by Albert Szmigielski
This post will argue why Bitcoin, blockchains, and blockchain-based applications are here to stay and thrive.
The Bitcoin network and ecosystem is enormous. The computational power of the Bitcoin network is mind boggling (around 600 Petahashes per second as of Dec 2015). The amount of investment in the Bitcoin ecosystem is already in the Billions. Currently Bitcoin’s market cap is only around five billion US dollars, but this is a lot for a peer-to-peer, open source project. Bitcoin also solves a problem that has eluded people for quite some time, how to send money cheaply, efficiently, and quickly? The services that exist now do not have any of these traits. Just ask anyone who routinely sends money overseas. Furthermore Bitcoin, for the first time allows micro-payments which can open up a whole new market and allow for new business models. Would you pay a penny to read an article?
Bitcoin the currency is also programmable, this feature opens up another bag of possibilities. Combined with smart contracts (see below), programmable money can do things that were hereto impossible or simply too costly. For example it would be possible to rent out your extra hard drive space with payments coming in every day, or a self driving car in a hurry can pay those who are not in a hurry to let it pass. Those are just quick examples, the clever uses are still waiting to be discovered.
When the inventor(s) of Bitcoin utilized a blockchain for storage of the Bitcoin ledger they may not have realized that the combination of game theory and public, decentralized data storage is revolutionary. For first time in history it became possible to achieve consensus among mutually distrusting parties (as long as majority is honest), without central authority. That ability alone has the potential to disrupt industries that were so complacent so far, they did not think that innovation is required. Banking, Insurance, all kinds of financial applications, any record keeping, and probably other industries should fear the blockchain concept. For example, it takes 3 days to settle a securities trade today. Three days! In the age of instant communication, three days to settle a simple trade seems rather ridiculous. There are already companies attempting to disrupt the securities settlement industry (t0.com).
A smart contract is an automatically self-executing, software-based contract. The easiest example is a sports bet, where upon the sporting event’s conclusion the contract pays out the winner. There are almost endless possibilities with smart contracts, starting from simple one-time contracts all the way to complex legal structures. One of those structures is called a DAC, a Decentralized Autonomous Corporation. It is a corporation where all its business rules are encoded as open source software. As a result those rules are incorruptible. It is possible for a DAC to run itself entirely, without any human involvement. This scenario is probably a couple decades away, but the potential is here today.
Bitcoin is here to stay, it serves a purpose and it solves a real problem. Furthermore it has the first mover advantage and a network effect like no other digital currency. The blockchain technology is currently the technology of the day. Every bank and financial institution are using it as a buzzword. Blockchains have a bright future, we will see more and more of them being used to underpin various applications. Combined with programmable contracts, blockchains have the potential to upend a lot of old business models that are still around today. We feel that Bitcoin, blockchains, and smart contracts serve a need that most of us don’t even know we have.