When people see Bitcoin’s meteoric rise in price they fear they might be witnessing a bubble, wide enthusiasm followed by loud explosions, such as the dotcom bubble of 1999. Remember when every actress with an idea for a website was creating an IPO (Initial Public Offering)? When it was over, they discovered websites aren’t so easy to create or build, and, a good domain name does not a financial success make. Boom!
What we’re witnessing is the rapid adoption of new technologies, cryptocurrency and blockchain. Cryptocurrency is virtual money, digital money that appears only on a computer screen but represents a value by virtue of the fact that everyone believes it does. Say what? People have been doing virtual banking for quite a while. When you log in to Citibank or Wells Fargo Bank and you see your balance on the screen, that is a virtual representation of the money you have. Blockchain is something else, entirely. Blockchain is the technology that makes cryptocurrencies like Bitcoin secure, anonymous and free of government or corporate controls. I won’t go into an explanation of blockchain here. There are some very good ones elsewhere on the Internet.
Why do we adopt new technologies? There is a simple answer to that. We adopt a new technology when it does something for us better than ever before. By better, I mean faster, smarter, smaller or cheaper. If a new technology does any one of these attributes better than any technology that came before it than it is an improvement that has a good chance of being successful. By successful, in these terms, I mean widely adopted. If it achieves more than one of these attributes, it can very well become wildly successful.
I remember my uncle Harry describing to me one of the first jobs he had, selling electric refrigerators at a time when everyone had only iceboxes. He said it wasn’t “selling” at all. It was signing up people because the improvement was just that compelling. It was faster, smarter, smaller and cheaper.
We only talk about Bitcoin because it was the first and best known of the cryptocurrencies but there are and will be many thousands. We will have to bend our notion of currency and cash. Think coupons. Remember when you went to the carnival and the first thing you did was buy a string of coupons that you could use to pay for rides? Each digital currency, each cryptocurrency, has specific characteristics to be used in specific ways. They may or may not be fungible as dollars are. Think Airmiles and Chucky Cheese coupons. They each have their own specific function and format.
There will be currencies for general spending purposes. There will be currencies for pocket money. There will be currencies for healthcare expenses, for virtual costumes for your Avatars, for real estate, for contracts, for international trade, for virtual kitties, for shopping at Walmart (think company store), for air travel, for stocks, for bonds, and, of course, dollars. There will be currencies which work faster, currencies which are programmable, and currencies which are anonymous.
Cryptocurrencies are specifically designed to work with computers. By that, I am speaking generally to include smartphones, thumb drives, pads, tablets, and other electronic devices to be included in the concept of computers. In our future, computers speak to other computers. They haggle and negotiate. They invoice and pay one another with our consent and guidance but not necessarily our direct involvement. For that, computers need cryptocurrencies. Fiat currency just doesn’t work. Imagine robotic arms counting out $15 in paper currency at a toll booth. I don’t think so.