Bitcoin is a consumer product

I believe strongly that the most far-reaching implications of Blockchain technology and cryptocurrencies are economic, rather than technology-driven. They lie in the unprecedented personal financial incentives that will lead to formation of new global networks and consumer marketplaces. And they will greatly enhance the existing ones, adding the proverbial “invisible hand” and self-interest to the power of social, interest or emotional graphs proven in the internet era.

The nature of my interest stems from a healthy dose of crypto-enthusiasm, some relevant investments and traditional capital markets experience. More importantly, it continues from there, as we are implementing a blockchain-based digital economy within one of the largest, most engaged and economically powerful global online consumer groups.

At this point, I wanted to offer a personal perspective on the prospects of Bitcoin, including the community division and debate, through the prism of our thinking. Bitcoin is a beacon and the most important cryptocurrency in our work. That is because we believe it to be a new type of a social network, where scalability is driven by a shared economic endeavor, as described by a remarkable thinker on the subjects of blockchain and history of money.

First, some brief history. Bitcoin’s blockchain delivered to the users security and personal incentives in peer-to-peer finance. Nakamoto’s network security was conjured via deliberate sacrifice in transactional efficiency and seemingly irrational resource expenditure associated with mining. The original thought may have been that network clients would pool private resources sufficient to support their personal benefit from redundant confirmations of the network transactions. Hence users and miners would be one. The reality has outdone a possible original premise and miners have grown into a major industry and an economic institution distinctly separate from the users and with an implied conflict of interest. Whether Nakamoto held the distinct interests of miners at heart while designing the system is an infinite topic for Bitcoin purists. To us in the consumer space, the common logic of pondering a product’s future is to “get out of our heads” and examine the user behavior and motivation — in this case — investment in Bitcoin.

We look at Bitcoin as a life-altering consumer product. As with most successful new multi-billion consumer phenoms, this potentially multi-trillion one is proliferated by subconscious and emotional behavior of the mostly technology-agnostic new user base. In this case — dominated by speculative retail investors. They are not thinking through the technology or fundamental analysis, or seeking intrinsic value, or trying to understand what Nakamoto really intended or pass an informed judgement on whether 1MB block size delivers the requisite transactional efficiency. Neither have they been paying for much with Bitcoin (other than investing it in ICOs and other cryptocurrencies). They just like what they feel (making and keeping the money they don’t co-own with banks or governments) and they follow their hearts. Kind of like with iPhone or mobile internet before — a relevant metaphor in terms of the speed and breadth of adoption, driven by the good feeling of newly found freedoms.

So who’s wishes define the future of Bitcoin and what is the prevalent use case — Store of Value or Medium of Exchange? That’s in the eye of the beholder, of course, but if you don’t disagree with the above logic, than the following set of considerations may be relevant. In line with the Austrian vs Keynesian economic theories — more on that here by Jimmy Song.

Bitcoin in its present form is micro driven (by individual consumers):

• individual economic vehicle that leads a generational wealth transfer — the less affluent now have access to investment returns and the check size does not really matter yet
• conceived as a “trustless p2p digital cash system” (S. Nakamoto), but core philosophy is the tradeoff between resource efficiency (needed to manage maximal volumes of micro transactions) and security-based social scalability — in favor of the latter
• now a global consumer product delivering to individuals the unique properties of:

1. store of value
2. private wealth protection against capital controls
3. “safe heaven” investment vehicle decoupled from traditional asset classes
4. the most proven, liquid and widely recognized speculative instrument

• addressable audience extends beyond those exposed to gold — entire global smartphone population with a need to preserve wealth
• technology-enabled but arguably not technology-driven, as adoption is a speculative experience that evolves into a social contract — or collective delusion (to skeptics) — that ascribes great and growing value to Bitcoin

Bitcoin Cash and scaling hard forks are mainly macro driven (by the needs of businesses):

• medium of exchange is the core use-case
• velocity of money/transactional throughput/cost efficiency are key properties — money and merchandise must be moving fast!
• institutions are equally (if not more) important stakeholders than consumers as the core use case is to enable global commerce
• security and trustless network properties are generally traded for transactional efficiency — due to increased difficulty of p2p transaction validation within larger blocks, no backward block compatibility and a more centralized (yet less proven) new development leadership implying a greatly reduced immutability of technology

Bitcoin’s currently unique “store of value” perception is its key competitive advantage and “trojan horse” in the global adoption race:

• much lesser threat to governments and less likely subject to control efforts
• much easier to limit money transmission than storage properties locally (with a nation state)
• scaling cash properties still possible (and most likely) via peripheral payment solutions, like Lightning Network
• no competition, a path to monopoly, unlimited brand development opportunities
• arguably the only global blockchain use-case implemented successfully so far
• a truly global cryptocurrency held by most in need of wealth protection can win with other use cases due to distribution

There is a certain danger, in my mind, for Bitcoin’s most proven, least threatened and uniquely valuable use case of the Store of Value to be diluted in the eyes of its users. That is really the bigger threat than government regulation, competition with the global banks, “lack of intrinsic value”, programmed decline of block rewards and growth of transaction fees. But as long as community finds wisdom to gradually end divisions and stay the course blessed by the users, I am definitely a HODLer!

Happy New Year!