Erik Vorhees is what you might call a true Bitcoin believer: he is almost entirely invested in the currency, works at a Bitcoin-related startup, and spends a great deal of time in the Bitcoin “community,” as you might call it — he’s one of the best-known contributors to the /r/bitcoin subreddit.
Bitcoin, for the uninitiated, is a digital currency hoping to establish itself as a decentralized, bank-free alternative to the usual dollars and cents.
Yesterday, just before the price of a Bitcoin shot past $200, Vorhees posted a short item on Reddit called “An insider’s opinion on the crazy Bitcoin market,” explaining in detail why the price of Bitcoin was skyrocketing. It read like a dispatch from a different financial universe; in many ways, that’s exactly what it was. But the most interesting aspect of the post was how deeply involved it revealed Vorhees, a hardcore libertarian, to be: he is betting on Bitcoin in a way that few of the people trading it today can claim.
BuzzFeed spoke with Vorhees over Skype on Tuesday.
BuzzFeed: So, first: You’re both a Bitcoin user *and* professionally involved with the currency, correct?
Correct. Discovered Bitcoin in May 2011. Went crazy for it. Went to the first conference in NYC in August 2011, and from there met people with whom I developed some projects and one thing led to another and I joined BitInstant (a payment processor for Bitcoin exchanges) a few months later.
What were you doing at the time?
I was just doing freelance marketing work. I had been in Dubai for two years doing marketing for real estate. Came back to the US, didn’t know where I wanted to be or do really, so freelance was my interim work. After I found Bitcoin, I dropped everything. It would be impossible for me to work on something not Bitcoin related now.
Because of your interest/dedication? Or investment?
Because it’s my passion. I simply couldn’t be interested in anything else.
So, the Bitcoin community was quite different in the earlier days. Smaller, for one. How else has it changed over the last couple years?
It hasnt change that much, really. It is always a mix of people. When it “feels” like it changes is when the price trend changes. After the first bubble in summer of 2011, many got very nasty and negative. I know the same will happen when the next bubble pops. Such people do not fundamentally understand why Bitcoin is so important, and thus their temperment shifts with the price. They are fair-weather Bitcoiners.
Were the theorists (for lack of a better term) more influential earlier on?
I think they were more common early on. The whole thing was more philosophical.
“Could this work, and why” was the question du jour. Now that it’s in the real world, it’s not a theory.
Do you worry about how this current price trend will affect the currency?
Not at all. It is good for a number of reasons. It brings a swarm of new interest.
But a lot of that interest is of the get-rich-quick variety.
Let’s say 10% of that interest is “legitimate” or not just driven by price interest.
That 10% sticks around after a crash?
Yep exactly. And they start building new infrastructure.
As in retail, etc?
Well, could be anything. That’s the magic of entrepreneurialism. If we knew all the new things that would be useful, we could build them ourselves :)
Are there any systemic risks involved with this level of attention?
I assume the price WILL precipitously drop at some point. Maybe tomorrow, maybe in 6 months. [But] the biggest systematic risk is government. After the FinCEN ruling, that cleared up a lot of worry. [It’s] highly unlikely the US gov will attack Bitcoin overtly over the next couple years now. So there will be a period of rapid growth and expansion.
So, much of the coverage of Bitcoin now focuses on the investment angle. When will people sell, and so on.
Yeah, understandably. It’s not every day that an asset goes up 4x.
Are you playing that game at all? Or is it a diversion to you?
I play the market a little, but it’s more for entertainment and a fun challenge.
It presents a problem for someone ideologically commited to the currency, no? A temptation to cash out?
Predicting price movements is very silly. “Cash out” is misused. Those of us who understand this most have “cashed out” of the US Dollar.
But unloading your wallet for USD after it increases in value 15x — it seems like that sort of prospect could shake a lot of people. Even believers.
Bitcoin is the asset we want to hold. We are not just holding it in order to “sell” later.
So there is no USD price you would trade at.
I trade often, just not for USD. I don’t want it. Traditional currency is garbage :). Gold and silver are worthy currencies. Fiat is not.
You’re more deeply commited to Bitcoin than many people who hold it. How does that work, practically? Are you paid in Bitcoin? How much of your regular spending is done in the Bitcoin economy?
I am paid in Bitcoin, yes. And yes I sell some for fiat to pay for food, rent, etc.
But there are some purchases — not just novelties, but things you might otherwise buy — that you purchase in Bitcoin?
We pay for all servers and hosting stuff in BTC. I pay contractors in BTC exclusively. I have a lawyer now whom I pay in BTC as well.
