IVCA Profile: The Chicago Bitcoin Center, an Incubator-in-Residence at ‘1871’
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IVCA Profile: The Chicago Bitcoin Center, an Incubator-in-Residence at ‘1871’

February 17, 2016

With the new year of 2016, the IVCA will continue its series of profiles on the accelerators, incubators and enterprises at “1871” – the technology and business development hub at the Merchandise Mart in Chicago. The first of this year is the Chicago Bitcoin Center (CBC), an incubator that will be Chicago’s key resource and center of gravity for the digital Bitcoin currency and blockchain-based technologies (a blockchain is a transaction database shared by all nodes participating in a system based on the Bitcoin protocol).

The CBC launched in July of 2015, and took up residence at 1871, because – according to their opening day announcement – “Chicago has a rich history and DNA in financial technology.” The incubator will provide a number of resources and opportunities for startups which focus on Bitcoin-based financial technologies. The IVCA spoke with the Executive Director of the CBC, Jonathan Solomon, who represented the CBC in this exclusive profile.

IVCA: What is the origin of the Chicago Bitcoin Center Incubator, what need created the organization, and how did it land in the '1871' space?

Chicago Bitcoin Center (CBC): The startup scene in Chicago is now booming, with one of the largest and fastest-growing tech markets in the country. A group of entrepreneurs, venture capitalists, and business leaders saw a great deal of activity around Bitcoin and ‘blockchain technology’ happening both on the coasts and overseas, and thought we needed to seed that sort of activity here in Chicago – especially with our City’s rich history as a financial center and source of innovation.

We're pleased to be located at 1871, which has been the de facto hub for startup activity in Chicago since 2012, and is largely responsible for the city's recent ‘tech renaissance,’ putting Chicago on the map as a tech center.

IVCA: What are the origins of the Bitcoin? How did it develop, and how did it become a prime contender for a digital currency?

CBC: Bitcoin was developed and released as an open-source software in 2009 by Satoshi Nakamoto – who might have been an individual, or group of people. Bitcoin enables peer-to-peer direct payments over the internet without the need for an intermediary – think of it like email for money.

Although Bitcoin is the first ‘crypto currency,’ it is based on decades of research in mathematics and cryptography. Even as many digital currencies now exist, Bitcoin is the prime contender as the first successful and widely used digital currency, simply due to network effect – when compared to any other digital currencies, Bitcoin has the highest daily transaction volume, largest user base, and greatest market cap, by a longshot.

IVCA: You are an incubator for Bitcoin-based start-ups and tech innovators. What are examples of companies that work within the incubator and what type of businesses are they developing around Bitcoin?

CBC: The Chicago Bitcoin Center currently has four incubator companies that are developing an array of products and services that incorporate Bitcoin or blockchain technology, including...

Glidera (www.glidera.io), which offers a SaaS platform that enables wallet developers to enable buying and selling of Bitcoin directly from their wallet applications. Bloq (www.bloq.com) is developing products and services for enterprise companies to incorporate blockchain technology. Digital Mint (www.digitalmint.io) owns and operates one of the largest Bitcoin ATM networks in the nation – including 16 ‘Red Leaf’ brand kiosks in the Greater Chicagoland area. Bitcoin ATMs serve as a primary on-ramp for consumers to convert cash to bitcoins, to participate in online commerce, and often serve as a consumer’s first interaction with Bitcoin.

IVCA: What do you think will be the key to mass acceptance of the Bitcoin currency, and what kind of massive information campaign and more importantly, trust, do you think will make it stick?

CBC: Right now Bitcoin is still in its early stages, with today’s Bitcoin companies building out the infrastructure that is necessary to support a global payment network. However, organic growth is already happening because Bitcoin is simply the best option for many cross-border transactions or online payments, where fees and delays associated with traditional or non-bitcoin services add friction to what ought to be a simple process.

