Bitcoin and the Future of Commerce

Ben Heidorn
7 min readJun 28, 2016

Bitcoin isn’t dead. Despite this, Bitcoin had its obituary written at least 106 times. But it is nowhere near dead.

In 2008, Bitcoin’s mysterious creator, Satoshi Nakamoto, published a white paper describing the core innovations to make digital currency possible. In this white paper, Nakamoto defines the backbone of Bitcoin, known as the blockchain, and consequently ushered in an exciting new field of peer-to-peer services that are simultaneously open-source and security-critical. With this innovation, a digital currency could rise without a central source, promising both security within cryptography and transparency of operation. With the blockchain, Bitcoin was born.

The original Bitcoin protocol was made freely available in 2009 for anyone to use, distribute, and copy, creating a digital economy powered by cryptocurrency. Since 2009, cryptocurrencies have amassed a collective market capitalization ranging between $10 to 15 billion U.S. dollars as users join the wave and perform transactions with these coins. As more people join, the value of the coins grows and interest increases, feeding the cycle. Collectively, cryptocurrency is exploding.

Credit to Notice how the recent rise in value is coupled with a rise in the number of transactions (shown as a histogram below the graph)— it’s not just speculation anymore, people are using this stuff!

The exact number of Bitcoin holders is unclear, but current estimates suggest that around a “few million” people have actively traded cryptocurrency for some purpose or another. Whether it is entirely out of speculation, to barter for goods, or to hedge their portfolio, the rate in which people are joining is increasing. This strongly suggests that its current numbers are nothing compared to what we could see in a few years’ time. In the next decade, “magic Internet money” might not just be an intriguing idea — it will be entirely normal, and you’ll own some.

The progress to be made between now and then is significant. But as we travel down this path to total financial independence, it will become abundantly clear: cryptocurrency is the future of commerce.

Courtesy of a shirt sold at the Bitcoin store. Buy it here.

Getting Over Our Fears of Cryptocurrency

The most vocal concern about cryptocurrency is the fear that one’s coins would suddenly be worth nothing, as if we’re waiting for the entire system to unravel like an elaborate Ponzi scheme. This implies that cryptocurrency is a bubble, or that it is insecure, or that someone could actually walk away with all of the coins. But this is why Bitcoin hasn’t gone away — its evangelizers know that fiat currency, such as the U.S. dollar, the British pound, and the Yuan, are rife with consistently exploited weaknesses. We believe that cryptocurrency is the only currency that makes financial sense in a digital world.

Loss of value is a rational fear in our global economy, especially following two major bubbles at the turn of the century. However, there is a crucial difference about Bitcoin: the value and distribution of Bitcoin and its operation can be independently vetted by anyone at anytime. On the contrary, corporations do their best to hide risks from investors, and many operate under objectionable policies that are known only to the few. The manner by which these apparently reliable companies run requires secrecy to shield us from the gritty, but necessary, details — particularly those that would have many investors bail out with good sense.

Cryptocurrency does not operate under a shroud of mystery. Entirely defined by its nature, cryptocurrency is decentralized and open source — anyone can read the secret sauce that powers Bitcoin. Further, no entity controls the distribution of the currency, and no person can rob from another without having direct access to their accounts — these promises all exist, and they are protected by the code.

Credit for this cool image goes to BTC Keychain.

It is a marvelous achievement. The operating rules of the currency, including the number in circulation, the ownership of the coins and their distribution are completely defined and accepted by all those who operate in it. The maintainers of the Bitcoin code can’t change the rules of the currency without requiring that more than half of the miners that run the Bitcoin engine consent to it. Bitcoin is transparent and consistent no matter where you are in the world, unlike any other currency out there.

The Creation of a Digital Economy

With transparency and decentralization guaranteed by its design, coupled with open source availability, anyone can copy the Bitcoin code, make changes, and start an alternative currency. And that’s what hundreds of programmers have done.

