Bitcoin is a revolution in peer to peer networking, but that is often lost when it is discussed as a currency. While Bitcoin has wonderful advantages as a currency, including “instant” transactions, incredibly low fees, and the inability to reverse payments (which could be optionally added via a 3rd party processor), that is not what makes Bitcoin amazing.
Bitcoin’s Blockchain is the Future
The Bitcoin blockchain is where the real breakthrough lies, and without the blockchain Bitcoin would not be possible. Before Bitcoin, other systems had attempted to create a truly decentralized platform, and there are examples of success, such as peer-to-peer file sharing clients. However, none of the previous networks created the possibilities that Bitcoin’s blockchain has. By using a blockchain, or the underlying ideas behind it, it should be possible to create entire corporations that only exist in a digital, decentralized form. In fact, it is certainly possible, because that is, effectively, what Bitcoin and other cryptocurrencies are. The currency is nothing more than stock in the “corporation” that is controlled by the network.
Bitcoin’s value is derived from this, and because Bitcoin was created to be a payment system, that is what it’s focus is on. One of Coin Brief’s authors, and a friend of mine, Evan Faggart has written quite a bit on where Bitcoin’s value originated, and when viewing Bitcoin as a currency alone I tend to agree with his analysis. However, I think he, and most economists, are missing a crucial piece of the puzzle surrounding Bitcoin. Yes, Bitcoin the currency derives it’s value from previous currencies that are used to purchase it, but those purchases are closer to the purchase of stock in Bitcoin the corporation.
Now, there is no confusion about where the value of stock comes from. It comes from the valuation of the company as a whole, and tends to grow as the company does. Bitcoin is the same, yet different. The Bitcoin “company” grows as the network gets larger, with more funds being invested into the infrastructure (mining equipment) and products (Bitcoin-based private companies), and more individuals and companies outside of this network begin to accept it. The term for this type of digital company is a “Decentralized Autonomous Corporation“, or DAC, and Bitcoin was the first successful DAC. However, it will not be the last.
Bitcoin, the First DAC, and First Meta-DAC?
Because of the incredible support that has been directed toward Bitcoin, and the revolutionary nature of it’s blockchain innovation, there have been relatively few competitors to it. Many, many other cryptocurrencies have been spawned out of it, and I outlined the benefits of this last week, but none of the “altcoins” have been true competition for Bitcoin.
Instead, as mentioned above, private companies have been growing around Bitcoin, and venture capitalists, angel investors, and even traditional investors have been funding these companies at ever increasing speed. Bitcoin has created an industry that did not exist before, much in the same way that Google has created the SEO industry, as well as growing the website analytics industry. This, in my opinion, is the definition of a meta-corporation, as it is a corporation so influential that it creates it’s own industry.
This is also the reason that I do not expect Bitcoin to be dethroned as the king of digital currencies anytime soon, nor do I expect Google to lose it’s position as the king of search. However, other companies, and other industries, may not be so lucky.
The Next Step After Bitcoin
There are groups of developers that have already realized the potential in novel decentralized systems, and are working on creating the next generation of DACs. One of these, Ethereum, I mentioned in a previous article, and has the potential to not only expand the idea of a decentralized, autonomous network to new areas of the financial sector, but could go far beyond that. Ethereum’s design allows for developers to write programs (or contracts) that will run on the network, and thus will provide a platform for countless ideas and products that are yet to be imagined.
However, even Ethereum will likely be limited by design, as no one system can do everything. It may very well be the next Meta-DAC, co-existing with Bitcoin, and creating a new industry, but the truly exciting ideas exist in industries that are not limited to the digital realm. How much computing power does it take to equal the cost of a CEO? CFO? The multiple levels of management in a traditional company? A decentralized network of computers, running software that outlines their goal, could easily handle many, if not all, of the decisions needed to run many companies. By weaving that with the reward of “stock” for helping to process whatever calculations are needed to do this, a self-sustaining network can be created that is orders of magnitude more efficient than a traditional company.
I am not going to claim to know how this will be achieved, as it will require the creation of algorithms that can process complex problems that are beyond my ability to determine. What I do know is this: Bitcoin has already provided a substantial base, in the blockchain, with the ability to verify and track transactions or exchanges in a decentralized way; many altcoins have pioneered various modifications, and additions, to this base; and Ethereum, NXT, Mastercoin, NEM, Counterparty, as well as many yet unknown projects, are working to take this to the next level.
Isn’t Bitcoin Enough? Why Will More DACs Arise?
The increase in efficiency that a DAC provides will ensure that innovation is always driving toward more complex systems. This is true simply because of human nature. We are builders, and creators. When an idea sparks a revolution, that idea tends to be explored fully, and taken to it’s limit. This can be observed in the technological revolution that is centered around the internet, which makes Bitcoin possible; to the revolution in mass production centered around the assembly line, followed by automation; to the industrial revolution, which greatly accelerated the progress of every industry; and going back further, the Enlightenment and the Renaissance, which are responsible for the foundation of modern science, literature, medicine, art, and philosophy. Bitcoin was only the beginning of a new line in progress, but one which opens the door to incredible possibilities.
In Part 2 we will analyze some of the projects that are being developed today, and list some of the possible, yet difficult, ideas that members of the community have proposed.