It’s not really about the bitcoin

Silk Road, Charlie Shreem, large-scale thefts from the Mt. Gox, Flexcoin, Vicurex, and Poloniex exchanges . . . Battered by regulators, hackers, and the lingering public perception of alternative currencies as tools of the underworld, bitcoin the currency clearly had a rough first quarter of 2014.

The next two years for bitcoin (lower case b for the currency) will surely be tumultuous as interest rates remain low and the nascent infrastructure for alternative currency trading continues its growing pains, making traditional payment methods and financial institutions more attractive. However, even if it survives, the important point to keep in mind is that this inordinate amount of public attention, engineering, mathematics and business talent, and investment dollars is being directed at such a tiny portion of the payments universe. According to Green Visor Capital there were only $6.9 million in bitcoin transactions in 2013 compared to $30 billion for Square, $200 billion for PayPal (one half on Visa’s system), $3 trillion via Citigroup, and $6 trillion through Visa.

Beyond bitcoin

So why all the excitement? It’s because Bitcoin (capital B for protocol or system) is arguably the next new frontier in social change and technology innovation. The collective talent and dollars being put into Bitcoin and other alternative currency services and infrastructure from the halls of M.I.T to the board room of Andreessen Horowitz are focused — whether they consciously realize this or not — on the creation of the next stage of the internet’s utility, from the internet of content to the “internet of value,” as Ripple’s Chris Larsen describes this sea change. And this internet of value promises a wealth of positive change, whether it’s increased competition (and lower costs for transacting parties such as merchants) in the payments space or faster and relatively frictionless money exchanges. Say goodbye to payday loans and exorbitant remittance fees. And in a perfect world, the merchants would pass on that one-plus percent interchange savings to their customers in the form of lower prices and/or better service.

Just as exciting, the rails of this new internet of value can be used for any transaction requiring trust to be established between two unknown parties. That is, just as you trust that the cash a stranger is giving to you at the store has its denominated value, the “general ledger” system of Bitcoin and its technology offshoots allow you to transact in a trusted manner electronically, and in larger sums without requiring an identity check or layers of middleman services. This opens the door to solving not only the problem of expensive friction-filled money transfers, but also to creating a system by which any valuable data set or signed document — such as contracts, wills, or mortgage papers — can be verified and legally transferred electronically with a high degree of certainty.

The future (and opportunity) is wide open

But that’s in the far future. Right now we’re still in Stage I. Whether you think of Bitcoin as Burning Man meets the new Occupy movement or the next generation of P2P, there is a fast-paced, character-filled, and at times surreal socio-political drama being played out between the haves (the payments power base and the governments that cater to them) and the have nots (the digerati that have so far been locked out of this space, not to mention the economy-battered customer caught in between) that is ripe for the next Tom Wolfe novel — if he’s up for it (hint, hint).

There’s much more about the real opportunity and all of the players in alternative currencies in my Gigaom report Beyond Bitcoin: Understanding the Opportunity in Alternative Currency Services and Infrastructure (subscription required).

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Kristina Yee

Business Analysis & Marketing Strategist M4 Associates

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