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Vinny Lingham: Why a big event in August could disrupt the Bitcoin market

JOHANNESBURG — Along with Elon Musk, South African-born Vinny Lingham is currently South Africa’s other major technology entrepreneur export to the famous Silicon Vally in San Francisco. His previous business Gyft, which sold electronic gift vouchers, shot to fame after it started to accept Bitcoins. After California-based First Data acquired Gyft in 2014 , reportedly for over $50m, Lingham – a serial entrepreneur – has since also become well known as the ‘Bitcoin Oracle’ for his accurate forecasts of movements in the cryptocurrency’s price. I first met Vinny in early 2016 when he was on a short visit to the country. Since then, he’s launched a business called Civic.com, which taps blockchain technology to protect people’s identities. Civic is also looking to kill the need for usernames and passwords. I had the chance this week to chat to Vinny again about the recent launch of Civic and about his latest views on the Bitcoin price. Interestingly, he says a big event on August 1 lies in store for Bitcoin. Reports indicate that, on this date, Bitcoin miners plan to implement a protocol upgrade proposal called BIP148 in a bid to end a stalemate among various parties regarding the block size debate – a wide-ranging debate which also includes calls to increase transactions and speed up their completion times on the network. Subsequently, transaction fees for Bitcoin are currently high amid the risk of a possible chain split or fork. A chain split, in turn, could result in Bitcoin Wallets emptying overnight on August 1 because some providers may not be on the new chain. (You can learn more about this issue by clicking here and here.) This is an important risk to consider, especially as the Bitcoin price has been on a tear this year, surging well past the $2000 mark. – Gareth van Zyl

Vinny, thanks for chatting to me today. Many of our readers would know some of your background with Gyft and, of course, the Shark Tank in South Africa. But it looks like today you’re being kept busy in San Francisco with a new venture of yours called Civic.com, which plans to protect people’s identities by using the blockchain. Can you tell us a little bit more about it?

Sure, Civic is basically a decentralised identity system. We’re trying to build it as a global platform for identity where people around the world can use their identity information on their devices with companies that are willing to accept it. So, think of it as a digital passport, a digital ID and what makes it different is it’s very much divorced from the notion of having a server that stores all your information. So, what happens is Civic verifies your information from third-party sources. So, for example, in South Africa we could use bank records, we could use the department of transportation, and once we verify all the information, we put special cryptographic keys on the devices and lock it up using touch ID or facial recognition or voice or whatever method we can use with the device that you have. And when you present those credentials to somebody else, they don’t have to go and re-verify it, they can just trust that we did correctly and that the issuing party, whether it was a government agency or a company is a trusted issuing party and so that ID credential is valid. And because we don’t store the information on our servers, we can’t get hacked and lose your information – it’s only on the device. The receiving party – they receive your information and they know it’s secure, and the costs involved are less and they can trust that it’s you. You can then prevent the situation where someone walks into a bank branch and with a utility bill and an ID and opens an account in your name because if you were registered using Civic, they would detect that and say, “Well, where’s your Civic information, where are your credentials”. You can prevent identity theft, you can open up accounts online, you can start taking out things on mobile phones, this can effectively replace the RICA, FICA process in South Africa. The idea is making ID credentials reusable on a device level, and so if we have everybody in the world’s information, you have 7 billion people with different information on all the devices and therefore the network is secure because it’s not all in one place, it’s all just spread across (on the blockchain) and we use a network of validators and verifiers that can attest to the fact that you are who you say you are. And so, yeah, could you have a situation where somebody steals your phone and cuts off your finger, yeah, yeah (laughs) that’s a gun to your head scenario that happens. But the chances of that happening is way less than the chance of somebody forging a document and that’s the way we look at it…. And so this is a way more safe and secure system than what’s out there today.

So, it’s just launched – I’ve tried the app and downloaded it. What I’ve realised is that it’s quite a simple, easy to use interface but it looks like you’ve partnered with a few companies, is that correct? So, basically, you would scan a QR code and that would then be stored in the app.

