Over the next couple decades, Bitcoin’s blockchain technology, which allows financial transactions to be recorded using distributed ledgers, obviating the need for a middleman, is going to remake the way we handle money. Dollars will become digital, as will many other financial assets such as loyalty points, gift card points, mobile minutes, energy credits and more. San Francisco-based Chain.com is one Bitcoin startup working on building out this future — in the company’s case, it is providing the technical tools for large institutions and other digital currency startups to use the Bitcoin protocol (and will add other protocols as it sees fit).
The company’s CEO Adam Ludwin describes our digital asset future.
What will it mean for our money to be digital?
We used to go into stores and buy CDs, and then the Internet became a thing and we then bought music CDs online. And that was a pretty big shift — to not walk into a music store but to go into a website and buy music. And that, for a long time, is what people thought was the Internet revolution. But as we know, the real revolution was when the music became digital at its core. And that enabled streaming and Pandora and iTunes and iPods, which gave birth to the iPhone, and it was just an entirely different idea that was wholly outside the traditional recording industry framework.
Where we are with financial services is that you used to walk into a bank branch and bank and you used to write checks, and now you go on a website, but you’re basically in a virtual bank branch. You can deposit your checks with your iPhone, which is the same thing as going online and buying music. What the Bitcoin and blockchain revolution is about fundamentally is making money digital at its core, and that is going to truly change the way financial services works.
What does this mean for the financial services we know today?
It doesn’t mean financial services companies don’t have a role to play. It doesn’t mean they go away. It doesn’t mean their brands aren’t worth anything. Money still, as an idea, requires trust, requires relationships, even when it’s digital.
The thing I’m trying to convey now to financial executives is that the blockchain is not a thing you can just apply to your financial systems to make them better — it’s not like a fresh coat of paint where you just put it on and everything is new and fun and sparkly. The blockchain is about enabling the emergence of digital assets and a whole economy where these digital assets are traded and handled and moved around. So the question is not, how can I use the blockchain to make what I do today better? The question is, what role am I going to play in a future digital asset economy? When economic activity and commerce and payments and banking are in service to digital assets, what role are you going to play in that?
I think the way big financial institutions think of themselves is really defined by the activities that they do today: are they in the business of transferring wire transfers or in the business of helping people move value from one place to the other? And if they think of themselves as being in the business of wire transfers, they’re likely to be disrupted first. If they think of themselves as a brand that people can trust with their assets whether physical or digital, they can be motivated to play a role in this future.
If financial institutions are going to be issuing digital assets, like digital dollars, then what do you think will happen to Bitcoin the currency?
Bitcoin will continue to be the only asset that is truly permissionlessly generated by a network. All the other assets that everyone else is working on are assets that are issued by institutions — loyalty points, currencies, dollars. They’re all issued by someone, which means that at the end of the day, you bring that token back to that issuing entity, and you get whatever the redemption value is.
Bitcoin is going to be like gold: there’s going to be a fixed amount on earth, there’s a market value for it based on demand, everyone understands how it works, and it’s like a reserve currency or a commodity that is what it is, that no one can issue more of and that can be trusted because the network rules are known and cannot be changed. I think Bitcoin will function like gold and all the other asset classes will function like existing asset classes, which is to say they will be issued according to, essentially, a contract by the issuer.
The commonality between Bitcoin and a digital asset is that the way they move is exactly the same — they move directly between parties, they’re settled quickly, they’re cryptographically signed, there’s a clear ledger/chain of control and there’s transparency. As a result, it’s lower cost, less risky and there’s less fraud. The benefits will be is the same across both of them, but I think they’ll play very different roles.
Laura Shin is the author of the Forbes eBook, The Millennial Game Plan: Career And Money Secrets For Today's World. Available for Apple iBooks, Amazon Kindle, Nook and Vook.