With all the hype surrounding bitcoin these days making it sound more and more like a modern-day equivalent of the 17th century tulip bulb mania, it’s important to remember that there actually is something important going on here. And it’s not about the bitcoin. It’s about the underlying technology for bitcoin – the blockchain.
Investment manias may come and go, and bitcoin will likely make some folks rich (it already has for those who bought bitcoin at the start of 2017 at $963 and watched its price soar to nearly $20,000 by year-end; it’s since fallen back to around $8,300 as of this writing), and likely leave some ‘greater fools’ broke a little further down the line. After all, bitcoin has no intrinsic value, it’s not based economically on anything, and its essential value is merely the result of what some other person is willing to pay for it. As a currency proxy, it has a ways to go.
But the blockchain that bitcoin is built upon – that’s another thing. And a recent article by Christopher Mims in The Wall Street Journal provides some of the best explanation we’ve seen for why it matters.
What is a blockchain? As Mims explains:
“It’s essentially a secure database, or ledger, spread across multiple computers. Everyone has the same record of all transactions, so tampering with one instance of it is pointless.”
He goes on to explain that the underlying cryptography…
“…allows agents to securely interact – transfer assets, for example – while guaranteeing that once a transaction has been made the blockchain remains at immutable record of it.”
Blockchain has the power to transform industries for three reasons, notes Mims.
First, it’s well-suited to transactions that require trust and a permanent record.
Second, blockchain requires the cooperation of many different third parties.
And third is… the hype. “The excitement around cryptocurrency gives blockchain the visibility to attract developers and encourage adoption.” In this way, blockchain resembles the cloud, which also gave many industries “new business processes, disruptive startups and new divisions within existing companies, an ecosystem of supporting technologies, and new ways to charge for services.”
We’ll take a look at some of that disruption in our concluding post, so stay tuned.