Vinny Lingham, the CEO and founder of blockchain identity business Civic.com.
Vinny Lingham, the CEO and founder of blockchain identity business Civic.com.

Yeah, exactly. But we’ve only launched with two partners so far, with BNKtotheFuture and TokenMarket…there’s a whole bunch in the works now, we only launched two weeks ago, three weeks ago. This has been a very busy time for us, and we’re just onboarding this with very large partners right now and (looking to) a global expansion. The most important thing to make sure is that the system works, people can onboard. We’re in a little bit of a beta phase right now where we have limited partners using us, but have had so much interest from worldwide, I mean we’re going to have hundreds of partners by the end of the year without a doubt and probably even thousands. And so this becomes hopefully the standard for logging into websites. So when you log into websites (using Civic) you don’t need a username and password, you don’t need to have a two-factor authentication tool or a YubiKey or one of those devices to confirm a different code every second – it’s all linked to your device (ie your smartphone) and we have Bitcoin and blockchain technology and wallets built into the device to make sure your device is unique and fingerprinted and, so, again just a very safe and secure way of doing it. And by the way, this is available to all South African companies right now, anyone can go to docs.civic.com, look at the API information. If you’re running, for example, a forum and you want to get rid of people who are spamming the forum with comments spam etc., you can just make them have a Civic account because the way our system works is that you have two levels of accounts. You have basic accounts which is just email and password, so email and mobile phone. And then you have verified accounts which are email, mobile phone number and your social security number or your ID number, plus home address and a whole bunch of other information. With verified accounts, you’re basically going to have zero spam, because if you block someone they can never come back with that same verified account because the way it works is you, as an individual, will only ever have one account with the Civic network ever and, so, you have to be very careful using that. You wouldn’t engage in bad activity knowing that if somebody blocks you, you could never come back, through Civic, to that company. So, we want to move to a world where you can also protect your identity, so that you don’t have to log into a forum or website or anything, giving up your name or anything like that. For example, if you’re on a dating website, which we’re looking to as an industry pretty heavily right now, you can verify that you’re 27-years-old, and you live in Johannesburg and you’re male, but you don’t have to put your name in there and you don’t have to put in any of your information and Civic will validate that information to the receiving party and they don’t have to know anything else about you, but they can trust that you are a real person. And that’s really what Civic is about. So we give you levels of privacy and control that you want, around your personal data and we have a very long roadmap as to how we improve this in the future.

It looks like you could have a whole range of implementations. I was watching a video on your website where there was a lady who was booking a flight ticket, and she did it without usernames, passwords. She simply rocked up at the airport and used her mobile phone to get her boarding pass.

Yeah, that’s the dream and so, right now, we’re just driving for partner adoption, which is looking really strong. Yeah, and eventually, you should just be able to use your phone for everything and not have to ever have to pull out an ID card, ID document or even a passport one day.

This could ultimately completely kill usernames and passwords, as you’ve said?

For the partners who are using us right now, it already has.

If South African businesses want to get involved, they can just visit your site and work out the APIs and connect from there?

Exactly, every business should be using Civic as an option. You already have other two-factor authentication options like Google Authenticator or YubiKeys. SMS is the worst two-factor authentication because it’s easily hacked. It’s very clear that SMS is a very bad way of doing two-factor authentication. So, just because you have access to a phone number and SMS, it doesn’t mean that it is the person because the SIM card can be swapped etc. So, two-factor authentication is moving quickly towards projects like Civic. You can have the hardware tokens because people have like YubiKeys and that sort of thing, but it’s not as secure as having someone use their fingerprint on their iPhone and verify that that’s them before logging in. We see a lot of demand, especially with Bitcoin wallets right now to use Civic as a two-factor authentication method. So, you can keep you can keep your user and password for those services but then, as an extra method, once you log in with a username and password, it says please scan this code or use your Civic ID on your app to let you into the app, and then you always know it’s you. This is something which banks, financial services, any company that has sensitive information or access to protocols can use Civic to validate the person logging in, and we’ve got some companies looking to do this at a corporate level where to do, for example, a wire transfer or a payment, you can get people to verify their Civic IDs in order to have their payment go through. The implementations of this are pretty profound. You can do it so many different ways, but it’s going to change the world, the fact that you can now use the hardware on a phone, the camera, the microphone, the fingerprint scanner to validate an identity of somebody before a transaction or a login is attempted or performed.

