Bitcoin has been around for a decade now, but last year it gained serious social currency.
Whether it was family discussions during the holidays, rap songs or a skit on Late Night With Seth Meyers, it was hard to miss the fact that Bitcoin’s value had risen about 14X over the course of the year. Serious people on CNBC talked about Bitcoin’s value hitting $100,000 or even $1 million. Others predicted the price would be closer to zero.
But focusing on Bitcoin’s price is misguided. It’s like obsessing on the value of Napster in 1999 rather than looking at the effect that peer-to-peer sharing was going to have on the music industry and the tech world. Look past this Dutch tulip mania and you’ll see that blockchain is about to redefine business.
Bitcoin is a product of blockchain
Business-focused activities like carrying on transactions and enforcing contracts require neutral third parties. Everything from law firms to banking exist to fill the need to provide such validation. If you want to send money, for instance, you aren’t physically transporting cash but instead are making an entry in a bank’s ledger.
Blockchain, the distributed online ledger, makes such verification superfluous. As a result, there is a big opportunity to disrupt any industry that is based on this idea of being a neutral third party. It turns out that that’s a lot of businesses. For instance, Everledger has used blockchain to register more than 1 million diamonds so buyers can be sure what they’re buying isn’t synthetic or sourced from a war zone. TrustToken does the same for other real-world assets. Blockchain could even be used for land registries. (Russia is planning to test this in 2018.)
Financial institutions eager to avoid being Napsterized have also embraced blockchain. Santander believes blockchain could save banks $20 billion a year by 2022 and banks are experimenting with blockchain for everything from payments to identity verification. Exchanges like Nasdaq and the Australian Stock Exchange are also experimenting with blockchain.
As these efforts illustrate, blockchain offers a wide array of applications, not just the one it is most famous for, Bitcoin.
The idea of a distributed digital ledger that can’t be tampered with is so new that we’re still working out its implications. But the concept will keep evolving. For instance, smart contracts expand on the idea of a transaction by providing conditions and contingencies. A smart contract can enforce royalty payments for entertainment properties and can also be used to make claims on insurance policies.
Now this is where things really get interesting. A company of the future could be nothing more than a group of smart contracts and databases. As Albert Wenger of Union Square Ventures has pointed out, companies like Amazon, Facebook and Google are only as valuable as their databases of purchase histories, friends and past search histories, respectively. Breaking companies down to their component parts would make it easier to start a business, or sell one.
The deconstruction continues if you think of how businesses like eBay could be undermined by cryptocurrencies and blockchain. Already, at least one company, Soma, is exploring this idea. Why pay eBay’s 8%+ fee when a rival might offer 5% or even zero? (Hey, it happened with Craigslist.)
These are all future implications to ponder. Right now, transactions via blockchain are slow, evoking comparisons to the dial-up era of the Internet. But the genuinely disruptive potential of blockchain should command the attention of everyone in business. Bitcoin’s price fluctuations, meanwhile, should only be of interest to gamblers and speculators, at least in my view.