And in that sense, credit cards were never designed for the internet. In fact, we hear of a new data breach happening monthly, which leads to all sorts of fraudulent credit card transactions. This type of fraud simply can’t happen with Bitcoin, because Bitcoin is a ‘push’ system – instead of a “pull” system such as credit card networks – and paying with Bitcoin does not give away any sensitive information to merchants or potential data thieves that could be used to steal money from the sender in the future. This makes Bitcoin a very safe way to pay for things online without compromising personal and financial details.

IVCA: What type of companies are using the Bitcoin technology right now?

CBC: Merchants such as Overstock, Dell, and Newegg are embracing Bitcoin because it improves bottom lines by reducing or eliminating transaction fees. For companies whose profit margins are already low, credit card processing fees can eat up half or more of those margins. The near-zero fees offered by Bitcoin payment processors also allows merchants to reduce these costs and pass these savings to consumers.

IVCA: How do you think Bitcoin will stand up to the same challenges that our present-day currencies face? What makes Bitcoin potentially more stable?

CBC: There is no such thing as a ‘gold standard.’ Most modern currencies are backed by the public’s confidence that its government can uphold the value of the respective currency. Bitcoin is backed by mathematics, which means it is mathematically impossible to counterfeit or create unauthorized units.

We can determine with mathematical certainty how many Bitcoins exist today, and how many will exist in 100 days, or even 100 years from now – you just can’t make that statement about a money supply that is controlled by governments. And although Bitcoin’s price has been volatile compared to the U.S. Dollar, it is actually quite stable when compared to a majority of the world’s currencies.

IVCA: What is the training and application set-up within the incubator to advise potential start ups? Is it a structured program, or more like a progressive mentoring program?

CBC: We have an ‘open door policy’ when it comes to talking to entrepreneurs who are interested in working on Bitcoin and blockchain ideas. We seek to match entrepreneurs with mentors who will help them most at the current stage of their ideas.

Every Bitcoin startup is different; some business models will require significant assistance with regulatory and compliance issues, while others need help sourcing developers comfortable working with the Bitcoin protocol. We have assembled a great team of experts and mentors who can provide guidance on all of these sorts of issues.

IVCA: In your mission statement, you speak of Chicago's rich 'DNA in financial technology.’ What makes Chicago an ideal host for a Bitcoin center, and what record of innovation is within its financial base that makes it the best location?

CBC: Chicago does have a rich history in financial technology – from the first ‘Credit Cards’ issued by Western Union, to the development of the Black-Scholes model. The first exchanges for trading financial derivative products were born here, such as Chicago Board of Trade, Chicago Mercantile Exchange, and the Chicago Board of Options Exchange. Chicago was even home to the first modern IPO – raising ten million dollars for Sears, Roebuck & Company in 1906.

We see the development of Bitcoin and blockchain technology in Chicago as a way for the city to continue its role as a place where financial innovation occurs. And in addition, Bitcoin is flourishing in major metro areas, Chicago included. Bitcoin addresses many of the financial needs of large and diverse populations by increasing consumer access to e-commerce, remittance, and savings.

IVCA: What would you tell the membership of the IVCA about the Chicago Bitcoin Center, that you think makes you most desirable to investors, towards the businesses that your firm nurtures?

CBC: The Chicago Bitcoin Center is backed by a network and board of individuals who are well known and established in both business and the Chicago community. Additionally, the CBC has close relationships with individuals, organizations, and companies that are at the forefront of innovation in Bitcoin and digital currencies.

Not only does the CBC serve as a launchpad for Bitcoin and Blockchain companies, but also as a community resource. We have consistently produced one of the most highly attended Bitcoin meetups, and have plans to produce additional educational and community building events that drive the understanding and adoption of Bitcoin. Our office doors are always open, and we routinely welcome in curious visitors and do our best to provide them with the necessary resources.

For more information about the Chicago Bitcoin Center, click www.chicagobitcoin.com