Bitcoin as Platform Innovation.

Discuss the Bitcoin ecosystem as a whole. Would you agree that it represents a case of platform innovation? If yes, what types of additional innovations do you foresee emerging on top on this ecosystem in the future? If no, what does it miss to be classified as a platform innovation?

The release of Satoshi Nakamoto’s now famous paper [1] and later on the accompanying software brought us the first digital currency, and the first practical use of a new type of record keeping system called blockchain [2]. Now in its 7th year of existence the ecosystem surrounding that invention grew considerably [3]. In fact it didn’t take long for innovators to realize that other services can be built and delivered on top of bitcoin [4]. And so Bitcoin went from being just a novel digital currency to being a platform that allows a plethora of previously impossible services to be built in a decentralized manner. Those who understand what this means appreciate the value of bitcoin and blockchain.

Platform.

Bitcoin established a platform [5] by offering a mining reward that turned out to be substantial in the physical world. As a result Bitcoin’s network is backed by mind boggling computing power. Developers quickly found ways to provide new services for Bitcoin. Some of the firsts included blockchain explorers [6], trading platforms [7], and merchant services [8]. Then came companies and projects that aimed to extend the usefulness of Bitcoin to other areas. In this category we can include all the Crypto 2.0 services that use bitcoin’s blockchain, such as Mastercoin (now Omni) [9] and Colored Coins [10]. The fact that services which were not imagined by Satoshi now exist is evidence that Bitcoin is a platform and therefore it does represent a case of platform innovation.

Additional Innovations.

With a little imagination we can speculate what types of additional innovations can exist on top of Bitcoin’s ecosystem. All the 4P’s of innovation can exist on top of bitcoin. Product innovation can be seen by the multitude of products/services being offered on the blockchain. Services that seek to used the blockchain as a way of establishing proof of existence of almost anything are one example. Process innovation can be seen by the way value can be moved at a distance. Examples in the process innovation space include all wallet companies. Position innovation can be seen by the ability to “be your own bank”, and by inventing a currency that is not controlled by any government. Paradigm innovation can be seen by digitizing value as currency and all the possibilities that follow from that seemingly simple idea.

As one can see, examples of all the 4Ps of innovation already exist on top of the Bitcoin ecosystem. The future will bring more examples in each of the 4Ps’ categories. One could envision a whole suite of financial services [11] built on top of the Bitcoin ecosystem. From simple money or value moving, all the way to banking, securities issuance and trading. Furthermore, record keeping services [12] could be entirely moved onto the blockchain and offer a new level of storing information accessible to the public in perpetuity. Services like land ownership records [13], marriage licences, contract notarization and more would become easy and very affordable when implemented on top of Bitcoin. Investments, crowdfunding, and philanthropy could also benefit from the innovations the Bitcoin platform provides. When the cost to move a very small amount of money makes the transaction viable, a large number of possibilities open up. This is normally referred to as micro-transactions. There of course will be innovations that one cannot imagine right now, as that is the nature of innovation.

Conclusion.

The bitcoin ecosystem definitely represents a case of platform innovation. Evidence to support this hypothesis was presented to alleviate the questions of even the most sceptical reader. We discussed the 4p’s of innovations that Bitcoin facilitates as a platform. Additional possibilities of innovation were also presented. Foreseeable innovation is the easiest kind to speculate about. The tougher question is what will Bitcoin allow that cannot be foreseen today by even the most apt futurists.

References.

[1] S. Nakamoto, Bitcoin: A peer-to-peer electronic cash system, 2009, https://www.bitcoin.org/bitcoin.pdf
[2] https://en.wikipedia.org/wiki/Block_chain_(database)
[3] http://www.coindesk.com/state-bitcoin-2015-ecosystem-grows-despite-price-decline/
[4] http://www.wired.com/2014/03/decentralized-applications-built-bitcoin-great-except-whos-responsible-outcomes/
[5] http://thenextweb.com/insider/2014/02/15/bitcoin-platform-currency/
[6] https://blockchain.info/
[7] https://www.bitstamp.net/
[8] https://bitpay.com/
[9] http://www.omnilayer.org/
[10] http://coloredcoins.org/
[11] http://www.coindesk.com/bitcoin-new-plumbing-financial-services/
[12] http://www.proofofexistence.com/
[13] https://en.bitcoin.it/wiki/Smart_Property

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