When I wrote my just released book The 5-STAR Business Network I included just one paragraph on Bitcoin, using it as an example of emerging business network of dubious quality. Here is what I wrote in the book:
An interesting phenomenon that is just emerging is online currencies being traded between the informal networks. These go far beyond online payment and clearance systems such as PayPal and serve as crypto-currency. So far these crypto-currency networks such as Bitcoin and its clones are operating at the legal fringes of most economies. Further developments are being watched with interest by the central banks, supra-national bodies and the political economists. We will draw the line here for our discussion of semi-underground networks because one can go too far in researching and describing these and stray into illegal or unethical networks quite unknowingly.
I did not really expect most readers of the book to be familiar with Bitcoin, or any of its clones. I wanted to mention in passing that such networks could eventually lead to something worthy of distinction or die away. Little did I know that barely before the book was released Bitcoin shot up in notoriety, first by rising phenomenally, and then by falling equally hard. The rise and fall of Bitcoin, in short run, or even in long run is not my concern here. There are plenty of news-stories filled with theories about the gyrations of this crypto-currency, now that Bitcoin is almost a household work.
The key question I ask is the long term impact of the emergence of this phenomenon on the businesses and 5-STAR Business Networks around the world. To look for clues, I turned to National Intelligence Council’s (NIC) latest Global Trends report, Global Trends 2030: Alternative Worlds, which forms a fascinating read. I encourage the reader to download it for free from this link, and peruse it at their leisure. This 140 page report covers a wide range of topics but I will quote the most important bits below:
The empowerment of individuals and diffusion of power among states and from states to informal networks will have a dramatic impact, largely reversing the historic rise of the West since 1750, restoring Asia’s weight in the global economy, and ushering in a new era of “democratization” at the international and domestic level. We have more than enough information to suggest that however rapid change has been over the past couple decades, the rate of change will accelerate in the future. Accordingly, we have created four scenarios that represent distinct pathways for the world out to 2030: Stalled Engines, Fusion, Gini Out-of-the-Bottle, and Nonstate World. Multinational businesses, IT communications firms, international scientists, NGOs, and others that are used to cooperating across borders and as part of networks thrive in this hyper-globalized world where expertise, influence, and agility count for more than “weight” or “position.”
No doubt then, that the report writers see a future made up to such non-state actors forming multitude of cross-national networks, and Bitcoin in just one such network, though it sits more on the fringe rather than in the middle of the business world. It is also starting to gain legitimacy. As per The Economist
On March 18th the Financial Crimes Enforcement Network, an American government agency, proposed to regulate Bitcoin exchanges; this suggests that the agency is unlikely to shut them down.
While as a store of value, Bitcoin or its clones may or may not be a suitable replacement for money. Wild gyrations in prices tell us that they are neither good investments, nor good store of value. Unknown complex computer algorithms that create new bitcoins somehow do not create the perception of scarcity that deep underground tunnels for gold mining do.
However, as medium of exchange Bitcoin or its clones may be on to something. In a world where most supermarkets, or even book-stores are not complaining when they earn a margin of 2%-5%, it appears ludicrous that credit card companies can command a transaction fee that is equally high. These high fees, and the processes that accompany them were designed in the days of coaches and buggies when none of the efficiencies of modern communication and transportation were available. Whatever happens to the lawsuit with $7.25 Billion settlement in “eight years of antitrust litigation that accuses Visa and MasterCard of conspiring to inflate retailers’ interchange, or swipe, fees on credit card transactions“ (Reuters) in the long run sophisticated networked shoppers will become aware of the power of crypto-currencies to facilitate cheaper international transactions. As per the Economist
“Some legal businesses have started to accept Bitcoins. Among them are Reddit, a social-media site, and WordPress, which provides web hosting and software for bloggers. The appeal for merchants is strong. Firms such as BitPay offer spot-price conversion into dollars. Fees are typically far less than those charged by credit-card companies or banks, particularly for orders from abroad. And Bitcoin transactions cannot be reversed, so frauds cannot leave retailers out of pocket.
No doubt this is just the start of a big trend for the future. However, The article in Economist notes rightly that just as Napster started a revolution in digital music that eventually led to iTunes and beyond, Bitcoin may have already started a revolution in the digital payments that could lead a long way away.
What are your thoughts?