By Sheri Kaiserman, Head of Advanced Securities at Wedbush Securities
If you could go back in time and be offered the opportunity to invest in an Internet protocol, the tools that allow the Internet to be what it is today, like TCP/IP, SMTP, HTML, or HTTP, etc., would you have invested? Imagine having the opportunity to make money by owning the protocol that is involved in sending every email, or the creation of webpages, or the transporting of a user to another webpage when a hyperlink is clicked. Blockchain, and the cryptocurrencies it enables, are similar to these basic internet protocols.
Simply put, the Internet allows computers to exchange information; Blockchain allows computers to record information. With Blockchain technology we will be able to utilize the Internet at a new level, bringing greater security, less fraud, significantly streamlined processes, increased digitization possibilities, and most importantly, enabling new business models that will bring a democratization of wealth participation opportunities on a global scale. Cryptocurrencies such as Bitcoin, are part of the protocol layer that enable Blockchains.
Email was the first widely adopted application of Internet technology but unless you had a brokerage account and were an investor in a company like Microsoft or AOL, you could not prosper from the growth and success of people using email. With Bitcoin and other cryptocurrencies, everyone in the world is being given an opportunity to take part in making money from the wealth that is being created from new products and services being built utilizing cryptocurrencies and Blockchain technology.
Similar to how the Internet protocols, mentioned above, allow you to send an email or view a webpage, Bitcoin is what enables the bitcoin Blockchain to function. Everyone globally, has the opportunity to buy Bitcoin. All that is needed to access Bitcoin is a smart phone and an Internet connection, which is a staple in most people’s lives, including many of the homeless.
Bitcoin is the first successful and widely adopted application of Blockchain technology. There are two parts to Bitcoin: the technology, (denoted by a “b”) and the Bitcoin coin (denoted by “B”). The bitcoin network is a disruptive peer-to-peer electronic payment technology. Bitcoin the coin, serves two purposes: the first, is as a cryptocurrency that is the mechanism for the exchange of value directly between two parties on this network; Secondly, newly mined Bitcoin is given as rewards earned by “miners”, who as a group, are performing the function of validating and processing transactions as well as, maintaining a digital record of them, the bitcoin Blockchain.
More than 11,000 computers (“nodes”) in 104 countries are running the bitcoin software, acting as “miners”, which means they are contributing their computing power to support the network. Each node keeps an individual identical copy of the Bitcoin digital ledger, which shows every Bitcoin transaction in history. This ledger is a permanent record, and due to the nature of cryptographic technology, the data cannot be altered without highlighting to everyone with a copy that something was changed, eliminating the likelihood of fraud. Due to the fact that the digital ledger is maintained and updated on a distributed volunteer network of computers, it is impossible to shut down. For participating in keeping this network functioning well, miners earn newly minted Bitcoin and a fee related to each transaction they process.
Aside from the speculative use case of trading and holding Bitcoin, which we are all now familiar with, Bitcoin is being used around the world, in a variety of use cases that are providing true economic value. Bitcoin serves as a wonderful vehicle which consumers and corporations are using to facilitate cross border payments. Rather than using international wire transfers, which are slow and involve fees to multiple intermediaries, multinational corporations like Microsoft are processing multimillion dollar cross border business-to-business and supply chain payments utilizing Bitcoin, making payments much more efficiently.
International migrants use Bitcoin to send money to their relatives overseas without involving an intermediary like Western Union, which takes a large percentage of the money as a fee for its service. This allows roughly 99% of the money being sent cross border to end up in the hands of the recipient.
People in Venezuela, a country with hyperinflation, are thrilled about having access to Bitcoin, which they view as a much better store of value than their own fiat currency. Japan has recently recognized Bitcoin as a legal payment method. There are endless examples of current and developing use cases, which all bring efficiency, reduced costs, transparency and will be extremely disruptive to established intermediaries in every industry.
The Emergence of the Internet and Deja Vu
Since 1992, I have been using email, a tool I could not live without today. It is a very efficient, technological tool that sped up and lowered the cost of communication. Around the time I began using email, rumblings about something called the Internet started but I could not grasp what that was. I had no conception that email was simply the first of many applications I would eventually be using of Internet technology.
In 1995, the Netscape browser gave us the ability to browse the Internet. Amazon.com and eBay.com launched, and traditional companies like The NY Times, began moving online and launched their own websites. As I used my dial up modem to connect my personal computer to different sites on the Internet, I began to have an initial understanding of what the Internet was and the transformative nature it possessed as a powerful new technology. It was a new world and we all had no idea of what was to come!
I remember people talking about all the concerns that came along with using this new technology: “I’ll never let my kids go online because they can access porn”, I’ll never use my credit card on the Internet, I’d rather call a live person when I am ready to checkout”, “Connecting to the Internet is dangerous, it can give your computer a virus”, and “You’ll never be able to watch a movie, there is not enough bandwidth”, etc.
The advent of companies like Versign (1995), Paypal (1998), and Akamai (1998) made huge businesses addressing the above concerns. More people became comfortable transacting online, the technology continuously evolved and improved, and creative engineers continued to utilize the open source code of the Internet to bring new business models to life.
It wasn’t until ten years after the Internet became commercialized that a new sector emerged called Social Media: Facebook (2004), YouTube (2005), Twitter (2006). Ongoing creative development continued and five years after that, another new wave of companies like AirBnB (2008) and Uber (2009) were born, giving birth to what we now know as The Sharing Economy. This had become a new world!
Blockchain is the next transformative technology and the search for, and hiring of engineering and other talent in this field is exploding. As an example, IBM already has 1500 employees dedicated to Blockchain and is looking to do more hiring. Deloitte employs 800 Blockchain focused people. Every industry and government is looking for ways to utilize the technology because of the security and efficiencies it brings. What will be most interesting to watch are the innovative start-ups forming new decentralized business models which will not only disrupt established intermediary businesses, but will also prove disruptive to the disrupters, i.e., AirBNB and Uber. With Blockchain, a decentralized AirBNB or Uber can be built without the control of these companies in the center. A true sharing economy can now be created where contributors can interact peer to peer and keep the value they create. Every company will likely see a Blockchain version of themselves emerge as competition.
It is still the early days of the evolution of Bitcoin and Blockchain technology and there are many issues people like to point to as negative criticism. Much like the Internet and the power of technology in general, there is no reason to doubt the multitude of creative developers working in this sector to address these concerns. As the technologically evolves and improves, numerous wealth creation opportunities will emerge.
The world is about to start looking very different once again!
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