VC Dumps Five Million Real Dollars into Bitcoin HysteriaS

In the past, Fred Wilson's Union Square Ventures backed startups with decent ties to the mainstream: Foursquare, Tumblr, Soundcloud. Not anymore: welcome to the crazy, volatile, nerd gold rush, Fred.

The WSJ reports Wilson's firm will give Coinbase—which aims to process and simplify the nigh-impossible to explain paranoia-currency—a cool $5 million infusion. Why? Fred's not sure:

[Wilson] added that he thinks Bitcoin is poised to be a true game-changer for the business world, and the tech community in particular. “Hackers are the animals that can detect a storm coming or an earthquake,” he said. “They just know, even though they don’t know why, and there are two big things hackers are excited about now and can’t articulate why–Bitcoin and 3D printing.”

An earthquake is a pretty stellar analogy, Fred, given that Bitcoin is prone to fits, spikes, and craters, without any warning. Maybe we'll all use Bitcoin to pay for our lunch someday, but so far the system hasn't wiggled its way out of some pretty fundamental flaws: it's horribly complicated, easy to disrupt (in the old, bad, real sense of the word, and for Christ's sake, the Winklevii own a lot of them. If that's your dowsing rod, then we should all invest in pistachio futures, too.

Wilson's Trust the force, Luke attitude toward Bitcoin just underscores its bizarre appeal—we're all talking about it because an obscure, obfuscating group of libertarian nerds are gaga for the digital currency. It seems like it must be big, because it feels big, vaguely. Somewhere. It's hard to imagine why this scene, documented by The Observer at a geek-chic Manhattan bar that accepts Bitcoin, couldn't have happened with greenbacks:

Here’s how it works: when a patron wants to buy a drink with bitcoin, the bartender will present him or her with a tablet that’s running BitPay, a service that allows merchants to process bitcoin transactions. BitPay spits out a barcode that says how much the drink is worth in bitcoin, and then the customer uses his or her phone to scan the barcode, automatically deducting the amount from his or her bitcoin account. So far, Mr. Shrem said, the bar has done $20,000 worth of transactions in bitcoin, though he admitted the clientele hoping to use bitcoin is often “nerdy” and “start-uppy.”

Wilson's got five mil on the table saying you'll want to buy drinks like that, too. [via Betabeat]