Benner on Tech: Bitcoin Cold Storage

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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People are Talking About…

When news broke that legendary Wall Street executive Blythe Masters -- known as the woman who created the credit default swap and helped popularize financial “weapons of mass destruction” -- had become chief executive of the bitcoin company Digital Asset Holdings, non-bitcoin fanatics got interested in the topic again, especially on the Street. People debated whether she can get banks to adopt yet another seemingly strange, complicated tool and create a use case that propels bitcoin into the mainstream. 

But Wences Casares, the CEO of Xapo, a bitcoin wallet and storage startup, says that bitcoin will gain traction even if no one, not even Masters, comes up with a use case that spurs mass adoption.

He says that the miracle of bitcoin occurred in the six-year run up from zero to the current 10 million bitcoin holders.

“People take for granted that 10 million people own bitcoin and have come to a consensus that a bitcoin is worth $200 to $300,” says Casares. Social consensus on that scale, especially for a new financial product, is hard to achieve. People rarely delete their accounts when social networks move fast and break things. But they quickly abandon a service if it loses their money.

So Xapo focuses on ease of use and, more importantly, security. Casares says that Xapo's bitcoin deposits are insured. (The company created, essentially, its own private FDIC along with a consortium of insurers.). And the company stores keys to bitcoins in cold storage, meaning offline servers that are housed in vaults, some of which are buried deep in a mountain in Switzerland.

Casares weighed in on the big debate sparked by the Masters news and news of another company, 21, that also seeks to popularize the technology that powers the mining of bitcoins, but not focus on the currency itself. "That’s as ridiculous as saying, ‘The Internet will work but the Web, the protocol, not so much,’" Casares says.

But he accepts that theft isn't the only risk. “Bitcoin doesn’t live in the middle,” he says. “It will either work and a bitcoin will be worth a lot, or it won’t work and it goes to zero.” If the latter happens, no amount of cold storage will help investors.


Ellen Pao v. Kleiner Perkins: If nothing else, the case has highlighted a lack of HR policies and/or compliance in the tech world. The judge in the case denied Kleiner’s request to argue in court that Pao is suing because her husband -- financially troubled hedge fund manager Buddy Fletcher --  needs the cash. You’d think she’d sue for more if that were the case. Fletcher owes more than $140 million in court judgments and tax liens. The $16 million that Pao wants would barely be a drop in the bucket. Re/code has consistently had the best, most thorough live blog of the proceedings. Don’t miss yesterday’s installment.

23andMe, maker of a consumer DNA test, is using the genetic data it's collected to launch a biopharma division, Bloomberg reports. Biotech is certainly hot these days, and it will be interesting to see whether the company’s bad relationship with the FDA affects its ability to bring drugs to market.

Snapchat is charging advertisers about twice the amount that a premium video publisher gets, Re/code reports.

Extreme Venture Partners is suing two former partners for allegedly trying to steal Extreme’s stakes in Tinder, the Wall Street Journal reports.

There’s a chance that Chinese startups might be overvalued since they’ve gotten big valuations without having made any money, says the Wall Street Journal.


Alibaba is teaming up with Chinese automaker SAIC Motor to create a $160 million fund to develop Internet-connected cars, Bloomberg reports. It’s investing in Snapchat as part of a massive arms race with Tencent for global reach and influence, says Fortune.

Apple’s digital payment app Apple Pay lets fraudsters buy merchandise from brick-and-mortar stores using stolen credit and debit card numbers that previously could only be used for online fraud, reports security expert Brian Krebs. The new Steve Jobs biography “Becoming Steve Jobs” includes an anecdote in which Tim Cook tried to give an ill Jobs a piece of his liver.

Facebook faces a class-action lawsuit over children spending their parents' money on the website without permission, Reuters reports. Chief executive Mark Zuckerberg’s real estate imbroglio is threatening to expose details of his closely-guarded personal life, says the New York Times.

Google discontinued its Nexus 5 smartphone. It also shut down its Google Code project.

Intel shares sank after it said that first-quarter sales could be more than $1 billion lower than expected, reports Bloomberg.

Media Files

Netflix had about 36 percent of the U.S. video streaming market last November, followed by Amazon Prime with 13 percent and Hulu Plus with 6.5 percent, reports the New York Times.

ICYMI: Ex-Gawker interns who are organizing a class action lawsuit for back pay have been given permission to use social media to find people who can join the suit, Bloomberg reports.

News and Notes

Chinese drone maker DJI made $500 million in revenue last year, reports the Verge.

The FCC released the details of its net neutrality rules, which show that some laws will be modified and that the commission can rule on issues on a case-by-base basis. If you want to dive into all 300-plus pages, click here.

Islamic State has started its own social network after being banned from Facebook and Twitter, reports the Wall Street Journal.

The BBC is giving 11-year-olds in the U.K. stripped down computers and launching coding-based programs in an effort to increase digital literacy.

No, you cannot fly your drone at SXSW, the New York Post reports.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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Maria Lamagna at