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Bitcoin backer defends beleaguered cryptocurrency

Investor Marc Andreessen stood up for bitcoin in a series of tweets after the cryptocurrency suffered a 20 percent drop in value within 72 hours.

January 6, 2015 by Will Hernandez — Editor, NetWorld Media Group

Bitcoin enthusiasts flocked to the Twittersphere Monday to defend the cryptocurrency after two major events over the weekend cast further doubt on its long-term viability — at least in some mainstream circles.

The more serious event occurred Sunday when the U.K.-based exchange Bitstamp suspended operations because it had reason to believe its systems had been compromised. The company has not disclosed the exact issue, but asked users to stop making deposits because they would not be honored. The exchange posted a statement about the incident on its website:

On January 4th, some of Bitstamp’s operational wallets were compromised, resulting in a loss of less than 19,000 BTC. Upon learning of the breach, we immediately notified all customers that they should no longer make deposits to previously issued bitcoin deposit addresses. To repeat, customers should NOT make any deposits to previously issued bitcoin deposit addresses. As an additional security measure, we suspended our systems while we fully investigate the incident and actively engage with law enforcement officials.

Meanwhile, the value of a single bitcoin dropped almost 20 percent in the 72-hour period between Friday and Monday. The value of a single bitcoin plummeted from $311.5 on Friday to $257.61 on Sunday, eventually rallying to around $270.

Bitcoin's loss of value from near $1,300 in late 2013 to today's price has been the subject of many articles dubbing the virtual currency the worst investment of 2014. It performed even worse than Russia's battered ruble. Bitcoin enthusiasts, however, continue to assert that there is too much focus on the currency's day-to-day value.

Marc Andreessen, who can claim the title as bitcoin's top proponent, fired off a series of tweets Monday afternoon about bitcoin’s recent cliff dive and said the currency's critics are missing the larger picture:

5/Same class of critics slamming BTC for price falling in 2014 were slamming BTC for price rising in 2013. Only consistency is the slamming.

— Marc Andreessen (@pmarca) January 5, 2015

"Further, the critique that BTC is bad because it was down in 2014 changes completely if one uses a two-year window instead of one-year window," he continued. "BTC was below $14 in Jan 2013. If one-year performance has been disappointing, two-year performance has been spectacular."

Andreessen also addressed the criticism that bitcoin is too volatile for consumer use as a store of value.

"This is largely correct at the moment, and yet misses most of the point of bitcoin as a distributed transaction and trust network," he tweeted. "Bitcoin was specifically designed to use speculation early on to overcome the normal chicken/egg bootstrapping problem for new networks."

Andreessen referenced an editorial he wrote last year for the New York Times in which he identified use cases for bitcoin, many of which others trumpeted throughout 2014.

During a panel discussion at Networld Media Group's ATM & Mobile Innovation Summit, executives — including Andreessen — spoke about the advantages of bitcoin over the current banking system. One of these is the benefit of a much faster funds transfer mechanism that costs pennies to use, which should be attractive to financially underserved consumers.

"The price of BTC has very little to do with the level of creativity of thinking that's going into new bitcoin apps, or their usefulness," Andreessen said.

To date, Andreessen has invested more than $50 million in bitcoin-related companies through venture capital firms. This recent bitcoin defense should come as no surprise, but it does highlight continued misconceptions about the cryptocurrency among mainstream media outlets and bank executives.

Bitcoin's most vocal supporters will tell you that the virtual currency was never meant to be invested in like a stock. It was created for commerce, and as a way to bypass a financial system that does more harm than good in the eyes of its users. To view bitcoin and its alternatives in any other way is missing the main point of the story, those supporters say.

"The entire Bitcoin system is 6-years old," Andreessen said. "TCP/IP was 6-years old in 1981. Big things take time. Onward!"

Photo courtesy of Joi Ito.

About Will Hernandez

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Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.

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