As far as money is concerned, much of the headline press over the past five years has focussed on how little of it is floating about these days. But despite the headlines something else has been happening in the world of money, something more fundamental is being engineered and entirely new models for the representation, storage and transfer of currency are being proposed, prototyped and adopted. A new paradigm is fast emerging with potentially profound implications, offering opportunity and risk in equal measure. Welcome to Bitcoin.
Born in 2008, and representing a new generation of digital currency, Bitcoin enables people anywhere to store and transfer payments though a global decentralised peer-to-peer network. Transactions do not pass through any financial institution and Bitcoin is not owned or controlled by any company or government; it is opensource, borderless, and accessible to any internet user. Transactions are processed near instantly at close to zero cost and cannot be blocked, seized or interfered with.
Five years on, the fledgling currency is gaining traction. Stats for just one of the many available digital wallet applications show over 3.5 million downloads, the value of a Bitcoin has appreciated over 1000% in the past year, and the platform network boasts more than twice the dedicated processing power than the top 500 supercomputers in the world, combined.
People are getting excited, and it’s not just the geeks. Venture capital likes disruptive technology, and Bitcoin is the poster child for disruptive potential. Bitcoin presents an entirely new model for the way in which money is denominated, issued, stored, exchanged, received, monitored and controlled. Widespread adoption would redefine consumer behaviours in traditionally hard-to-penetrate markets and the race to claim what may become a lucrative new landscape is well underway.
Adoption is currently highest in the US, UK, Germany and China. However, emerging regulatory obstacles are likely to produce a short term deceleration in growth amongst western markets. Legislation must adapt to ensure the usage and taxation policy toward Bitcoin denominated trade and earnings is clear and enforceable, as well as to guarantee consumer security within the marketplace as it evolves at tremendous speed. Finally it must keep pace with new forms of criminal activity perhaps best exemplified by the anonymous Silk Road, until recently a thriving anonymous marketplace for prohibited goods, with trade denominated entirely in Bitcoin.
Far more interesting is the emergence of Bitcoin technology amongst less developed communities such as Kenya, where access to traditional bank accounts is limited and the past decade has seen explosive adoption of new mobile phone-based payment services such as M-PESA. Kenya’s population is primed for the type of solution offered by Bitcoin, and the recent launch of a phone-based Bitcoin wallet providing direct integration with M-PESA accounts provides a platform for widespread adoption amongst communities in which there is genuine need for accessible, ultra-low cost capabilities.
If Bitcoin were to achieve the mainstream adoption some believe it is capable of, the implications to retail banking would be seismic, with declining demand for traditional banking services (cash storage, payment, balance checks, international transfers and foreign exchange to name a few) as consumer behaviour shifts toward alternative technology.
To survive such a transition retail banking institutions should embrace new technology and redefine their value proposition for tomorrow’s market, emphasis must shift away from exclusive ownership of customer accounts and associated transactional activity, towards lightweight, collaborative and community-driven operating models supported by new value added products and services. Beyond this organisations must leverage all the power of social community and learn how to harness the big data goldmine that is the blockchain to deliver truly powerful social finance capabilities.
The future of Bitcoin is far from certain. Its risk profile is still enormous and the currency is simply not ready for widespread adoption today. For now though it’s not the price of Bitcoin we should be watching but the real case studies of economic value emerging from those who choose to try it. It’s a money game after all and, regulatory hurdles aside, the survival of Bitcoin will ultimately be determined the true economic value it offers.
Tyler is an emerging technology evangelist with a background in business analysis and customer experience transformation across the public sector, private sector and FSI industries.
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