'Micky' Malka on How Bitcoin Can Help the World's Unbanked

Meyer 'Micky' Malka – a director at the Bitcoin Foundation – has been a financial industry entrepreneur since the age of 18, first in his native Venezuela and later in Europe and the US, where he most recently founded mobile payments company Lemon Inc., now part of LifeLock.

Also founder of Ribbit Capital, Malka says he wants to use the firm "as an agent for change in the ossified and slow-to-change financial services category." Besides investing in five companies in the space, Ribbit is investing directly in bitcoin – reportedly, along with Social+Capital Partnership, controlling 5% of the bitcoins currently in existence.

Malka sat down with CoinDesk at CoinSummit San Francisco to talk about why his firm is leading the charge to invest in the bitcoin space, how bitcoin can help people all over the world, and what needs to happen before bitcoin is ready for prime time.

CoinDesk: How has your experience with hyperinflation and bank failures in Venezuela influenced your interest in bitcoin?

Malka: In Venezuela for the last 12 years, it's been prohibitive to buy dollars, and it's an economy where everything works in dollars. It's become a giant black market. There's an official exchange rate if you are importing medicine and basic goods, another exchange rate if you are a tourist, there's another exchange rate if you are a businessman. There is another exchange rate if you want to buy dollars. It's crazy.

There is no price if you want to hold assets outside of your country – in theory you can't. It's crazy that in 2014 we still have places like that.

What bitcoin can do and has been doing is: one, embracing transparency in a country where there isn't any. It's an asset for when you do not trust your government, which is a real aspect of what's going on down there right now. And, two, allowing the economy to have to escape valves – ways to let this pressure out of the market.

Are there bitcoin startups in Venezuela filling this need?

No. There are no formal companies. It's more informal entrepreneurs trying to start. Right now Venezuela is in crisis mode. It's very hard to find people who are wiling to back entrepreneurs and fund companies when you're in the middle of this. However, LocalBitcoins and Bitcoin Venezuela, gatherings, meetups and exchanges are coming up informally all over the country.

How does the interest in Venezuela compare to in the US?

It's different because [here in the US] people think of bitcoins as speculation. Over there they think of it as a way to store value. There's a big difference of mentality ... what you can do with this.

When you don't trust your government and you don't trust their currency, the whole concept of having some sort of asset that is decentralized, that no one controls, that is scarce or limited, it's very refreshing.

People like cars as an asset. My first car – my parents gave it to me – cost $6,000. I sold it for $11,000. That mentality is very different from what we have here.

So because bitcoin is so potentially useful to Venezuelans, does a larger portion of the population there know what it is?

No, not yet. Mainly because the country is going through so much crisis that no one is paying attention to it. But you're starting to see more and more momentum.

You have warned that because bitcoin is in its infancy, no one should invest in it more than they can afford to lose. Yet, you have also spoken very confidently about the future of bitcoin, and Ribbit has purchased a large amount of bitcoin. Are you less cautious than you advise other people to be?

I am that cautious. I think this is an experiment in society. This is not a currency experiment. Can society trust an electronic ledger more than they can trust other aspects of life? Can they trust a ledger the same way they can trust gold or the governments printing money? That's a big experiment. It doesn't happen overnight. It took gold thousands of years to become what it is. It took governments three, four hundred years to become who they are.

You cannot expect bitcoin at five years old to take all that responsibility and act like a grown-up. It is still a toddler. That is a reality of this. Only as you see more people embracing it is it growing up. We're not there yet. We're super early. This is something you do from a venture capital perspective, something you do with what you're willing to lose. This is not where you put your savings. That's the difference.

I have a mandate. I'm getting paid by my investors to find asymmetric risks. That's what a venture investor does. I cannot find anything more compelling than bitcoin to deliver that. But I also have to be able to go back to my investors and say, "Sorry, it didn't work." There's nothing other than bitcoin that has that asymmetrical return right now in financial services. And also at the same time, it's something that can really change society for the good.

At peak in the world there were a billion landlines. Now we have six billion mobile lines. It's no coincidence that there are a billion bank accounts, but there are seven billion people. What are the chances of the banks banking the other six billion people, and what are the chances of something like bitcoin helping solve financial problems for that six billion? It's just too big of an opportunity. That's why I find nothing more interesting than this right now.

Are you disclosing how many bitcoins Ribbit is holding now?

No. It's a very large position.

Will Ribbit buy more bitcoins?

