In part 1 of of this series we established why someone with a history in the Silicon Valley startup industry might need a guide to getting into Bitcoin, and we supposed Paul Graham as an example of such a person. We also introduced Step One of the plan which involved taking inventory of what you are already doing in Bitcoin. Let us continue with a few more steps here in Part 2.
Step 2 – Encountering Your Own Lack of Experience
Now having hatched a couple startups of your own, and having hatched a startup that hatches other startups, including a startup that kind of touches this Bitcoin thing already while gathering some main stream press coverage you may be thinking you have experience in this Bitcoin thing. That isn't quite anything that really constitutes a background here and is not direct experience. If you concede you lack direct experience you may be thinking that having access to the people who made this rather crippled CoinBase thing might count as access to experience, but no and they probably aren't the sort of people you'd want to be using as a proxy for your own experience anyway. The people who could be adequate proxies for your own experience are generally busy with other things. To approach this Bitcoin thing with any level of seriousness you are going to need to build some first hand experience if you want to have any hope of judging what experience of others might be useful. Gathering this experience is going to take work.
There are some key differences between the Bitcoin world and the Fiat world which lead to Level 5 bugs when you try applying the mechanics of one system to applications in the other. Here are just a few differences that could constitute a Framework error if the rules of one system are misapplied to the other system.
- Bitcoin with it's fixed maximum supply and decreasing rate of new coin generation is going to continue moving against the dollar. Any plan for a business that touches both Dollars and Bitcoins needs to be prepared for the contingencies of both Million Dollar Bitcoins and for One Dollar Bitcoins.1 If either contingency breaks your business model, you need to rethink your business model unless you want to be running some sort of shady fly by night operation. If you want to run some sort of shady fly by night operation then fuck you.
- There really isn't anything analogous to bankruptcy or default in Bitcoin. What this mean is that failures in which you lose other people's Bitcoins are scams. If someone swipes an overfunded hot wallet you've been keeping on a server and can't pay out balances to your customers, I am sorry for your loss but you are a scammer. You had some fancy cold storage system where you kept coins offline and never tested restoring those coins from a backup, and can't pay your obligations? Still a scammer.
- In the fiat world the price of a single startup failing because it burns though it's funding is low, because with one or two "successful" startups you can cover that loss when the institutional investors start buying into the hype. In Bitcoin there really isn't a market to load money sinks off on any more. 2
- The market for US Dollars is pretty much just the United States, and international transactions involving Dollars are an expensive pain in the ass. Bitcoin though just makes international transactions easy. Many of the best Bitcoin services aren't based in or operated by people in the United States. The good stuff is happening in Eastern Europe, Asian, and Canada. To do anything of import you are going to have to reach across borders.
And there are plenty of other differences between the systems, this is just a starting point.
Step 3 – Establish an Identity
This step is non-negotiable and necessary.3 You need to register for the Web of Trust. If you aren't in the Web of Trust you are in the fringe, you are marginal, and you are for all practical purposes unknown. From the canonical guide to starting a Bitcoin business:
1. Identify yourself to the community. This means, at the very least, creating a WOT account. If you do not have a WOT account you are not part of Bitcoin business. This is the criteria, no matter what you might think. That's where everyone looks, no matter what social media might be telling you. If you aren't in the WOT you aren't in Bitcoin.
This might also mean making a few social media profiles. The difference between an account on StumbleUpon called MyBTCBiz, a reddit account called BtcBlaBla, a myspace, tumblr, whatever and a forum account called MyBizPr is nil. They're all the same thing: social media profiles. Sure, they may be useful. You wouldn't think to substitute a forum registration for a company registration IRL, now would you? Same thing here.
There are advantages to registering in the Web of Trust that go beyond the part where it is expected that people do so. From the top of my head:
- Being in the Web of Trust allows you to build a history. The clock counting onward from the beginning of your start in Bitcoin doesn't really begin moving until you register. Anyone can bullshit that they have been following Bitcoin since 2010. Stringing words together to make bold claims is an activity with an appallingly low barrier of entry though. The date you registered for the Web of Trust however can demonstrate when you finally took Bitcoin seriously enough to register yourself in the Web of Trust.
- Since registering for the Web of Trust mean registering a public key, you get all of the benefits of having a public key attached to a handle in a central location. Let's say you want to register a pseudonym because you aren't entirely sure how far you want to get into Bitcoin yet. Later you can just sign a message with the key and post in on a medium you control in your proper name when you are ready to connect your handle to your real life identity.
- Having your public key available on file additionally lets you cryptographically sign contracts. In a world like Bitcoin's where irreversible transactions are the norm, irrefutable signatures become a necessity.
Well, it looks like this series is going to get a part 3.
The Spring of 2013 broke at least a few businesses that just couldn't operate if Bitcoin's price moved outside of the $5 to $15 range. The failed Bitcoin to Precious Metals site Coinabul was a pioneer of failing this way. ↩
Well there is a market, and there are people who buy money sinks. Those two things are rather well separated in Bitcoin though. ↩
In the sense that without out it sure you can do consumer things and use services other people created. To do serious action on you own in Bitcoin though, a WOT handle and often a WOT rating are going to be a must. ↩