The hype around the bitcoin price rollercoaster has died down, but a quieter revolution is underway, building the infrastructure that will ensure the long-term future of the digital currency, and cement its role as the ‘internet of money’. Here I talk to two of the leading VC investors in bitcoin infrastructure, to understand more about bitcoin’s journey to mainstream adoption.
When the bitcoin price fell below $17,000 at the end of 2022, it was declared to be on the “road to irrelevance” by European Central Bank Director General Ulrich Bindseil. Yet, bitcoin has yet again defied the naysayers, now hovering around the respectable $30,000 mark, while a host of new use cases and business opportunities are coming to the fore.
Bitcoin maximalists have always maintained that it is different from other cryptocurrencies, with the potential to act as a store of value to rival gold, offer a faster and cheaper method of payment, and perhaps even the foundation of an entirely new monetary system. Yet, despite their unwavering belief, bitcoin has struggled to gain mainstream acceptance and adoption.
Several recent breakthroughs suggest the tide may be turning. Last month, Blackrock, the world’s biggest asset manager, filed for SEC approval for a bitcoin spot exchange-traded fund (ETF). Meanwhile, as of June, the amount of bitcoin stored on the lightning network, the payment protocol for bitcoin, reached an all-time high, up 42% year-on-year.
So, is bitcoin finally breaking free of its association with the murkier side of crypto and the internet, and finding its place in the world? I spoke to Alex Mann, Partner at Timechain, and Alyse Killeen, Founding Partner at Stillmark, to discuss bitcoin’s journey to mainstream adoption and the obstacles still in place.
Business opportunity, or philosophy?
Proponents of bitcoin have a reputation for being almost evangelical about its superiority to the existing monetary system and centralized power. But to most investors and founders working with bitcoin now, it is just like any other technology layer, on which any number of different applications, innovations, and businesses can be built.
“Fundamentally all bitcoin companies are doing is providing goods and services to customers that their customers have to pay for, as they would with any other supplier” comments Mann. “Bitcoin is a technology layer, just like the internet, and bitcoin companies use bitcoin the way Amazon uses the internet.”
As in the early days of the internet, early bitcoin adopters are experimenting with various use cases, and its usefulness depends on the needs of each target audience, and how well companies can build solutions to meet their needs.
“Bitcoin has been adopted in both developed and emerging economies, but with different drivers and ‘killer apps’,” says Killeen, who invests in technology that can unlock the utility of bitcoin, in particular the lightning network. “In developed markets, many engage with bitcoin as an investment… In emerging markets, and for families split between developed and emerging markets, remittance is the killer app.”
Building the foundations
But for existing and future use cases to develop, innovators and entrepreneurs need the first layer of infrastructure which enables them to utilize bitcoin and the lightning network, without an understanding of the complexities involved. According to Killeen, this has been one of the core challenges, and a common issue with any new infrastructure technology, from cloud to cyber security.
“Development of apps or business models that incorporate the lightning network previously required a deep set of technical skills and only recently have the infrastructure, development tools, and user services been available for anyone to take advantage of the lightning network within their app or business model,” she says.
Killeen sites examples such as Voltage, which provides lightning node infrastructure, and Amboss, which allows users to automate their usage of the network. Solutions like these are paving the way for a new wave of entrepreneurs driving use cases and wider adoption.
“Next, we have talent in the field that understands how to translate the technology into use cases for their user base,” she explains. “When you see that sort of entrepreneurial activity develop and flourish, what trails that tends to be an adoption of the technology itself. Because these founders can make it valuable and tangible.”
Nonetheless, Mann concedes that, although the lightning network is scaling rapidly, the technology is still not perfect for handling payments, and there are technical barriers to overcome if bitcoin payments are to go mainstream.
“If the use case is payments, are there still scaling bottlenecks? Yes, and particularly for retail payments. The need is more obvious in emerging markets where payments infrastructure does not exist at all, such as the townships of South Africa, but even here there are still challenges to doing it cost-efficiently. With that in mind, the ecosystem is developing layers on top of lightning like Fedi.”
However, Mann believes that the network could be a better fit for B2B payments.
“For B2B payments, lightning looks to be highly desirable, as it enables real-time settlement. Companies like Synota or Vida that apply lightning payments to the energy and telco sector could be game-changing.”
Changing the narrative
The other big challenge is to win over the hearts and minds of consumers and businesses. For many, bitcoin is still heavily associated with crypto and tokens, which have now been widely discredited as little more than gambling. Crypto was also damaged by the downfall of FTX last year and, unfortunately, this mud has stuck to bitcoin.
“We need to try to explain again and again what bitcoin is and how it’s different,” says Killeen. “People have been trying to avoid what they know is a gambling activity in crypto sales and trading. People understand that as precarious and akin to vice industry investing… it’s hard to separate the two.”
She argues that there is an education piece to be done around the difference between bitcoin and crypto in terms of decentralization and how that provides security. However, both investors are clear that for commercial purposes, the key is to lead with the problem and solution, rather than the technicalities of the underlying technology.
“It is about explaining how bitcoin can be applied to solve specific problems, and that differs by individual, institution, and nation state,” says Mann. “We need to build the literature and technology that enables each audience to interact with bitcoin in the way that makes sense for them.”
“The sales pitch doesn’t need to be: ‘you must believe that bitcoin will replace the fiat system’, it can just be: do you want quicker cheaper payments?” says Killeen.
Synota is an example of where this is being done successfully, in helping energy companies to settle payments in real time using the lightning network. Vida has also found a compelling use-case in the telecommunications space, allowing for the settlement of value cross-border between telco carriers. Another is Galoy, which has built a bitcoin wallet called Blink that provides free bitcoin banking to people across emerging markets. All you need is a smartphone, which can now be purchased for less than $100 in Africa.
Only a matter of time?
Nearly 15 years after Satoshi Nakamoto mined the ‘genesis block’, bitcoin is as strong as ever, having defied the critics numerous times over. And certainly, in emerging markets, its capacity for enabling financial inclusion and security appears to be a gamechanger, and force for genuine good in the world.
“The most important ‘step change’ is that bitcoin is not controlled by any central authority like a government or a bank, making it more secure and resistant to censorship or manipulation,” says Killeen “With bitcoin, everyone has the power to be their own bank.”
Killeen has also seen a flurry of top minds and entrepreneurs coming into bitcoin, suggesting that further breakthroughs shouldn’t be far away:
“One of the trends that we saw unfold in the last couple years is that very experienced founders and operators are looking for the next and most meaningful things that they can do – and they’re coming into bitcoin.”
So, if you’re not a bitcoin convert yet, they believe you soon will be.
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