What if you could transfer stock to another individual, without a stock broker or stock certificate? What if you could sell your home, without a real estate broker or deed? What if you could sell your car without need for a title or vehicle registration? That’s the concept of the technology behind Bitcoin, and why you need to be paying attention to why this is so much more than just a currency or investment, and why your brand could be disrupted soon if it does not adapt.
The technology behind Bitcoin, the currency that is making little-known software developers millionaires as the price has gone from less than $1 per Bitcoin to $800 per Bitcoin in just a couple years, has the potential to revolutionize the way the world authenticates human-to-human transactions within a matter of years. The technology, or protocol, is called “The Blockchain”, and it has the potential to be so much more than just a currency-driven protocol. It’s an entirely new platform. “The Chain”, as I’m now calling this platform, is incredibly powerful, and I truly think it is a paradigm shift on par with the shift from the mainframe to the PC, the PC to the Web, and more recently the Web to The Cloud.
“Colored Coins”
I had the chance to sit down with some of these Bitcoin millionaires and soon-to-be-millionaires (I’m not exaggerating!) at a local event in Provo, Utah (organized by my friends from the upcoming documentary, “Life on Bitcoin“) called a “Bitmob”. The idea is this (in a nutshell): a group of Bitcoiners approach a local business and tell them they will bring x number of people willing to pay with Bitcoin if the business will be willing to accept it. It’s a great way to get businesses to start accepting Bitcoin as a currency, brings a lot of new customers to those businesses, and overall improves the economy of Bitcoin as a whole.
It was at this meeting that my mind was enlightened that Bitcoin is not just a revolutionary, worldwide currency without central control, but it is so much more than that. A group of developers in the Bitcoin community have proposed an addition to the Bitcoin protocol (introduced by a pseudonomous developer named “Satoshi Nakamoto” in 2008, but with precedence in other standards and technologies prior to that), which allows each Bitcoin transfer to contain a payload of text. They call these “Colored Coins“. This payload of text could be synonymous with writing on a $1 bill the words, “I’ll give anyone who gives me this bill a car”. Then, that person would be held to giving each person that gave them that $1 bill a car. However, attaching this to an encrypted digital transaction that can be guaranteed as authentic, traced between the sender and recipient (by code, not necessarily ID of a human – one fatal flaw in Bitcoin IMO), now you have an even more certain guarantee of that agreement that the entire world can audit and ensure took place. If it is dishonored, the entire world knows (instead of just the people that gave the individual the $1 bill). See this video to get a better idea of how their proposal works – it does a much better job explaining:
Bitcoin is Just One Implementation of The Platform (The Chain)
The power of why this is possible lies in a worldwide “ledger” called “The Blockchain“, basically a ledger similar to an accounting ledger, that each bitcoin client has access to, can’t delete, and proves the transaction takes place. Because the entire world has access to this ledger, there is no mistake in the transaction, and anyone can prove that the owners of the 2 sides of the transaction are in agreement with each other.
The power of Bitcoin is in a vast, worldwide network of connected computers that can all authenticate what agreements were made from which parties. Each of these computers performs computer algorithms to ensure the strength of encryption on each transaction, further ensuring its authenticity. I’m told that if you added all this computing power worldwide, it would equal the power of more than 500 of the world’s top super computers. The number of trades on the network, today alone, outnumbered the number of transactions on Paypal, and are soon to outnumber the number of transactions by Discover Card.
The sheer number of participants in this worldwide peer-to-peer network, the value attached to each transaction (in Bitcoin – the Bitcoin-to-Dollar ration today is approximately 1/$700 and growing), and most importantly the openness of the network, the Blockchain, and the protocol behind it make this new network designed for commerce as scalable as the Internet, and perhaps even more valuable. As you can see, it can also be used for more than just monetary trade. One individual is using it for authentic transfer of files between individuals, for instance.
The thing is it’s the idea of Bitcoin and the Blockchain that makes all this so powerful. There will be numerous additions to the protocol over time, and I’m sure other versions, making this concept more and more powerful. What’s powerful isn’t that Bitcoin exists – it’s that this is the direction it is taking us as a society, and the technology exists today. For that reason this is a very large platform that will have many components to it, just like the web has HTTP and TCP/IP and MAC addresses, and even OAuth, and OpenID that all work together in one. We’ll see the same with cryptocurrency and online commerce in ways that transform commerce and corporate structure as we know today. There are already other cryptocurrencies like Litecoin and Namecoin. Devs and businesses will create their own currency exchanges (I’ll explain that in another post).
Bitcoin is Much More Than Just a Currency
For that reason I see Bitcoin as much more than just a currency. Bitcoin is an open platform designed for commerce. It is the architecture and Infrastructure for all transactions that Jeremiah Owyang mentions in the Collaborative Economy philosophy. Whether in “colored coins”, or another standard, Bitcoin, and cryptocurrency in general, are the platforms that will power every guaranteed human-to-human transaction on the planet. It’s already globally recognized. Each transaction has an intrinsic value (Bitcoin itself is limited in number, giving it rarity, similar to Gold). Each transaction can be proved, with 100% accuracy. And it’s near impossible to forge, unlike traditional currency. And what’s even better is this is all a platform which will evolve and grow, just like the internet.
Bitcoin is what happens when you apply digital and cryptographic principles to accounting. This is as big a change in technology to come to the world as the PC, the Web, and most recently the Cloud. We are entering a new era of human-to-human commerce where the brand, and the government is no longer “the middle man” in these agreements. Is your business ready to handle it? Are we pushing our governments to adapt? I’ll do some articles shortly on ways brands can adapt, and what I’m telling my clients.
Want to know more about Bitcoin? This video will get you started!:
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