No, because our mandate is to find the companies. When we bought our bitcoin position, it was in a time when there were no entrepreneurs or companies that were worth backing. Right now we're seeing a great number of entrepreneurs and business ideas, and more interest from the ecosystem, so we'd rather back those.

Can you walk us through Ribbit's investments in the digital currency space – what companies, how much is invested in each, and why you chose them?

We've announced four out of the five that we're funding. Coinbase, Xapo, BTCjam and Pantera. Coinbase because it's the most trusted brand in the US for consumers to buy into bitcoins. Xapo is the ultimate and the best storage solution for bitcoins in the world right now – it gives you protection and insurance. BTCjam is building the first worldwide lending network on top of bitcoin. Pantera is the largest bitcoin currency fund in the world and is structured as a hedge fund.

In aggregate, we are probably the venture investor with the most exposure in the world to bitcoins, between those investments and the coins, of course.

What are your further plans for investing in the space through Ribbit? What are the big unmet needs that you would like to see new companies filling?

Right now we need a combination of two things:

More companies that are helping customers embrace bitcoin. We need more customers in this ecosystem. We need to add zeros. Whatever is building trust in the consumer, and making them understand what bitcoin can do for them, that's what we're interested in investing in. Ribbit is a fund that only invests in consumer financial services. We only invest in companies that are disrupting the consumer experience with financial products. That's our mandate, the only thing we look at. We're very consumer-centric.

Once that happens – and it hasn't happened yet – the second thing is using bitcoins as a protocol, not so much as a service but as a protocol. That's something that hasn't been done yet in things that will matter to consumers. One company that we are backing super early is creating a lending network around the world. They're using bitcoin not as a currency, not as an asset, but as a protocol to allow people to invest and borrow from other people all over the world. That's a user case. Somebody in India is saying I need to borrow money, and someone in Germany is willing to lend them money. You put them together.

You were recently elected to the board of the Bitcoin Foundation. Why did you want to be involved with the organization, and do you have goals for your tenure?

I've been a serial entrepreneur in this space for 20 years. I built four companies. I've been regulated by eight central banks. I lived in Europe, I lived in Latin America, I now live in the US. I thought that if I really believe in bitcoin, I had to also contribute back to it. Being part of the foundation with that kind of background was a good way of getting involved in trying to shape how regulators think of bitcoin and how to expand the foundation to something global, not something US-centric.

You have said that Mt. Gox's failure was more a case of one bad apple than a sign of a troubled system. Can you explain why you see it that way?

There were too many signals for too long that they were really inefficiently running their business. This is a company that a year ago had troubles with the law in the US; the government froze their money. They started to impede deposits and withdrawals eight months ago. It was like a slow death. It was not like overnight something blew up and trust got destroyed. This was a slow motion movie of a company going under for awhile. It shows that this is a problem of early entrepreneurs not being backed by the right investors, not having checks and balances, not working with regulators, not being transparent to their customer base. They were never transparent. They never communicated what was going on.

When you look at Coinbase's weekly blogs or Bitstamp's communications or Bitpay's investors or Xapos' insurance policies, it's a whole different system. There are much better entrepreneurs and companies out there.

What are the biggest problems that need to be worked out with bitcoin before it can reach its potential?

Number one, we need more entrepreneurs willing to work with regulators. You cannot only depend on the foundation to solve your regulatory issues.

Two, you want to see more simple user cases that are daily life, not corner cases. We need to see more simple usages of bitcoin solving real daily problems. The ecosystem is not behaving like that, still. You need more financial institutions willing to embrace bitcoins. They don't know if bitcoin is a friend or a foe.

With those things in place, venture capital will keep coming in, and then you create this ecosystem.

A lot of the talk about bitcoin is about who might get rich from it. Given your background in banking and low-cost financial services, can you talk about bitcoin's promise for low-income people internationally?

This is the way I think about it: six billion people have the same device I have [Malka holds up his phone]. Can they buy a $1 app the same way you and I can? They can't, for a few reasons. Sometimes they make $1 salaries, so they cannot afford a $1 app. Second, they don't have a bank account to buy a $1 app. They have the same device, but they can't use it the same way. Would they buy that app if it cost 1 cent? Probably yes. Can somebody charge 1 cent? Probably not, because Visa and MasterCard and bank transactions are more expensive than that. Can bitcoin solve that issue? Definitely. Microtransations for the six billion people. So there's a clear user case right there, which is simply letting anybody in the world buy the same apps you and I buy, which is not happening right now.

The other one is, people want to store value in something other than gold or dollars, or something other than local currency. This has a chance of being one of those solutions.

This article has been edited for length and clarity.

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