In a Reddit post, you offered explanations for Bitcoin’s rapid rise in price. One of the most compelling reasons you offered for the rise is an influx of VC cash. Is this a suspicion, or do you have evidence? Or reason to believe other wealthy people are treating Bitcoin as a short-term investment?
Evidence. [But] more like long term investment — wealthy people who will buy a bunch and assume it’ll either go to zero or become wildly expensive. They aren’t investing with a six month time frame. More like 2-5 years.
Is this something you’ve heard about, or seen reflected in the exchanges somehow?
I know of people. But the VC thing is much less hidden. I know of three or four venture cap firms who are actively seeking BTC investments. The smart ones pick up a pile of coins while they’re searching for the companies they like.
Exante’s Malta-based fund is for investors who are buying a minimum of $100k worth. Tradehill’s new platform is similar - only catering to “sophisticated investors” or people with liquid net worth over $1m.
Toward the end of your post, you seem at peace with a situation that, to someone who isn’t familiar with Bitcoin, could sound scary. You write: “The price right now could be the highest Bitcoin will ever be from now on, or the lowest. Nobody knows!”
For people who would like to use Bitcoin as a currency, the prospect of severe changes in value might be a deterrent, and not just from an investment standpoint. Do you recommend, then, that people who might be ideologically interested in Bitcoin step back for a bit?
Well remember it’s important to make a distinction between buying coins to speculate on price and building up infrastructure. Those who are into Bitcoin should do the latter, full time. The speculation is separate… it’s for anyone who wants to take a gamble on the volatile market.
They should start companies, you mean?
Yeah. And basically, if you believe the Bitcoin narrative, that it will change the world, then buying them at anything below several thousand dollars is “worth it.”
Companies designed for an eventual scenario that looks like what, exactly: a full(er) service Bitcoin economy?
When the internet got started in the early nineties, nobody knew how it would unfold really. Many people said it was just a fad. Kinda silly geek toy. Nobody envisioned Facebook and Twitter back then, or even something like Amazon. Much less the crazier uses for websites that have occured — the fact that we’re talking on Skype right now… that is a result of the internet which was not foreseen in the early days.
Bitcoin will be same. It will take thousands of entrepreneurs trying thousands of things over the coming years. We will look back and see all these great Bitcoin-based systems and we’ll think “well that was obvious.”
You say in your post, “certainly, Bitcoin is the most important thing happening on the planet right now.”
Is there a massive caveat there, though? That a/the government could interfere?
No that’s not a caveat, that’s the point! The fact that government might (likely will) interfere is the entire point. Bitcoin is important for one reason: because it separates money and state. That is why it is the most important project on the planet. Because money and state must be separated… doing so will rid the earth of a number of evils.
There is no other project that I’m aware of which has such potential to help so many human lives and improve the prospects for humanity, than Bitcoin.
But the two are currently powerfully connected. And there are very powerful — the most powerful — and very interested parties who wish to keep it that way. Do you believe Bitcoin is resilient enough, anonymous enough, protected enough, to withstand pushback?
That’s the grand experiment ;). And that’s why nobody knows what the price should be.
Can you tell us the scale of your investment in Bitcoin? If not, then how much (in relative terms) have you gained since you started?
That’s private, sorry ;). We can say I’ve earned enough to invest in some bitcoin projects.
But the market has been kind, obviously.
This is one of the nice things about this ecosystem — the wealth gained (some of it) gets used to build further infrastructure, in a virtuous circle.
So you really are all in.
I’m not “all in” quite… I have some metals.
So “all out” might be a better term. Any final words for readers who might just be hearing about Bitcoin in the news?
The price is a fun distraction. The real story of Bitcoin is about the manner in which it is changing money around the world. If you understand that, then the price will make more sense. And also this: people should expect a number of bubbles to occur. There was a big on in 2011; perhaps we’re in another now. And there will be more.
If this is a bubble, and it pops, what do you expect you’ll be saying that day?
Well unfortunately it won’t just be “a day” on which it happens. The last bubble “popped/deflated” over a period of about 6 months, and during that time, it goes up and down… nobody knowing if it’s “at the bottom” or not. So really it’s a long psychological game. And during this period, whether it’s a week this time or a year or whatever, the press will be ruthless in tearing into Bitcoin
But it’s fine. Those of us who are building this stuff (including all the new people who are being attracted over the past few months of frenzy) will hunker down and keep building. So what will I tell people? If you don’t want your coins, sell them! That’s the beauty of a free market, each person is in control for themselves. Nobody is forced to use, or to hold, Bitcoin.
This interview has been edited for clarity.