Bitcoin's teething troubles not unusual
Chaos and wrong turns accompany any pioneering business, but the virtual currency may yet end up confounding its naysayers
The development of bitcoin, the global virtual currency, has been a real roller-coaster ride for its owners and a source of fascination for many others, including myself, who tend to think this whole thing is a bit dodgy but nevertheless full of possibilities.
Bitcoin is back in the news following the seizure of the Silk Road website, which employed bitcoin as a payment system for illegal goods. This seemed to vindicate US Senator Charles Schumer's 2011 warning that it could be used as a currency for terrorist and criminal transactions.
Schumer wanted to shut bitcoin down, and the Silk Road seizure has given others a reason to echo his call. I cannot help but observe that when US dollars are used to pay for drugs and weapons no one suggests the abolition of that currency, but let's leave aside the complex matter of means and ends and focus on where this leaves bitcoin.
Adam Levine, the editor-in-chief of the Let's Talk Bitcoin blog, was quoted in this newspaper as saying: "It's an inevitable transition phase. If bitcoin is going to turn into a mainstream thing, this has to happen. The legitimate uses cannot be overshadowed by illicit uses."
Levine has a point and, in a wider context, it is one that might well be appreciated in Hong Kong. Some of the leading companies here, now beacons of respectability, were heavily involved in the opium trade in their early days when they too were pioneering new markets.
In circles where investment-speak prevails, bitcoin is designated as a contrarian investment, as opposed to being described as a bit of a gamble.
It is a gamble that was seized up on by the Winklevoss brothers, who are more famous for their early involvement in Facebook and eventual US$65 million settlement with the company after alleging Mark Zuckerberg stole their idea.
Now Cameron and Tyler Winklevoss have become the biggest bitcoin shareholders and are planning to launch a bitcoin-exchange tracker fund. But here, too, they seem to have been thwarted by a more nimble rival stepping in to launch a rival bitcoin trading fund before them.
Why does any of this matter? Well, apart from the intrinsic fascination of all this wheeling and dealing, we also happen to have a classic demonstration of how pioneering businesses work. It ain't something you will find on business school curriculums because it's messy, does not lend itself to PowerPoint charts and has no neat symmetry.
Basically what's happening over at bitcoin is that someone had a clever idea to fuse the power of the internet with a novel way of making transactions, taking the means of payment away from government-issued currencies and into a virtual world where value is essentially determined by the market.
There are many perfectly valid grounds for scepticism of this concept, not to say alarm, but in a world where currency fluctuations are heavily influenced by political considerations it is easy to see the attraction of bitcoin.
Bitcoin's evolution is similar to that of other businesses forging new directions in the face of consensus opinions. Take, for example, the birth of the car industry, which was accompanied by warnings of the dangers of motorised transport to the extent that pioneering vehicles had to be preceded by men with red flags signalling the approach of these perilous contraptions.
The red flags were eventually removed and automotive technology rapidly improved, but before the car market got to where it is today many businesses collapsed, many merged and many people were indeed killed in motor-vehicle accidents.
The automotive pioneers needed guts, stamina and a dogged belief in what they were doing. Yet it was never the tech boys who reaped the harvest, but the wily businessmen who monetised their inventions.
Maybe the Winklevoss brothers are the Henry Fords of this century, turning the ideas of others into a great business. Or maybe not, but they deserve the benefit of the doubt.
Should they fail, there will be plenty of smug I-told-you-so naysayers, but few pioneering businesses succeed without experiencing failure. Indeed, failure is the mother of lessons for entrepreneurs.
Those who mock businessmen for trying something new have a fine pedigree among the people who told patent-law student Chester Carlson that he should have stuck to copying the contents of law books by hand, instead of wasting time building a company.
You might have heard of that company: it's called Xerox.
Stephen Vines runs companies in the food sector and moonlights as a journalist and broadcaster