How’s this for a startup venture – Digital Gold Currency: a universally used currency that can be trusted by all, without the risk of debasement or fraud. Sounds pretty good, right?
Well over the past year, that’s exactly what I’ve worked on, and I’ve certainly discovered a few things along the way.
How did we get here?
We’re at a point in history where governments around the world have accumulated record levels of debt on their balance sheets. There are significant risks of a sovereign debt crisis that threatens the global economy and challenges the solvency of many nations. When interest rates rise, governments may be forced to deal with the consequences of escalating federal debt; I anticipate that the banking system may suffer from falling asset prices (such as long-term government bonds and mortgages on their balance sheets) which they won’t be able to further finance due to substantially higher interest payments. In these types of circumstances, bond holders are at risk since the two most likely courses of action are to either default or to expand the money supply. Both of these outcomes result in the erosion of fiat currency, leading to greater inflation and a depleted purchasing power.
As a result of my views on the current economic environment, I was quite taken with the idea of an alternative currency – one that isn’t controlled by governments & central bankers, and that doesn’t rely on the full faith and credit of a country. Bitcoin, a relatively new digital currency that’s based on faith in an algorithm and network, remains speculative. And although it’s certainly picking up traction, plenty of questions still remain regarding its regulatory hurdles and trust concerns.
So what was it that compelled me to pursue this digital gold path and why did I retreat from working on such an ambitious idea?
Well, it dates back to my days at Apple, where I worked on the foreign exchange team. We hedged currency risk and had chief economists come in and talk to us about secular trends in the macro-economy and its effects on Apple’s business. One particular economist, a former central banking chairman from a European bank, struck a chord with me as he was discussing the inflationary risks associated with sovereign debt levels – something I had learned about while studying Austrian economics and following experts such as Ron Paul & Peter Schiff. After this chairman finished his presentation, I asked him a few questions regarding the state of gold and his general outlook for precious metals. Paraphrasing his response: “Well, I definitely understand why precious metals have been performing so well – they’re a clear hedge against inflation. But I just don’t understand the intrinsic use – it’s not like people can spend their gold… they have to use dollars to make purchases.”
And then it clicked – why couldn’t people spend a hard asset? After all, the world has operated on a gold standard for thousands of years. We’ve only been off of it (officially) for the past ~4 decades. So why is it that people trust some piece of paper, that’s probably a bit unhygienic and can even be printed at will, to transact for goods and services? Precious metals are natural resources that derive their value from their scarcity. Wouldn’t it make more sense to be transacting in digital gold, especially given advancements in technology?
Following that discussion, this idea was baking in my mind – I felt compelled to pursue it and make something out of it. It solves a major problem in a large space: money. And money is a part of everyone’s life, so it’s in a market that holds no bounds.
It was then that I decided to start Vaurum. I jumped into the deep end and didn’t look back. I knew I had a lot of work ahead – I had to recruit a co-founder, illustrate a working business model, build a secure prototype and form strategic partnerships. Little did I know, those priorities, while important, certainly weren’t the hard part. Raising investment wasn’t even the hard part. So what was the hard part? It was the part where I realized just how high we’d have to jump to get over the regulatory hurdles, not to mention that even if we did build some major traction, I’d still have to figure out a way not get shut down.
I remember reading about E-Gold and the Liberty Dollar, and then talking to industry insiders that half-jokingly warned me not to end up in an ankle bracelet. It really makes you take pause to do some due diligence.
In contrast to most startups in Silicon Valley where entrepreneurs can use approaches like the lean startup methodology to quickly build & test a prototype while collecting customer feedback, creating an alternative currency had a whole new set of risks associated with it. The top question (by far) that I received from potential investors and engineers interested in the project was something along the lines of: “this is very, very interesting – what’s the regulatory climate like?” Basically, even if you build a viable business that gets traction and can scale, what’s the risk of it being shut down due to factors out of your own control? The reality is that you just don’t know. Startups are hard enough as it is – you already have to be somewhat delusional to win; you have to believe in yourself and your company when no one else does. Now don’t get me wrong – it’s not that entrepreneurs are completely irrational – it’s that entrepreneurship is a completely irrational sport. So to play the game, you have to learn how to do things that are completely irrational. You have to learn not only how to collect facts and make good decisions, but also how to filter some information and completely ignore some facts. But when you involve regulatory hurdles and throw in challenges by federal governments, it adds significantly more friction for every single party that’s involved: the founders, the investors, the employees, the customers, and the strategic partners. Those are things that you can’t ignore.
There were times when I would come across investors that bought into our vision to create a universally used gold-backed currency but remained completely blind when it came to the regulatory risks associated with actually building it and testing it in a live market. One particular investor even encouraged us to go public with our product without worrying about regulatory risks and told us to simply discard any licenses that we need to get it off of the ground legally, as if there would be no consequences for it whatsoever. Another potential strategic partner that we were in talks with mentioned that there’s plenty of demand for gold currency, but that they wanted us to build it instead of building it themselves. We learned that the reason for these events was that people didn’t want to face the risks associated with creating a competing currency, but wanted the benefits of having one around just in case it worked. It’s the founders that are put in the position of having to take these risks in their entirety.
So we’ve decided to make a some changes over the past few weeks that are based on a three core realizations that I’ve had:
1) Companies that try to pick a fight with the government most likely will lose 10 times out of 10. And then what? You’re out of business and the impact that you intended to have never reaches its full potential. Great companies build bridges, not walls – work with governments, not against them.
2) We’ll often ask the following question: “what will change over the next 10 years?” While it’s good practice to create a vision and work to realize that vision over time, this isn’t the right question to be focused on. We should be asking ourselves the opposite: “what won’t change over the next 10 years?” It’s the things that won’t change that you can build a viable business model around.
3) And finally, for entrepreneurs – produce things and get them out into the world as much as you possibly can. It’s through this process that you learn from your experiential knowledge. If I hadn’t gone through this journey, I wouldn’t have discovered many of the great truths that I’ve faced over the past year – lessons that will last a lifetime. I also wouldn’t have grown as an entrepreneur, and I certainly wouldn’t have been able to apply my experiences to our next big aspiration, which is what we’re currently pursuing with the new model for Vaurum.
In all that I’ve learned in our adventures in trying to create our own currency, it’s the application of these lessons that excites me the most about what’s next. It has allowed us to get a big stronger, a bit wiser, and a lot more determined to make a positive impact in the world.
