Bitcoin - among other popular cryptocurrencies, such as Ethereum and Litecoin - has been in the headlines as the currency surpassed $230 Billion last week. Public figures, from Bill Gates to Jamie Dimon, have weighed in on the impact of cryptocurrencies and on their use in society. Although the future of Bitcoin itself is still under question, the underlying technology makes for a compelling case for a future disruptive force in global economies.
Created by an unknown inventor named Satoshi Nakamoto in 2009, Bitcoin is a digital currency based on a decentralized network. Although the price of both cryptocurrencies and fiat money is determined via supply and demand, the former is not backed by any central authority. Rather, digital money cryptocurrencies work through a distributed ledger that keeps track of all transactions made with that cryptocurrency.
Ultimately, cryptocurrencies have the potential to be used all over the world, unifying global trade under one currency. The time-stamping and ledgering of each individual transaction, layer by layer, means that fraud is almost impossible and middle-men are not needed to facilitate exchanges. However, as multiple cryptocurrencies emerge the universality of such currencies disappears. The learning curve doesn’t help, either. The difficulty of access to even the most popular digital currency, Bitcoin, requires some understanding of how to operate crypto-wallets and execute transactions.
So too, digital money can have a profound impact on economic market inefficiencies. Bitcoin transactions are more efficient by cutting out middle men, usually found in the form of banks and other large financial institutions. In theory, society is able to achieve more economic activity and interaction with less resources. At the moment, however, digital money is not used on a wide enough basis to be adopted universally, while the lack of regulation, safety and steep learning curve prevent it from achieving mass adoption quickly.
While the astronomical market capitalization of Bitcoin attracted much of the initial attention, the underlying technology of the cryptocurrency is what truly warrants another look. Blockchain technology, has the potential to disrupt retail, payments, the financial services, and many other industries. UBS, Barclays, IBM, and Samsung, amongst many other corporations, are already experimenting with the technology. The next question is not whether Bitcoin will become popular, but whether it will render all other currencies irrelevant?