Bitcoin is the first successful attempt to create a native digital currency, a fully decentralized, persistent, resilient digital form of money. As such, it is the most interesting development in Economics in the 21st century.
Bitcoin is also a protocol and consensus mechanism that allows the most powerful distributed computer network in existence to validate its rules and ensure that the qualities that make it valuable are not compromised. Because it’s not just money, but also software, it is just the first building block in what has rightly been called The Internet of Money.
In practice for the average user what Bitcoin does for money and payments is what e-mail has done for communications. It makes it possible to send value to anyone in the world with an Internet connection instantly, cheaply and by-passing any artificial barriers.
The simplicity of this idea belies its huge impact. A large part of the world still has very reduced access to the financial system or relies on ancient banking infrastructure that takes days for transfers, is subject to all types of arbitrary restrictions and has a high cost. Bitcoin and the multitude of cryptocurrencies that have followed in its footsteps have opened the door to changing this.
It is now possible for a farmer in Kenya to instantly and securely pay a programmer in India for his services without the possibility for external third parties to interfere with that transaction.
The qualities of Bitcoin as a P2P open source protocol also make for a really level playing field. All participants in the system abide by the same rules and have access to the same advantages. A Kenyan farmer can perform the same transactions as a London trader. There is no hierarchy or privilege.
Bitcoin is the base layer, the first part of the infrastructure. On top of it can come an infinity of services, smart contracts and multiple layers of complexity that will not only give global access to sending and receiving value, but to the entire spectrum of financial services from insurance to lending.
Since its inception in 2009, the Bitcoin Network has functioned uninterrupted. Its decentralized architecture makes it incredibly resilient. It is designed to survive catastrophe from a simple power outage to full scale nuclear war. It is resistant to interference from corporations, governments, hackers and any malicious actors. No single entity controls Bitcoin. No-one has the power to censor or reverse Bitcoin transactions.
So what is missing for Bitcoin to be used massively by billions of people?
Time and usability. Just like the Internet in the 1990s, Bitcoin tech is still very raw and requires an intellectual effort that keeps it contained to early adopters and high-need use cases. This will change as the large investment made over the past few years by a number of companies on creating the tools to allow anyone with a smartphone to reap the benefits of this new technology bears fruit.
The opportunity for Gibraltar is spectacular. The jurisdiction that first manages to attract critical talent and infrastructure could become the Silicon Valley of Fintech, the financial hub of the 21st century.
As with all things new… the grey areas and lack of specific regulation are big roadblocks for investment. Regulatory clarity and strong protection for property rights will be the key in creating such a hub. Connectivity between this new online financial system, which started with Bitcoin but now encompasses thousands of new cryptocurrencies, and the traditional financial system will also be key in the early stages of mass adoption. The on-ramps to the value superhighway must have capacity to meet the growing demand.
In this new world, value can instantly move anywhere. Creating a safe and welcoming environment that attracts and retains such value can reap massive rewards. No barrier will be able to stop the flow of value from unsafe, expensive jurisdictions where Property Rights and Free Trade are subject to the whim of rulers to those where they are recognised as individual rights as fundamental as Free Speech.
Similarly, the independence and resilience of a city that is connected to the world through an uncensorable network will be formidable. No foreign governments or supranational entities will be able to blockade what is essentially just valuable data.
The most valuable and massive applications of this technology have not been invented yet. Few could imagine the ascent of Google or Facebook when first playing around with Usenet and IRC. Similarly, it is hard to imagine all the possibilities that instant, global value transfer and smart contracts will bring.
Don’t be surprised if when your virtual assistant orders a drone delivery of your 3-D printed smart sunglasses these AIs pay each other in Bitcoin.
So how can you begin to learn about this brave new world of cryptocurrencies? It’s easy: just install a Bitcoin wallet on your favourite device, buy a few bits and spend them online. A quick Google search will tell you how to do each of these steps and there are a great number of free resources available online. Millions of words have been written about the theory and consequences of cryptocurrencies, but nothing beats hands-on experience to really get something. Until you see for yourself how simple it is to pay somebody on the other side of the world as easily as you would send them an e-mail, you won’t grasp the scope of what is coming and how our lives are going to change.
words | Félix Moreno, Xapo