Bitcoin, best known for being a form of digital currency with no fees and the ability to remain anonymous in transactions, has been gaining steady ground as an accepted online payment. But now, this virtual currency may be evolving into much more than a payment method.
These developments are not a direct result of Bitcoin itself so much as the technology behind it. Bitcoin’s unique underlying code makes it possible to handle a broad range of financial tasks that are now served by middlemen like banks, exchanges, and ecommerce providers — all for a fee, of course. But by using Bitcoin’s technology to drive financial transactions, fees for both buyers and sellers in the $1.22 trillion global ecommerce market could be significantly reduced.
That’s what a new crop of entrepreneurs, backed by major investors, are banking on.
The Internet of Money
BitAngels is an innovative angel investor group with a focus on backing projects that involve Bitcoin technology. In a recent interview, BitAngels co-founder David Johnston said, “People are just starting to realize that Bitcoin isn’t a currency and a payment system, it’s the Internet of Money.” He added that the investor group is currently considering more than 30 “Internet of Money” projects for backing.
Even financial firms are now recognizing that the underlying technology of Bitcoin is extremely flexible and viable for financial purposes. Two of the most crucial functions this technology satisfies are authentication and payment verification — functions that are typically carried out by a third party. But with Bitcoin, the process is both contained and completely secure.
Blockchains: The building blocks of Bitcoin
Blockchains are the primary reason that Bitcoin shows such promise in multiple types of transactions. The building blocks of the virtual currency system are designed to validate each transaction — and they can be adapted for any type of exchange, whether or not they’re attached to a currency. Blockchains make secure, accurate authentication and verification possible.
According to investor group Andreessen Horowitz, which is now looking to fund startups based on this technology, “If you have online trust like the blockchain provides, you can reinvent field after field after field.” The group is considering funding for “a whole sequence of companies: digital title, digital media assets, digital stocks and bonds, digital crowdfunding, digital insurance” — all built around blockchain.
Theft-proof, zero-fee buyers and sellers
Some entrepreneurs and startups are already diving in to the potential of Bitcoin technology-powered business. A decentralized bank and exchange called BitShares X, developed by Invictus, is set to debut in the second quarter of 2015. This exchange lets users save, trade, borrow, and lend all types of financial securities without using a bank or brokerage as an intermediary, with transactions handled on the users’ own computers and publicly verified (just as Bitcoin transactions are) — which eliminates the possibility of theft or fraud.
CEO of Invictus Dan Larimer said of the project, “With a traditional exchange, you send your dollars, and they record an IOU for so many dollars. The exchange can default on their IOUs to you — Mt. Gox [a Bitcoin exchange that was shut down after more than $450 million in Bitcoin went missing and was presumed stolen] is an example. In our case, no one can steal the balance from your account.”
In addition to extreme security, the use of Bitcoin technology makes it possible to eliminate fees, which are typically levied to pay for banking services, accounting systems, and account holder verification. The BitShares X system eliminates most of these fees.
Potential beyond the financial category
The underlying technology of Bitcoin has potential for a wide variety of uses and service types. As a conceptual example, combining Bitcoin technology with wireless network-connected vehicles could create a self-organizing industry around courier services. Theoretically, anyone with a vehicle could become an independent courier, picking up and delivering packages on their commutes or while running errands — and use Bitcoin-powered systems to collect sender fees and get paid.
A company called MaidSafe has used the technology behind Bitcoin to develop an alternative to Amazon Web Services (AWS) and other cloud providers. The service allows users to share storage, processing power, or both with other users, rather than draw from a server network. MaidSafe is currently partnering with around 20 companies to develop web applications for the service.
As another example, San Francisco-based programmer Dave Cohen is working to revolutionize voting by developing a way to let users cast votes — and have the votes tallied almost instantly — through Bitcoin-based verification. Convenience and counting have long been issues for voting systems, and the security issues have so far prevented electronic voting from being adopted widely.
Bitcoin’s future may be the Internet of Money, and the technology that powers this virtual currency could transform the ecommerce landscape.