Bitcoin – From Libertarian Pipe Dream to the Mainstream

I will admit that when I bought my first Bitcoin I didn’t understand the potential impact that this technology could have on the world. I was motivated purely by my philosophical and ideological beliefs and saw Bitcoin as a great way to practice agorism.

However today, what many called a libertarian pipe dream is turning out to be more of an investment for the future. Those philosophical beliefs still exist and still motivate me, but I now have a much deeper understanding of the underlying technology. What I thought to be just a digital currency detached from governments and central banks turns out to be much more; it is a remarkable protocol with a multitude of applications.


At its core Bitcoin is a distributed and transparent digital asset ledger that is constantly being audited and reconciles roughly every 10 minutes through Peer-to-Peer network consensus. How it does it i’ll leave it for the geeks to explain (How Bitcoin Works Under The Hood). The result is an unforgeable record of transactions called the Blockchain.

It is becoming increasingly evident that there will be entire industries built on top of the Bitcoin protocol. Blockchain technology in general will create new opportunities and systems will emerge out from it which we cant even fathom at this point. Seriously, If you get involved in some conversations at Bitcoin conferences it can get real Sci-Fi.

The mainstream narrative has made a drastic shift. It seems that the media, despite all its claims that Bitcoin is dying or is already dead, has learned that crypto currency is here to stay. It’s resiliency has been tested and still it stands stronger than it has ever been before. That narrative of a shady underground currency used only by drug dealers and pedophiles is no more. Instead the conversation has shifted to that of the impact Bitcoin will have on disrupting billion and trillion dollar financial industries .

See: Bitcoin May Transform Economic System, Draper Says

Marc_Andreessen
Marc Andreesen of Andreesen Horwitz

There is now a solid foundation and flow of venture capital money moving in.One of the most notable and out spoken venture capitalists is Marc Andreessen who has made investments in the space upwards of $50 million dollars.

Andreessen knows a few things about bringing technology to the mainstream. At 22 years old he cofounded Netscape which brought internet browsing into the lives of every day people. Andreesen believes that “in 20 years, we’ll talk about Bitcoin like we talk about the Internet today”. At that point he has forecasted Bitcoin could reach $100,000   (as of this writing 1 Bitcoin = $615).

For in depth analysis on the Bitcoin ecosystem see: State of Bitcoin Q2 2014 Report

Money and interest alone won’t fuel Bitcoins growth. The infrastructure needs to be built surrounding this technology to make practical use of all those applications. As of now use is still reserved to those with the technological capabilities to navigate the complex world of public key encryption.

Despite the gap that is left bridge, I agree with Michael Novogratz who is a Principal at Fortress Investment Group. He see’s the amount of human capital moving into the space, some 30,000+ programmers and engineers, and wants to bet on that alone.

It’s not as if these programmers are appearing out of nowhere either. Bitcoin is stealing top talent from tech giants such as Google and Facebook.

Looking back just a couple years ago, the idea that well established professionals would give up fat paychecks, huge offices, lunch buffets, and a multitude of perks and privileges to work on a technology reserved only for a Den of thieves was unthinkable. Yet now it is a reality, with many of those daring to take the plunge likening the atmosphere surrounding the Bitcoin space to that of the internet in 1994.

And just as 1994 is considered the ‘early days’ for the internet so to is 2014 for Bitcoin. The S-shaped adoption curve pictured below is a representation of the diffusion of innovation as a new technology spreads through a society. Taking into account the potential impact Bitcoin can have on the world, I feel confident in saying we are still in the early adopter stages.

One particular aspect of Bitcoin I find interesting is that it is a network, just like the internet. But unlike the internet, the Bitcoin network is securitized. Holding the private keys to [b]itcoin the unit of account represents ownership of [B]itcoin the network.

This puts participants of the network in a position to prosper financially through the “Network Effect”. As more people and business start to use Bitcoin, the more valuable the network units of accounts become. The more valuable those units become the more people accept them. The more people that accept them the larger the network grows. It’s a classic positive feedback loop.

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Flow chart from nakamotoinstitute.org

We have all seen this type of network growth before with Facebook. I was attending one of the first colleges that Facebook opened it’s platform to. I still remember it with it’s red background instead of the classic blue one of today. That was 10 years ago and since then facebook has extended participation in its network from only college campuses to the general public. Over the years The rate of adoption of this new network technology sky rocketed (classic S-shape curve). Out of nowhere college kids had their mom “poking” them and little sister posting pictures of her teen heartthrob. Facebook the network grew exponentially and so did the bank accounts of those people who owned it.

With Bitcoin, the Network effect is no different. What is different is the ownership. Bitcoin is censorship resistant meaning anyone anywhere around the world can own a piece by acquiring [b]itcoin the unit of account. That exponential growth and it’s wealth effect usually reserved for VC’s and Series A investors is now open to the public. And indeed people have gone from ashy to classy as Bitcoin’s value has increased close to 10,000% over the last 2 1/2 years.

With such massive returns it has led the critics to cry and scream BUBBLE! I sympathize with those people as ignorant as they might be. Bitcoin is complex and something the world has never seen before, but with a little investigation one can quickly put into perspective how massive it will be. If Bitcoin takes over just 1% of certain markets(which is likely as it performs the fuctions of those markets more efficiently and with less cost) the current $8 Billion market cap and $615/BTC price is just a drop in the bucket. We havent even scratched the surface.

For perspective on possible future valuations I recommend watching this video of Tuur Demeester

Like all start-ups and technological innovations growing pains are to be expected. As of lately, especially since those days of the MTGOX implosion , there has been a blitzkrieg of great news for the Bitcoin space. And still even after the lessons of MTGOX, threats of being hacked and having your Bitcoin stolen exists today. Within the influx of positive news there are tails of horror as newcomers post on forums and blogs about having their Bitcoin stolen.

The challenges of creating secure platforms to bring Bitcoin to the mainstream are better seen as huge opportunities and entrepreneurs like Wences Casares, CEO of Xapo, are looking to fill that need. Xapo, which promises to be a type of secure Bitcoin bank, just raised an additional $20 Million in venture capital money, valuing them at $100 million dollars.

Ultimately the issues and problems around individual and system security will be solved. The smartest minds in tech are working on the tunnels, roads and bridges that will facilitate the use of this monster technology and they are going to be built.

“Bitcoin’s army of mostly volunteer computer developers represents the largest R&D community in the world, possibly numbering 10,000 of the smartest people on the planet.” – Chris Dixon

Going forward the difficulties I see are not technical in nature rather they will stem from antiquated financial and regulatory systems on their deathbeds clinging on to whatever life they have left. Ultimately it won’t matter. As long as Bitcoin persists to be, it’s adoption into the mainstream will be inevitable. This is a point often missed by Bitcoin proponents. It is not the technological feats which make Bitcoin great, it is that Bitcoin is a superior form of money.

Those attributes of superiority alone are enough to ensure an eventual exodus out of fiat pieces of paper but the result will be exacerbated and accelerated by the reckless monetary policies of central banks around the world. The race to debase will result in the race to escape and waiting there with it’s arms wide open will be Bitcoin.

The Bitcoin space moves fast, really fast. After following it for a couple years I can thoroughly say you might have been considered nuts to invest in Bitcoin a year ago but today it might turn out to be one of the smartest and most lucrative decisions of your life.

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