John Enoch, UK
Part six of a six-part blog series exploring the history, potential and implications of virtual currencies as they become more widely accepted.
Where do we go from here?
The answer to this question has to be divided in two: Where do we go with virtual currencies and, just as interesting, where else do we go with distributed technology?
With regard to virtual currencies, while there are still those who denounce Bitcoin as nothing more than a speculative bubble, or (like Goldman Sachs) say that it will not be viable as a currency, my own view is that this was last year's question and not this year's. The argument should move on from whether virtual currencies have a future ' of course they do. The set of advantages that I referred to earlier are real and substantial ' people want them. That is not to deny the enormous technical challenges that are still to be overcome, but I believe that they will be.
In the long run, unlike for instance gold, Bitcoin represents a highly suitable payment method for a large variety of transactions, including microtransactions. It can provide particular advantages in lesser developed countries; just as the advent of mobile telephony has allowed countries that could never afford expensive fixed-line infrastructure to bypass that technological generation, so too the growth of virtual currency may allow them to function more efficiently without the need to implant a traditional banking infrastructure.
Major technical challenges will no doubt be solved, but hacking and theft will remain critical issues forever. That is the world we live in, and we are already seeing online storage vaults gaining business as a result. The threat is the same as with conventional banking, but there is someone else to blame if your money is held in a bank; if you have it in your e-wallet, you are on your own.
Government, big business (e.g. Google, who are there already) and, as one sees increasingly, private equity and venture capital players will look to muscle in on the action. This is not totally a bad thing, because considerable amounts of capital will probably be needed to develop stable structures for large-scale virtual currency adoption. I say 'probably', but am happy to be persuaded otherwise if there is a case to be argued that a distributed network means that 1000-fold scaling is possible at the micro-level, without input from large capital-providers.
The right currency model
Bitcoin may not be the winning model though. Some commentators suggest that it is already straining at the seams. It may be superseded by superior implementations that overcome Bitcoin's technical and commercial flaws. There are plenty of others out there, some with more appealing characteristics or culture perhaps (Jamaican bobsleigh, anyone?). Before there was Facebook, there was MySpace, before Excel there was Lotus (and many others) and so on. First mover advantage is important, but the pioneers are frequently overtaken, and sometimes absorbed, by those who come later, bringing a different type of commercial skill with them.
Virtual currency is here to stay, but the road ahead is still quite hazy.
Currency is, though, only one application of the distributed network model. I will not pretend to understand all the technological aspects of this, but there appear to be three strands of next generation service that will be transformed by models similar to those developed for virtual currency:
- Authentication, verification, payment
With regard to the first of these, the cryptography and security features associated with the distributed network model make any transactions where authenticating identity, verifying information and/or owning assets are potentially fertile grounds for high quality solutions. Any transaction that requires the consent or opt in of more than one party, such as traditional conveyancing or any other simultaneous exchange, as well as almost any microtransaction, can be put into play.
In principle also, any product or service that presently operates on a 'hub and spoke' model could be transformed by disintermediation ' you take out the middleman and leave contracting parties to deal with each other. Examples include: charitable giving, crowdfunding, digital title (including of digital media assets or stocks and bonds), escrow accounts and payments, insurance, package courier services, shared storage and voting. All these are are already developed to some extent. I am sure you can bring many more examples.
It is becoming a clichÃ© to describe all this as 'the Internet of money', and to liken the situation today to that of the embryonic world-wide-web 20 years ago. I have no idea whether that is a wildly over-optimistic exaggeration or perhaps even an underestimation. I am sure, though, that Bitcoin is not going away again, and we should all plan for ' and programme for ' a world in which distributed network technology, including that applied to virtual currencies ' becomes a mainstream feature.
This piece of graffiti appeared in Bristol already in 2013 ' I always knew we were at the revolutionary forefront here.