IF NOT BITCOIN, THEN WHAT?

February 2015

Most people that never really got Bitcoin feel vindicated by its current woes. Those that were Bitcoin advocates now largely fall into two camps; a) loyalists or b) reformists.

 

The Loyalists camp point to the Network Effect of 1000’s of very bright people backed by an ecosystem of pioneering VCs betting big on the crypto-currency. However the core Bitcoin protocol itself is governed by the Bitcoin Foundation, which is in the unenviable position of trying to balance the libertarian spirit & ethos with which it was created and the needs of a wide range of  different user groups (some commercial, some personal) amidst a hostile environment of attacks on its weakness to volatility and speculators.

 

Now its worth stating upfront I’m not an economist. It could just be Bitcoin, as the new kid on the block and a form of ‘currency’ without precedent, is just more more vulnerable to wider volatility in the market. As usual professionals in the space are as polarized about the value of Bitcoin as they are about any other economy. So I’m not even going to try to tackle how Bitcoin functions at a currency exchange level but I am drawn to the idea that Bitcoin has behaved more like an asset class than a typical fiat currency in the past.

 

My focus is as an entrepreneur actively investing in building businesses to function on top of blockchains and I know very clearly what I need to make those investments less risky. So…

 

Personally I’m a reformist. I don’t struggle believe, in its current form, Bitcoin can be a viable solution for commercial entities. The bottom line is no company would or should hold a bitcoin treasury at the present moment in time when their fixed or variable costs are in fiat. There is no business, whose function is not arbitrage, that would enjoy this level of daily volatility.

 

Sadly I think the task of stabilizing Bitcoin is just too big for the Bitcoin Foundation, but I do genuinely hope they can pull it off because of the amount of early pioneers that have risked a lot with early investments.

 

So if not Bitcoin, then what?

 

Well I don’t think Bitcoin will disappear in either form or spirit. We have all glimpsed at a world where money is more inclusive, more efficient and to varying degrees more people rather than institution focused.

 

If Bitcoin doesn’t stabilize it will require ever greater regulation and restrictions to protect consumers and put a fire-wall between it and carefully controlled fiat economies. As we have seen with every form of prohibition this only drives it underground. No law can ever stop people using Bitcoin but they can restrict companies accepting it within their local jurisdictions. I fear Bitcoin 1.0 will become ever more marginalised for dark markets and the like.

 

However I do believe the spirit of Bitcoin will live on and evolve into two main forms of ‘Bitcoin 2.0’ with a linkage between the two. I’m writing a post on each over the coming days linked to below.

 

1) UNDERWRITTEN / PEGGED CRYPTO-CURRENCY 

 

These are direct substitutes to Bitcoin without the volatility underwritten by a sovereign or commercial entity.

 

2) BLOCKCHAIN TOKENS OF EXCHANGE


These are digital tokens that fuel the blockchain ecosystem typically serving as pay-as-you-go micro-payment mechanisms.