While Bitcoin has grabbed the attention of many as a form of speculation or by the negative press headlines, the elephant in the room remains: Bitcoin’s massive potential as a disruptive technology.
The Beyond Currency three-part series will put the Bitcoin revolution in context from both a technological and historical point of view.
Bitcoin and other crypto-currencies have certainly become the hot topic in the media recently albeit being largely negative as everyone loves a good scandal. As the general public is digesting fear-mongering and sensationalist headlines from the press involving the now-infamous Mt. Gox, many Bitcoin enthusiasts, programmers, developers, and entrepreneurs have not fallen for these distractions.
Instead they are focused on fostering Bitcoin as a technology – one that would solve many of the problems we face today, beyond currency.
The concept of a disruptive technology is analogous to natural disturbances. Think of a volcanic eruption, a sweeping forest fire or a tree falling in the Amazon rainforest. These disturbances clear up room in a dense forest giving opportunity for various animals, plants, and organisms to take advantage and establish a foothold in the newly created gap. As a result, this encourages speciation and endemism within the given habitat, while making the eco-system more complex, diverse, and stable.
Disruptive technology is similar. In fact, almost every piece of tech we have today was disruptive to their predecessors at some point in time: from stone tablets to paper, and up to the telephone and the internet. And while the successor does not always eradicate the previous technology, they certainly make it less relevant. For example, newspapers still exist although they are not as popular as they were even 20 years ago with the majority shifting their operations online.
Landline phones and mail still exist, but the new king is obviously the mobile phone and the internet. If we follow the logical pattern, these technologies will also fade into obsolescence in time.
Technology adoption lifecycle
The industrial revolution was a prime example of how innovation works. First, the innovators, regardless of whether it was the inventor of the power loom, Edmund Cartwright, or the creator of Bitcoin, Satoshi Nakamoto. A disruptive technology creates a vacuum or a gap in the economic landscape. Then, early adopters such as the miners and entrepreneurs of today try to fill that void because of the existing potential for growth, opportunity and profit.
Next, the so-called early-majority start to adopt the new tech because they understand its benefits over its predecessor such as those consumers who bought the iPhone back in 2007. And finally, as time passes, the rest of the population or the late adopters catch up followed by the laggards who are able to finally ditch their black and white Nokias.
When it seems that everyone has a smartphone and the ecosystem is saturated, time is ripe for a new disruptive technology.
Bitcoin is more than just a new form of money. It is a protocol for exchanging value over the internet directly without any intermediary. Bitcoin is based on a public ledger system, which everyone can see, known as the blockchain that uses cryptography to verify transactions.
Bitcoin users can access their account and check their balance with a password known as a private key. As a result, Bitcoin is peer-to-peer and open, yet secure and nearly frictionless. Much has been written about the payment applications of Bitcoin, including remittances, micro-payments, and donations.
However, Bitcoin could disrupt other systems that rely on middle-men businesses in similar open, peer-to-peer fashion, from the transfer of property and identity management to music and entertainment, just to name a few.
The trend towards decentralization
Simply put, Bitcoin’s cryptographic technology makes it possible to decentralize trust. Since two strangers cannot and should trust each other, anytime a transaction occurred between two parties, trust was typically transferred to a third party for security and peace of mind. A bank or a notary is a good example, as they sign-off on a transaction minimizing risk for the counter-parties.
In the 90s the internet decentralized information. Prior to this, one had to physically send a letter to another person using an intermediary service. This required time and you more or less trusted the mailman would not open and read your mail. Now, you can send the same message in the blink of an eye without relying on and putting your trust in the post office.
Bitcoin as a technology has the same potential to disrupt the economic landscape and not just the banking, money-wiring industries. Moreover, the decentralization trend is not limited to Bitcoin as the internet has enabled online services like AirBnB that are transforming the hotel industry with peer-to-peer bookings. A quiet revolution is happening before our very eyes.
If you think that the cryptography behind Bitcoin can only change how we look at currency then consider the following.
Transfer of property
Bitcoin's protocol could make complex property transfers much easier while transforming the services that support this industry.
Today, the transfer of large assets requires a lot of time and resources. To purchase a house from a seller, you need to engage third parties like a real estate agency, lawyers, and notaries to not only transfer the property title to the buyer but also learn about the owner, history of the house etc. This process requires a lot of time and includes significant fees and paperwork.
The blockchain could change all of this. Crypto-currency can be designed in such a way that they represent real assets. Companies such as Colored Coin
are already working on ways to include physical property information into a small fraction of a Bitcoin.
This “footnote” within the Bitcoin would publicly identify who currently owns that property, and could include a record of both past ownership and property history. When purchasing a house, one would be able to see not only the ownership history but also damages, insurance claims, inspections, and repairs over the blockchain and the potential buyer could purchase the house right then and there using Bitcoin.
As a result, a more efficient, direct and frictionless process could allow individuals to transfer property without having to rely on the services of a real-estate agent, lawyer, or notary to sign-off on the transfer.
Bitcoin’s cryptography could potentially transform identity management.
Today, we have a myriad of identify verification documentation such as passports and driver’s licenses that use the old paper-based system. The problem with this is that as other technology improves, it gets easier to forge and steal these documents.
Interpol Secretary-General Ronald Noble stated that passport theft is the ‘biggest threat facing the world,’ with more than 39 million passports currently listed
as missing or stolen in the Interpol’s database.
But now, cryptographic technology could create a unique key that is impossible to forge and only the holder of that key could verify. A private key could be presented at a border checkpoint, which could be cross-referenced with the government's database and the process entered into the ledger.
Not only could this speed up or even eliminate waiting in line while increasing security and mobility, but it also eliminates the possibility of human error making travel safer as a result.
Blockchain technology could also be applied to driver’s licenses, social security and any other form of personal ID documentation.
Music and entertainment
The emergence of iTunes transformed the music industry as well as gaming and software distribution in the form of apps. Before people purchased their music or software at brick-and-mortar stores. And yes, Bitcoin could also be the next evolutionary step in how music and software are distributed.
When you purchase an app from the App store or a song from iTunes, Apple takes a 30% cut or 30 cents for every consumer dollar spent. The peer-to-peer value exchange system of Bitcoin could be applied to a music distribution platform circumventing Apple’s monopoly.
For example, an artist will most likely opt for 100% instead of giving companies like Apple a 30% cut. This could establish a much more intimate relationship between artists and fans, lower the price of music, and boost creativity not only from a financial-incentive standpoint, but also due to a much more leveled playing field for up-and-coming musicians who are unable to take advantage of the iTunes platform.
This trend is already unravelling in the form of such services as Soundcloud and Bandcamp so perhaps all is missing is a decentralized, P2P form of currency.
Property, identity management, and entertainment are just a few examples of how a peer-to-peer, open, and frictionless system could change how we do business and interact in the future.
Practically, any human interaction that involves a third-party could potentially be dis-intermediated by cryptography from buying organic food directly
from the farmer to voting. The possibilities are endless.
However, Bitcoin’s technology will have to improve and resolve its issues of security, operability, and accompanying infrastructure support.
But despite the scandal-ridden headlines, the Bitcoin community has shown remarkable perseverance and adaptability in overcoming these challanges. Projects like Etherium
and wearable wallets
could prove to be the spark we need that will pave the way towards a brighter future.
And innovation around Bitcoin is already here. Of course, early on, Bitcoin’s cryptographic technology will mostly revolve around financial transactions, but the real breakthrough, lies beyond.
The Coin Telegraph would love to hear your thoughts and opinions: What other industries could be disrupted and supplanted by cryptography and crypto-currencies? What other innovative technological applications could it have?