Bitcoin, the elusive technology, emerged from the shadows on the 22nd May, 2010 with the first, real-world transaction in exchange for 10 000 bitcoins to a staggering all-time high price of $1216 USD 30-months later. Created by a mysterious figure, barely understood by most, Bitcoin has remained revolutionary as a technology, risky as a currency and misunderstood as a consumer product.
This fascinating creation has kept many up at night in wonder and fear. The idea of Bitcoin is only truly understood when seen as profound and revolutionary; it’s simply a decade ahead (being conservative) of its time. But like all things, they have a beginning and an end.
The vast amount of brilliant ideas waiting to be capitalized upon is equitable only to the internet.
The most interesting part about bitcoin isn’t the currency, it’s the protocol. Anyone who understands what bitcoin represents understands the myriad of use cases that were previously thought to be impossible. This is what makes bitcoin special, when you remove its programming, cryptographic security and database jargon from the equation you are left with a sleek method of transferring information between people the likes of which have never been seen before. This accolade does not come easily; the vast amount of brilliant ideas waiting to be capitalized upon is equitable only to the internet.
This is bitcoins biggest secret. Fundamentally, the internet allows for sharing of information from one person to another. Bitcoin is very similar, it allows for sharing of information which is scarce from one person to another. Both do not require middle-men (in principle), both are advantageous to their rivals.
Bitcoin allows for the transfer of information with a condition of objective measure, fundamentally, its consensus without a third party.
This is the most important concept; it defines who understands bitcoin from someone who doesn’t. Bitcoin allows for the transfer of information with a condition of objective measure, fundamentally, its consensus without a third party. Any type of transfer/exchange you complete today can now be done without an intermediary, for free. That is a world first.
This implies that many existing services that deal primarily with money or its transfer can be transformed to be faster and cheaper than ever before and in most cases entirely automated. The internet revolutionized many different business types. It completely obliterated the existing information based businesses (Newspapers, Movies, Music), reformed businesses with an information component (Retail stores, online shopping) and created entirely new businesses (Dot-com boom). Bitcoin is set to do exactly this for finance, firstly by transforming all ‘value transfer’ based businesses (Remittances, Banks, Settlement services) then businesses with a financial component (every businesses) and entirely new ones (Bitcoin boom).
Any type of transfer/exchange you complete today can now be done without an intermediary, for free. That is a world first.
One of the biggest issues for Bitcoin is the size of its adversaries. The existing establishments are archaic, wealthy and powerful. They will not roll over; they will not accept defeat to an open-source program. But people have the ultimate choice in this equation and this new technology is undisputedly faster and cheaper. Let’s look at three possibilities for Bitcoin.
1. Bitcoin becomes a niche payment system
Never capitalizing on its inherent talent, bitcoin goes the way of hipsters and alternative coffee shops. Never becoming a consumer-friendly product, It facilitates a minority to do things for no greater reason than to look trendy on Instagram.
2. Bitcoin becomes a payment layer for multiple payment processors
Although people love bitcoin for its convenience and efficiency, they are willing to pay a little for consumer protection and functionality. Companies like Coinbase and Bitpay are operating like Visa and Mastercard (Debit cards) with competitive price structures giving people choices between which services they want and how much they are willing to pay.
3. Bitcoin becomes the payment processor
You buy an electronic device; it resembles a phone and is called your ‘wallet’. This device gives you instant access to the bitcoin network; it is like a debit card but for bitcoin and smart contracts with added services and security. Of course, this device is optional, but who wants to wait around for 10 minutes for your payments to clear, not to mention accidently entering in the wrong address. In this world, bitcoin operates as the predominant payment processor which facilitates all consumer and commercial trades. Bitcoin is the global network.
These three ideas are based on the simplest idea of bitcoin as a currency and take into account the network effect only. The purpose is to highlight the possibilities of what could become of bitcoin. Bitcoin will probably become something entirely different, eg. The blockchain could become the infrastructure which services multiple side-chains, becoming the decentralized backbone to a global consensus network.
But one thing to keep in mind is that any new businesses created using bitcoin technology (smart contracts, push payments, micropayments, anonymization, transparency, open shared ledgers, DAO’s, DAC’s, irreversibility, lower barriers to entry and many others) will require a P2P digital currency unit of account, you simply cannot have one with the other. The most important part to understand about bitcoin is not the value of the currency; it’s the technology behind it. This is what gives bitcoin its intrinsic value.