that will shape the industry in the months and years to come. Let StrictlyVC be your very own venture capital concierge.

StrictlyVC on Twitter