And what do you make of the hype around blockchain because obviously, you’ve used blockchain with Civic. There’s a lot of hype around it at the moment. Do you think it’s over-hyped?

Look, it’s definitely over-hyped. What we’ve been doing for the past two years is building a Bitcoin blockchain based solution which really one of the key and first major use cases for blockchain technologies. It’s decentralising identity stores – so not having everyone’s ID information in one service and making sure you can trust that when that digital information is transferred from one place to another. There is a lot of hype; there will be a bit of a bubble, there will be a crash. It’s the usual cycle for technology and it will repeat itself over and over, but I think what you’ll find is that in this cycle, you’ll find real use cases coming to the fore and companies like Civic producing products that people can use. The best thing about civic is that most people who use the product will not even know that they’re using Bitcoin blockchain on the back-end. Bitcoin blockchain becomes like TCP/IP, it’s just a protocol and its super secure and guarantees privacy. Another important note is that your information never sits on the Bitcoin blockchain – we’re just using that as a public key infrastructure for cryptography. All the information only sits on your device – we can’t have access to it. So, any government in the world who sends us a subpoena, we’ll have to ask them to bring their best cryptographers to prove to them that we don’t have the information – because we just don’t have it. So, we can’t give your information out without your express permission.

So, you haven’t built your own blockchain as such – you’re leveraging the Bitcoin blockchain?

It’s the most secure blockchain in the world so, for now, we think that’s the best way to go.

You’ve become known as the Bitcoin Oracle. Last year, you forecast that Bitcoin would hit $1000 and it did. Can you tell our audience why the price went to $1000 and how did you get that right?

Well, I think it’s actually, the reason they call me the Bitcoin Oracle is that I’ve had accurate predictions for like 4-5 years in a row. I even predicted $3000 this year and we already hit it. I had a good sense of the market, the psychology, the supply and demand curve, the network activity. It’s not so much guessing as much as it is more like predictive analytics around behaviour and adoption usage. Now, I would say that right now we got to $3000 a bit too soon, so it will probably fall back a bit. At one point, I predicted that it would go down to $850 and it hit $880, from $1250. It should have stayed down there a lot longer and the reason for that is that there are some technical limitations in Bitcoin around scaling, which is coming to the fore now on 1 August. So, 1 August you’re potentially going to have a chain split and a hard fork and a couple other technical nightmares that may happen on that day, or in that week, which would make it … you know, you don’t want to spend Bitcoins that week at all, otherwise, you’d lose. There are some very bad outcomes that are forecast. I don’t know how bad it could be; I’m hoping that it blows over ok. But the current price is not factoring in all downsides that could happen on 1 August – it’s a pretty big technical change. So, I’m very, very cautious. So, I sold my Bitcoins. Right now, I’m waiting for this to be resolved because I think a lot can go wrong and I think as move closer to the time, people are going to start panicking a bit more and the price still going to tank further. After this is resolved, I will be a lot more bullish again on Bitcoin, but until the technical scaling issue is resolved, I’m a bit more bearish for a while.

A collection of bitcoin tokens stand in front of an illustration of binary code in this arranged photograph in London, U.K., on Wednesday, Jan. 4, 2017. The electronic coin that trades and is regulated like oil and gold surged 79 percent since the start of 2016 to $778, its highest level since early 2014. Photographer: Chris Ratcliffe/Bloomberg

For some of our listeners out there who might not be familiar with that, the technical scaling, if you can just briefly explain what that means exactly. Because I know that there’s quite a lot of debate around the speed of transactions as well, right. So does that tie into that?

