I've been watching the progress of Bitcoin with increasing interest for a year or two now and I'm a bit surprised I haven't written about it here before. I'm writing today because the number of mainstream use cases of Bitcoin seems to have been growing recently and this morning I got an email from the Boost.vc accelerator saying they were reserving five of 15 slots in their next programme for Bitcoin companies. (Disclosure: Boost.vc is affliated with the Draper family and invested in Bitcoin startup Coinlab last year.)
As this is my first post about Bitcoin I'm going to start with a definition. From Investopedia:
Bitcoin is a massively disruptive innovation. The key is in the first sentence of the definition above â€“ Bitcoin bypasses central authorities and issuers â€“ meaning it replaces governments as the issuers of money. If it becomes widely used it will undermine the power of many of the economic policy instruments governments use today, including setting interest rates and quantitative easing. By now you are probably wondering how it works. The short answer is that the inventors of Bitcoin developed an algorithm which determines how many Bitcoins are in circulation and put in safeguards to prevent third parties abusing the system by creating fake Bitcoins "there is more detail onWikipedia.
I'm excited by Bitcoin because it has the potential to massively reduce the cost of transacting. Two examples:
- fees to buy stuff over the web can be much less than the 2-3% taken by credit cards, and
- it removes the need for foreign currency exchange altogether.
Security has to be good, of course, and we still need to prevent money laundering (the cost of which is the other driver of the fees above), and Bitcoin isn't there yet. It may never get there, large vested interests (e.g. the US government) will be threatened by Bitcoin and have already been working to shut the fledgling currency down, and there have been problems with hackers, and with currency bubbles, but momentum seems to be building, not faltering:
- There are now $400m worth of Bitcoin in circulation
- The number of transactions per day has doubled since November to 60-70k per day
- It's getting easier to buy Bitcoins locally around the world (when I bought some a year or so ago I had to transfer money to a Japanese bank acountâ€¦)
- There is an ever increasing list of places you can spend Bitcoins
(Nic Brisbourne is partner at DFJ Esprit, one of Europe's leading venture capital firms. The post has been reproduced with the author's permission from his blog, The Equity Kicker.)
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