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Tech by VICE

How To Really Get Rich From Bitcoins

For now the tricks are still secret, but there's no secret on how to join the party.

Apr 10 2013, 2:40pm
Alex Waters

Bitcoin is compelling because of the technology that drives it, the philosophy that surrounds it, and the community that pushes it forward against all odds. But most of the current hype and attention surrounding bitcoin is because of one thing and one thing only: the price.

By now the chart is a basically a vertical line, for better or worse. And the source of all the excitement is just as basic. Human greed. Many are now wondering why they didn’t get in on the ground floor two years ago when the price was still $2 instead of $200. A well-timed investment in 2011 for a modest sum could now be worth millions. Even if it isn’t too late to get in now, no one knows what could happen tomorrow or next month or next year. Bitcoin could hit $1,000, maybe $10,000. Or the bubble could pop.

The art of mining, too, has entered into the realm of diminishing returns. A few years ago, a laptop was powerful enough to produce countless coins. Today, you need a specially designed chip that’s long been sold out. If you joined a waitlist now, by the time you actually received your machines who knows how many other sheep you’d be up against. The days of easy money are numbered.

But beyond buying bitcoins and mining, there’s still one straightforward way that’s guaranteed to make you rich--that is, if you believe in the bitcoin phenomenon. The beauty of it all? The price of bitcoin is irrelevant. The guesswork is eliminated. The only faith you would need is to deeply understand that some form of bitcoin represents the future of how humans will transmit value in a truly digital world. Beyond the price, this is about the concept.

I spoke with Alex Waters, a bitcoin core developer and the COO and CIO of BitInstant, one of the largest bitcoin companies around, to get the lowdown. So what’s the secret? Build a product. In other words, start a bitcoin company.

“Most tech startups struggle making money,” Waters told me at BitInstant’s offices. As a developer, Waters has dabbled in the New York City tech scene for years.

“We struggle with the infrastructure to handle the money we’re making,” adds Waters, who one day believes BitInstant will be a billion dollar company. “Almost all the bitcoin companies that I know struggle with the same problem."

Right now, the bitcoin ecosystem is the wild west. Most areas are underserved. The fundamental purpose of BitInstant, for example, is to provide liquidity. “Getting bitcoins is difficult,” Waters tells me. “We’re trying to make it easy. People will deposit money with us and we’ll get them bitcoins, often within minutes and usually within an hour.” That’s not quite the definition of “instant,” when compared to contemporary USD, but it’s pretty damn quick compared to the alternatives. Getting money onto Mt. Gox, the largest exchange, for instance, can take a week or longer.

“No one else in the marketplace offers a competing product,” Waters continued. Mt. Gox, another highly profitable business based in Japan, however, does have competition. Other exchanges exist, such as VirWox, BTC-E, and the US-based Tradehill, as each looks to command a piece of the pie. As it stands, Mt. Gox maintains a dominant position, channeling the majority of all bitcoin trades. It’s the network effect. There’s only one Facebook or Google or Groupon and Waters believes this is the wrong way to go.

“Create a new product,” he insists, pointing out the numerous opportunities that exist. A good way to look at it, he explains, is to examine the current financial landscape for parallels. If Mt. Gox is the New York Stock Exchange, then BitInstant is a stock brokerage.

I asked him for a few examples, to which he responded with a sly grin. Some projects, of course, are already in the works, but he was willing to hand out a few freebies. “There’s no for bitcoin,” he says. “There’s no service that allows you to make recurring payments. There’s no escrow service. No one has successfully setup a bitcoin ATM. There also needs to be a tipping service like Flattr.”

And with bitcoins now trading north of $200, this is where the money is. Like any gold rush, time is of the essence. Waters insists that it's in BitInstant’s best interest to focus on their core product, just like any company should, at least for now. There’s enough room in town for everyone at the moment. Recently, a few BitInstant insiders took Water’s cue and split from the team to start their own shop--not to compete with the mother firm, but to create a necessary complementary product. For now those details are secret, but there's no secret on how to join the party.


More on bitcoin:

Why Bitcoin's Price is Skyrocketing

How Bitcoin Could Die

Bitcoin: How Does It Work, What's It Do, and Is It a Drug-Fueled Money Laundering Scam Bubble?

A Guide to Bitcoin Mining: Why Someone Bought a $1,500 Bitcoin Miner on eBay for $20,600

Why Bitcoins Are Just Like Gold