The value of these alternative currencies (or alt-coins) grows as more people choose to participate, agreeing on the ideology and technology that defines it. As such, several major cryptocurrencies are expanding the market, led by Bitcoin, Ethereum, Ripple, and Litecoin. These are followed by smaller, but substantial, alt-coins with established communities behind them. For example, Dogecoin is an inflationary cryptocurrency with a market cap around $25 to 30 million USD, and it boasts the most welcoming community of any of them. Post a cute image of a Shiba Inu on the Dogecoin subreddit, and you’re more than likely to receive a few tips in Dogecoins to kickstart your alt-coin portfolio.

For example, this picture never gets old.

With the expansion of alt-coins, the market capitalization of all digital currencies is decoupling from Bitcoin’s domination, and its collective value is approaching a distributed spread. Among the major coins, Ethereum today has a market cap over $1 billion USD (Litecoin first achieved this milestone for alt-coins in 2013), and Bitcoin’s percentage of total shared market value is falling while the actual values of Bitcoin and other coins is rising. As a whole, faith in cryptocurrency is growing strong.

Going Beyond Bitcoin’s Volatility

The stability of cryptocurrencies is always in question — in the past month, Bitcoin shot up from $450 to $760 USD, plummeted to $550 and rose back up to $660. Investing in cryptocurrencies is not for the faint of heart, and anyone serious about them is betting that their value will rise far beyond the record highs. The investment is not a short term one, but a very long term view — the view that the ownership of a single Bitcoin could eventually pay for a car or a down payment on a house. This long term view is held by those who are holding onto the coin (a popular meme calls this action “hodling”), where investors await the value of the coins to go “to the moon” and carry all of its investors with it.

The logos for Litecoin and Ethereum.

Yet with any groundbreaking technology, the first mover does not always stay as the market leader. While Bitcoin today is rising in value, many proponents of cryptocurrencies disagree with some of its design and intention, which has helped to grow the market for alternative coins. The intrinsic values of Ethereum and Litecoin reflect technical changes made by its creators to distinguish them in crucial ways. For example, Litecoin uses a different cryptographic algorithm (called scrypt) and offers a shorter transaction confirmation time, and Ethereum introduces a means for developers to extend the currency with their own applications.

Commerce Ruled by Cryptocurrency

The power of cryptocurrency comes from its decentralization — it is borderless money, where a transaction at a local market incurs nearly the same fee as paying a contractor on the other side of the world. With this power, shopkeepers can operate anywhere and sell to anywhere, bound only by the legality of what can be sold and regulated by taxes. Moreover, purchases made with a credit or debit card can result in a major security failure and theft of the card number, but cryptocurrency does not have this weakness. Cryptocurrency transactions only contain enough information to be processed, but not enough to steal the paying or receiving person’s account. Unlike credit cards, any attempt to steal a person’s money by spying on a cryptocurrency transaction is futile.

A shop in the Netherlands accepts Bitcoin. Credit to Wikipedia.

With the proliferation of online and mobile sales and increased efforts by hackers to steal this information, there is a huge incentive for buyers and sellers to adopt the safest transaction possible. The adoption of cryptocurrency for trade makes perfect sense in this regard — trading it is nearly instantaneous (up to an hour or two, compared to days or weeks to confirm checks and credit card payments), it is incredibly difficult to reverse a valid transaction, it is secure from theft during transactions, and it is borderless. It is literally money made for the Internet.

With its volatility, technical hurdles, and community concerns, Bitcoin may not remain the king of cryptocurrency forever. But it remains the first and most important. Bitcoin proves not only that digital currency is feasible, but that its development is inevitable.

The genie of the blockchain is out of the bottle, and research into using the technology for other platforms is expanding rapidly, such as providing the decentralized management of titles, services, ownership, goods and more. Bitcoin might not become the cryptocurrency that will run the world’s markets, but it is more than likely that a forthcoming cryptocurrency will. And those daring enough to invest will be front and center for the ride.

If you are interested in participating in the digital economy with Bitcoin and other alternative currencies, the author is also the founder of Stellartisan, an online marketplace for artisans to sell their creations for cryptocurrency. The service launches in a few weeks, so if you’re interested in joining, sign up early or send him a message to ben at stellartisan dot com.