Cryptocurrency is Crossing the Chasm
Bitcoin and blockchain adoption in 2015
Betamax, Segway, Google Glass. We can all think of innovative technologies that generated tons of excitement but failed to catch on as they descended into the chasm which separates starry-eyed early adopters from the pragmatists of the early majority, never to see the light of mainstream adoption.
Bitcoin is back in the headlines and “blockchain” (the distributed database underpinning Bitcoin’s public ledger) has become the latest buzzword for big banks and legacy financial institutions, but there’s substance behind the hype. Influential members of the early majority are investing significant resources into studying and developing products that use Bitcoin and other cryptocurrencies with separate blockchains. Some stories from the past year:
- The Economist features Bitcoin on front cover, examines the technology’s potential.
- SEC approves Overstock’s plan to issue company stock via Bitcoin’s blockchain.
- Microsoft rolls out “Blockchain as a Service” for enterprise cloud computing platform Azure.
- Visa and DocuSign use Bitcoin’s blockchain for paperless car leasing.
- First U.S. Bitcoin Visa debit card released.
- American Express invests in Bitcoin based remittance app Abra.
- Imogen Heap uses Ethereum to release “Tiny Human.”
- MasterCard, Bain Capital, New York Life participate in fundraising for Digital Currency Group.
- Bank of America and Goldman Sachs publish patents for cryptocurrency based wire transfers and security settlements.
- Central Bank of Honduras posts research paper exploring the benefits of adding cryptocurrency to their portfolio of international reserves.
- Honduras to build land title registry using bitcoin’s blockchain.
- China Central Bank researcher and the Prime Minister of Singapore voice support for digital currencies.
- The Linux Foundation unites industry leaders (Cisco, IBM, Wells Fargo, J.P. Morgan, Intel, SWIFT, Accenture, London Stock Exchange Group) to advance blockchain technology by developing an “enterprise grade, open source distributed ledger framework.”
- R3 blockchain group brings together 42 major commercial banks to design “an open-sourced, generic ‘shared ledger.’ ”
Why cryptocurrency?
To understand the utility of cryptocurrency, it’s useful to imagine the world three, five, ten years from now. The entire globe will have access to the Internet thanks to the efforts of Space X, Facebook, Google, and others. Quality smartphones, tablets, and computers will be cheap and widespread. Currently, internet sales account for just 7.4% of retail sales in the United States and 6% worldwide. These numbers have been growing steadily and show no signs of slowing down.
Digital currencies are a practical tool for e-commerce, people will adopt them for their efficiency as they become more robust and user friendly. The major features of our global financial system (ATMs, credit/debit cards, wire transfers, vaults and armored trucks for storing and transporting large stacks of paper) were designed for the pre-Internet era; they are archaic, slow, insecure, and inaccessible to the billions of unbanked. Cryptocurrency is programmable money that can travel as quickly as e-mail.
Who’s interested?
President Obama’s Deputy Chief Technology Officer (former Federal Trade Commission Chief Technologist), Ed Felten, is a Professor of Computer Science and Public Affairs at Princeton and well respected Bitcoin expert. The President’s former White House Deputy Press Secretary and Special Assistant, Jamie Smith, recently joined BitFury, a key stakeholder in the Bitcoin ecosystem. Former White House Senior Advisor for mobile and data innovation, Brian Forde, directs MIT’s Digital Currency Initiative.
The National Science Foundation has awarded a grant to the University of Maryland for work which “aims to establish a rigorous scientific foundation for crypto-currencies” using “cryptography, game theory, programming languages, and systems security techniques.” The University ran a 5 week lab on smart contracts last fall and released the course materials to the public.
Individuals from the Web Payments Working Group, an initiative within the W3C (founded by the World Wide Web’s inventor and maintains international web standards), are actively seeking contributions from Bitcoin developers. Ledger is a peer-reviewed scholarly journal for cryptocurrencies whose editorial team includes researchers from Harvard, MIT, UC Berkley, and Stanford.
We are in the midst of a financial revolution as banking faces its “Uber” moment. Former Barclays CEO Antony Jenkins believes up to 50% of existing bank branches and employees could disappear over the next decade because of technological advances.
Bitcoin basics and the future
If you’re curious about how Bitcoin works, check out the original white paper. Although we don’t know the true identity of its author, the paper acts as the blueprint for Bitcoin’s ongoing software development and represents a fundamental breakthrough in computer science and cryptography. Bitcoin creatively combines aspects of previous attempts at electronic cash with new concepts to solve a problem researchers have been struggling with for decades; how can you create digital currency that can’t be “doublespent” and doesn’t rely on a central trusted third party to verify transactions?
The hundreds of other cryptocurrencies and digital money schemes being developed differ from Bitcoin in many ways, but the majority of them use some sort of blockchain, a concept that many of Bitcoin’s critics acknowledge as a significant technical breakthrough.
The Bitcoin Wiki is useful, and O’Reilly’s Mastering Bitcoin is a great resource. Interested developers can inspect the open-source code on GitHub. Nick Szabo’s 10 minute presentation gives an overview of the technology’s historical background and the societal implications of adoption. Szabo holds computer science and law degrees, coined the term “smart contract” (contract enforced by code) in the 90’s, and has been researching digital currencies for over a decade.
There are significant technical and social barriers to be overcome before mainstream adoption of cryptocurrency is possible. Those who take the time to study this young but rapidly growing industry now, will be well positioned to influence the development of, and profit from, the innovation that will emerge as digital currencies and other blockchain based technologies are gradually integrated into our society.
“I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world.” — Peter Thiel, PayPal Co-Founder (2013)
