This article was taken from the June 2015 issue of WIRED magazine. Be the first to read WIRED’s articles in print before they’re posted online, and get your hands on loads of additional content by subscribing online.
At least one global cryptocurrency will achieve mass-market adoption. That cryptocurrency will either be Bitcoin or a derivative inspired by it. The chance that it will be the former is so strong that in 2014 I invested in Bitcoin startups Xapo and Blockstream. And yet, perhaps surprisingly, when one of the very smart people I know in Silicon Valley recently told me he’s a major “Bitcoin sceptic” who has not yet seen “many real use cases” for the technology, I considered it a good sign.
Why? Because in my experience, the most transformative ideas are not the ones that achieve broad consensus early on. Instead, they’re the ones that are so uniquely out there, so contrarian, that even informed observers have wildly differing opinions regarding their potential value.
The internet itself was like this. It started as a strange new parallel universe called “cyberspace” and then became a part of everyday life. LinkedIn, eBay, Twitter and Airbnb were all bizarre concepts at first, offering services that many observers felt would achieve fringe adoption at best. Now, they’re all part of the daily lives of millions of mainstream users.
Bitcoin is still so new it seems bizarre to most people. Yet consider how far it has come since November 1, 2008, the day that someone using the name Satoshi Nakamoto posted a white paper to a cryptography mailing list describing a “peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.”
A couple of months later, when the system went live, adoption was slow. “The real trick will be to get people to actually value the Bit Coins [sic] so that they become currency,” an observer posted on a thread a week or so after Nakamoto released the first version of the Bitcoin software. “It might make sense just to get some in case it catches on,” Nakamoto replied to the poster.
And now, just six years later, more than 100,000 merchants accept Bitcoin. You can also use it in direct transactions with the currency’s seven-million-plus users. Venture capitalists have invested more than $500 million (£340m) into Bitcoin-related startups.
Even in the face of such traction, however, there are concerns whether Bitcoin, and cryptocurrencies in general, are just a fad, an asset class that might fail entirely once the irrational exuberance wears off, and leave the world as Bitcoin-free as it was on October 31, 2008.
“Just as the internet inspired a whole new era of fast and unanticipated innovation, so, too, will Bitcoin — or its inspired derivative”
Certainly Bitcoin has been an unpredictable store of value to date. But while people often focus on the volatility of its market price and performance as a speculative commodity, Bitcoin isn’t just a commodity or asset. It’s a cryptocurrency — it does all of the things that a traditional currency does. It functions as a medium of exchange, a store of value and a unit of account.
But Bitcoin doesn’t just duplicate or even optimise the functions of traditional currencies — it adds new digital, cryptographic, distributed server functions to currencies. Because it functions simultaneously as a currency, an asset and a platform, Bitcoin is better described as a global cryptoCAP (currency, asset, platform) — or even as a synergistic form of “cryptocapital” that can help unleash the full economic power of the networked age.
There are many ways to understand platforms, but here are two attributes by which Bitcoin moves from cryptocurrency to cryptocapital system:
First, it distributes transaction-clearing responsibilities across a broadly distributed network of computers known as “miners”, eliminating the need for expensive centralised third parties such as banks and payments processors to authenticate and verify online exchanges of value. Anyone with the appropriate software and hardware can function as a miner on the network. To compensate miners for the resources they commit to the system, Bitcoin issues 25 newly “minted” bitcoins approximately every ten minutes, and miners compete for this reward. (In the Bitcoin system, each unit of account is called a bitcoin, with a lower-case “b”.)
Second, Bitcoin makes money programmable. With Bitcoin, the world’s smartest and most creative software developers have an open platform on which to build products and services that will allow individuals, organisations and even machines to do business with each other more flexibly, more efficiently, more frequently and more productively.
As my friend the Bitcoin sceptic suggests, it’s hard to imagine exactly what manifestations of cryptocapital are going to resonate most with its users. In 1995, even most internet zealots had not yet begun to fully envision a world in which people would routinely buy used cars at the touch of a button, rent their sofas to strangers, view new learnings on their genetics or trade quips with TV stars in real-time as the latest episodeof their shows aired.
And just as the internet inspired a whole new era of fast and unanticipated innovation, so, too, will Bitcoin — or its inspired derivative.
Substantial capital investment in Bitcoin has only been happening for a couple of years now — and it takes time to bring software products to market. But thousands of the world’s most creative programmers and technologists recognise the possibilities that it presents. In time, we are going to see the emergence of Bitcoin Googles, Bitcoin Facebooks, Bitcoin Alibabas — massively valuable companies for which no contemporary analogues exist — built on the platform’s foundations of decentralised trust and programmable money. And there’s a very good chance it will happen faster and less predictably than anyone currently imagines.