Yes, it’s a topic which I don’t want to open for discussion right now – it would take us an hour just to get up to speed with what’s going on. But let’s just say that around about the last week of July and the first week of August, until things have calmed down, don’t spend any Bitcoins. Just sit on your Bitcoin, don’t spend them. If you’re worried about the price dropping and whatever else, then sell then beforehand, now would be a good time. I could be wrong – it could go up further, but the market is not pricing in all the downside that could happen and the risk that could happen. I don’t like the kind of risk profile that I’m seeing.

What are the chances of the Bitcoin price going past the $3000 mark then again, do you think then that those chances are slim considering that 1st of August date?

After August 1, I think it’s very likely that if we get to the point where the issues have resolved and there’s one unified Bitcoin going forward. But if there are two camps and one creating two Bitcoins and other bad things could happen, then I don’t see it going there (the $3000 mark) at all. So, I’m sceptical with regards to that. I’m sceptical of $3000 again right now, I think it’s a very tough target, even at $2500 a hit, given this scaling issue and technical challenge. The smart money wouldn’t be buying right now, in my opinion. Look, if this thing dips, people may buy because they think it’s cheap, but I still think until you’ve actually got past the point of resolving this impasse, it’s risky. I mean risk-reward right? So, let’s see how it goes.

Bitcoin Price

 

Why have people been buying so much Bitcoin to date, regardless of this. It seems like it would be madness then right?

Well, the promise of Bitcoin is really strong. It’s got all the ability to change the world and a global store of value and it’s hedging into emerging market currency deflation. Lots of good reasons to buy Bitcoin. The reality is that’s the promise, and unfortunately, most people don’t understand the technical limitations and reality on the ground. I guarantee you, 95% of people out there buying Bitcoin have no idea about this 1st of August chain split risk and whatever else. And so, they will just keep buying and the price will go up because of supply and demand, but the moment this happens and people start realising what’s going on, I think it’s going to dip because it’s going to kill demand for a while. And it’s one of those things where we just don’t know what’s going to happen. I mean, we’ve got a lot of predictions, we’ve got a lot of technical analysis, and literally, all the scenarios look bad. There’s only one or two that look good and those two are very unlikely in my estimation – we’ll see.

And what about this rise in other cryptocurrencies? There’s been a lot of attention around Ethereum, as one alternative cryptocurrency. I guess Ethereum also works on the whole Blockchain concept but it has smart contracts etc. What is your take on the surge in some of those other cryptocurrencies?

Overall, I think we’re in a bit of an inflated bubble – there’s a lot of froth in the market. People are getting ahead of themselves. The technologies are fantastic but the use cases in commercial terms and ability to generate revenue and whatever else is lacking. Now, some of these things you have to suspend belief, otherwise you will miss out on an opportunity on what part of the future is from a self-fulfilling prophecy perspective. The thing is something like this grows up in terms of price and gains value and then starts working, but it wouldn’t have worked if no-one believed in it in the first place. I call it faith-based currency. So, in some cases, you have to suspend belief in order to make it successful. In other cases, I’ll look at it and say, look, there’s an oversupply in these things, which one doesn’t take off, I don’t know, but maybe you should have a diversified portfolio and you see which one takes off. Now, I think that the trend is very clear that cryptos are the future. What their value is in the future and whether there is one domineering, it’s early days. I think there’s, again, risk and rewards and opportunities. There’s money to be mad and money to be lost. I do think that you will see, with Ethereum and others, that in a couple of years time that the prices of today may look cheap in respect of where they are. But if that’s three years or five years from now, whether there is a bubble and a crash, I can’t predict that. It’s human behaviour – a lot of this depends on where things go on a global scale. I can say that if Bitcoin survives -— whatever survives in August — it’s going to become the backbone of this entire world permanently because it’s such a massive fundamental change that happens in August. And then the price may spike to $10 000 – you just don’t know. But right now, it’s in a spot where it’s precarious and I think other cryptos are all trying to challenge Bitcoin’s dominance and we’ll see.

Vinny, it’s been an absolute pleasure talking to you today – thanks for chatting to me.

Thanks Gareth

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