Bitcoin was created to revolutionize the way we pay for things.
The decentralized control, quick payment processing and blockchain technology Bitcoin championed was intended to disrupt the status quo in payments.
The Bitcoin platform was released in 2009, and was created to give the power of payments to the people using it.
No longer would you have to rely on a bank to verify transactions. The people who use Bitcoin double as the verification method using a technology known as the “blockchain.”
The widespread nature of Bitcoin means it can’t be controlled by a malicious government or a single company. No single person has power over Bitcoin, and any changes to the payment system would have to be agreed upon by a majority of the people using it, a refreshing change from other payment methods.
“Bitcoin is a very successful proof of concept for a peer to peer electronic cash system, which allows for the transfer of value over the internet without the need for a trusted third party,” Citigroup analyst Keith Horowitz said in a note to clients.
It’s now becoming clear that bitcoin is unlikely to succeed in getting rid of cash or credit cards. There are too many barriers to its widespread availability. That doesn’t mean it’s a failure, though. The technology that Bitcoin popularized is being put to use in other exciting areas now.
It turns out that Bitcoin’s biggest feature, its decentralized nature, is also one of its biggest weaknesses.
Let’s illustrate the problem with an example.
Imagine sending money to a family member who is overseas, but accidentally typing in the wrong account number. On the Bitcoin network, you would have to contact the account you mistakenly sent money to and have them agree to send it back. If you had used a bank or credit card, the central power could resolve the issue, and refund your account with the money you mistakenly sent.
Even if you manage to correctly send Bitcoin to your family member, they would have to find someone willing to trade their new Bitcoin into currency they could use locally.
The decentralized nature of Bitcoin actually hurts it in an example like this.
Additionally, in developed nations, a central power often help suppress volatility and increase adoption. It’s hard to convince a user that Bitcoin is the best payment option when systems issued by banks and government entities are just as fast and easy to use.
“When we compare Bitcoin to centralized systems on messaging, settlement and regulation, we believe that overall centralized systems come out on top, and consequently we do not believe that banks and the card networks (Visa/MasterCard) are at risk from disruption,” Horowitz said.
Bitcoin’s impact on payments
Despite it’s shortcomings, Bitcoin is not a failure. It has succeeded in highlighting several problem areas in current payment systems, and people are working on a number of different options for utilizing the technology Bitcoin popularized.
Major banks are investigating the practicality of a ‘blockchain’ technology, for example.
Autonomous Research has called the technology a “game changer,” and Goldman Sachs has said the technology “has the potential to redefine transactions.”
The estimated annual budget for blockchain initiatives on Wall Street is $1 billion.
Goldman Sachs recently published a report highlighting practical use cases for blockchain outside of finance, including applications in the sharing economy, electricity market and in property.
“Groundbreaking innovations have often come from not one but many different technologies coming together,” Horowitz said.
Bitcoin could provide a framework for incredibly quick microtransactions, which would revolutionize several industries.
Imagine the streaming music services, like Spotify and Apple Music, paying an artist a small amount of money every time you play a song. This happens now, but is done slowly and is hard to track.
Plumbing a database of music with a Bitcoin like technology would allow artists to be paid immediately for people listening to their work, and the system could theoretically work across streaming services.
Bitcoin also has interesting applications in the Internet of Things.As more of our everyday objects start connecting to the internet, the potential for small micropayments increases.
Imagine your dryer, fridge and AC all communicating with each other and talking to the power grid to barter over power usage. A decentralized, Bitcoin like system could allow these devices to all talk to each other. Instead of having to be connected to a centralized hub the devices could provide their own smarts.
The possible applications of Bitcoin technology are potentially infinite, and are only just starting to be realized.