Bitcoin. To Bit or not to Bit?
The details of how bitcoin works on the block chain technology can be very complicated, but at the most basic level block chain technology makes it possible (for the first time) to send digital money (bitcoin) around the world almost instantly without moving through a third party, like a bank or credit-card company or thorough a service like PayPal.
Nina Kahn - 12 November 2015
You can compare bitcoin technology to a financial version of email, where messages can be delivered through the internet directly to a recipient in a matter of minutes without passing through a post office. Bitcoin technology makes it possible to deliver money from Honolulu to Dubai in a matter of minutes without paying any transfer fees to a third party financial institution.
The fact that bitcoin came out 6 years ago and is something that people are investing in is fantastic in its own right. If you are to understand bitcoin and its technology, you must first understand the people behind it, the people that use it, and why it makes them so excited.
So what is it about bitcoin that makes people so excited?
Bitcoin is the most famous of the cryptocurrencies that currently run on the block chain and many of the people involved in bitcoin today have lived through historical experiences that made them want to set apart third party power from impacting their savings. Many of these people have spent most of their life in countries with a seemingly broken financial system. Countries like Argentina, Cyprus and Greece. Countries that time and time again are enduring some sort of financial crisis.
There are a lot of historical experiences that make these people thrive for bitcoin and it tells you a lot of why bitcoin matters today.
Unlike traditional financial networks, kept by central institutions and banks, the bitcoin ledger is updated and maintained by everyone that is part of the block chain, not unlike how Wikipedia is written and monitored by its users. This means that the block chain doesn’t have a central point subject to failure e.g. like Visa or NASDAQ. The bookkeeping is publicly accessible so no one can manipulate a transaction, neither during nor after it has been made. Furthermore there is no middleman collecting fees with each transaction.
Bitcoin isn’t regulated by anyone or anything so you are in complete control over your bitcoins.
Today there are ca. 14.5 million bitcoins available on the market and there will ever only be 21 million bitcoins in existence. This is hardcoded into the code itself and could be one of the most attractive aspects of bitcoin. With Japanese yen, US dollars, euros, or any standard currency the government can print as many as they want at any time and for any reason. With bitcoin this can’t happen. The price of bitcoin in terms of US dollars, Japanese Yen or euros would have to constantly increase over the years as more and more people start to use it as a currency. Unless they don’t of course.
Everyone is curious
Many banks and mainstream financial institutions are exploring and experimenting on a variety of ways to use bitcoin and digital currency as a whole. Bank of America filed a patent to help streamline international money transfer by allowing them to use cryptocurrency. Barclays has two block chain 'labs' in London that are open to bitcoin and block chain entrepreneurs, businesses, and coders. They are currently working on 45 separate experiments.
Most mayor banks aside many financial institutions, including MasterCard, Amazon, and JPMorgan, have applied for bitcoin-related patents. Yet, despite the patents, none of them have actually started using bitcoin.
It is the best of times, and it is the worst of times
The reason few serious players have jumped on the bandwagon is due to the uncertain regulatory climate surrounding digital currency. Bitcoin is still very volatile and it is uncertain as a secure currency. There have been many cases of people having had their investment in bitcoin hacked and stolen. Mt. Gox, for example, once the largest bitcoin exchange in the world, declared bankruptcy after nearly half a billion dollars of clients’ bitcoins were fraudulently transferred out of their accounts. (A hacker generally needs only an owner’s password to steal his or her bitcoins.)
Many services such as Mt. Gox, built on top of the bitcoin protocol, has been fraudulently or incompetently managed but the bitcoin community still backs the bitcoin protocol. You can compare hacks or fraudulent attacks that have happened to bitcoin exchanges to that of email services not functioning. That a certain email service doesn’t work on the internet is equal to a bitcoin exchange not working - however it doesn’t mean that the entire email protocol is not robust.
Bitcoin is still a very high risk investment. JPMorgan CEO, Jamie Dimon, said recently “Bitcoin won’t become mainstream” and he suggests that governments won’t allow currency that doesn’t recognize borders. People used to say the same thing about the internet, but in this case that Jamie Dimon might actually be right. He continued “Governments are not going to be pleased if they lose control of their currencies, nor if they see people exit them”.
Bitcoin as we know it, let’s call it bitcoin 1.0, is such a fascinating technical breakthrough, and already valuable as it is. From my point of view it seems like we haven’t seen anything yet. It will take time before we can reap the goodness and benefits from what this new technology will be able to offer us.
What will bitcoin 2.0 look like? What’s for sure is that there are interesting times ahead, and scary ones too if you’re a defender of the status quo.
Do you want to know more on Bitcoin and the block chain? Please contact Nina Kahn (Fast Ventures) at +31 (06)82 019171.
Fast Ventures is a data driven venture discovery service, connecting corporates to fast growing technology ventures for partnerships and growth.