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“Bitcoin is a virtual currency.” How many articles have you read recently containing this phrase, or something similar?
I find this quite annoying, as it’s a bit like saying “a computer is a word processor”.
It’s true… but it’s not a comprehensive definition.
Bitcoin is big news
It seems like everyone in the digital marketplace is talking about Bitcoin. For me, this is great. As a big cryptocurrency fan, I want as many people talking about it as possible.
There’s only one problem. The rush to get a post out and join the virtual discussion has resulted in lots of people writing articles that they just haven’t had enough time to properly research, leading to a comments section full of angry Bitcoin enthusiasts.
The biggest mistake that’s often made is only talking about Bitcoin as a currency. In fact, it’s not just a currency, it’s an open-source, decentralised exchange capable of hosting a whole range of financial products.
It sounds a bit complicated, but think about it like this: if Bitcoin were a smartphone, the Bitcoin currency would be one of the first available apps.
Implications of Bitcoin
Recently, Bitcoin has been described as ‘Napster for finance’. That’s a pretty bold statement. Will cryptocurrencies really disrupt the finance industry in the same way that peer-to-peer file sharing has totally changed the music business? I think yes, and here’s why.
In an annual report filed to the US Securities and Exchange Commission, eBay stated that: “PayPal… faces competition... from services such as... Coinbase and Bitpay that help merchants accept and manage virtual currencies such as Bitcoin.”
Cryptocurrency-based merchant services seem to rarely make it into standard Bitcoin blogs, which is crazy, because they’re kind of a big deal.
BitPay, a payment service provider specialising in eCommerce solutions for virtual currencies, already provides services for a number of web giants, has been invested in by Asia’s richest man and has processed over $100 million in Bitcoin transactions.
The service allows web businesses to accept payments from customers in their local, traditional currency, use the Bitcoin payment network to transfer the funds and receive the money in their own local currency. And that’s not the only use. There’s also an API which employees can use to get paid in Bitcoins.
This is just one of the first startups to innovatively use Bitcoin’s payment infrastructure. The real game-changing aspect of Bitcoin is the fact that it’s an open-ended project. All the code is available for any developers to take and do what they want with.
This has resulted in hundreds of other cryptocurrencies based on the original Bitcoin idea, creating a kind of development sandbox for the main Bitcoin project.
Altcoins: alternative cryptocurrencies
Granted, some of these ‘altcoins’ are more worthwhile than others, but the nature of open source means that the most ingenious and worthwhile ideas will inevitably rise to the top.
One of my favourites so far is SolarCoin, a project that aims to incentivise the adoption of solar power by rewarding generators with virtual currency.
Out of all the altcoins, the one to really watch out for is Mastercoin. The project hopes to build upon the Bitcoin infrastructure to allow users to create ‘smart property’; in other words, the ability to tie any kind of property - digital or otherwise - to unique tokens that can be traded using the Bitcoin infrastructure.
Stocks, shares, bonds, employment contracts, houses, amusement parks - you name it. Anything can be assigned a value and traded, instantly, internationally, for little or no cost. That potentially eliminates the need for bankers, brokers and conveyancers.
If that’s not disruptive, I don’t know what is.