Fred Wilson: 2 Big Reasons Why Bitcoin Isn't Really Useful Yet

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This story originally appeared on Business Insider

If you still don't understand what the deal with Bitcoin is, don't worry: Even it's biggest boosters admit it is probably too early to be useful to the mainstream.

In a talk sponsored by the NYC Foundation for Computer Science Education, Union Square Ventures founder Fred Wilson identified the two key hurdles Bitcoin still must overcome to be useful to an average consumer.

The first is the cryptocurrency's chicken and egg problem: Nearly six years after Satoshi Nakamoto published his Bitcoin spec paper, demand for Bitcoin remains largely speculative, or induced. And even then, it's still cumbersome to get your hands on some. Here's what Wilson told his audience:

We said, If you come tonight, you're either a student, in which case we have sponsors who were making donations to cover the students, or you're buying a $25 ticket...But you had to pay it in Bitcoin. And I got a lot of emails from people, particularly in the last few days, who said, I don't have any Bitcoin, I would have to buy the Bitcoin, it's going to take me three days for the Bitcoin to show up in my account. So I'm not going to be able to get the Bitcoin in time to make it to the event. If you had Bitcoin in your account it was simple, you just gave 1/20th of a Bitcoin and you come. So, not enough people have it. And forcing people to buy the Bitcoin to give the money to the charity isn't a great model, and we actually saw that in this event.

He continued, explaining how most Bitcoin users are simply sitting on their holdings, and that this results in price volatility:

People need to feel comfortable that if they hold onto a Bitcoin for a week it's going to be worth pretty much the same as when they got it. And that's going to take a long time. I also think we need to see real transaction volume happen. Right now, most people who get Bitcoin hold it, they don't transact with it. That’s part of what causes all of the volatility — if there was a very vibrant system where Bitcoin was just getting swapped around like crazy, the velocity of the money would cause Bitcoin's price to stabilize, and there would be a much more liquid market.

The other obstacle Wilson identified to mainstream adoption is that the security systems surrounding Bitcoin remain — though he also says this is in itself represents a huge investment opportunity, as it will help address the first issue:

One of the real issues with Bitcoin right now is that it's not that secure, and the reason it's not that secure is, it's easy to hack into people's computers, if they have a wallet on their own computer, it's easy to get in there and steal the Bitcoin. Bitcoin theft is a big issue. Bitcoin fraud is a big issue. And what will have to happen is we will need to see companies like Coinbase and others merge that can invest heavily in security. And that's both technological security, and also process security — to make you comfortable to keep your Bitcoin there. And I think that that's probably going to be first big commercial opportunity in Bitcoin, is to create secure systems. Because without that, I don't think we'll ever get enough confidence and trust in the system for people to really start using it.

This is a big deal. Wilson, who was one of the earliest investors in Twitter and Tumblr, was also one of the first major VCs to get into Bitcoin. He was among a tiny handful of investors to be asked to speak before the New York Department of Financial Services in January as the agency prepared to craft BitLicenses (they just announced proposed guidelines this week).

So for Wilson to admit that there still aren't immediately tangible reasons to get into Bitcoin is perhaps a reassuring sign that hardcore Bitcoin evangelists are starting understand that a lot more work needs to be done before the cryptocurrency can truly break out.

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