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Updated: January 7, 2014 13:22 IST

Bitcoin and its potential to be disruptive

Rajashekara Maiya
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Rajashekara Maiya
Special Arrangement Rajashekara Maiya

When consultants and academics speak of a disruptive innovation, they usually mean that the new entrant disrupts a market. If we take a long, hard look at Bitcoin, however, we see that innovations can also disrupt the people who develop and use it.

For those unfamiliar with Bitcoin, it is digital currency. What drove its initial development was its proposition — that it exists solely in the digital world and away from the control of government regulators. The values of other currencies can rise and fall when a government’s central bank decides to print more paper money. Because Bitcoin is digital and there is a finite number of them, the expectation is that it won’t be prone to such devaluation.

Of course, the idea is different from how it’s played out so far. Speculators have hoarded Bticoin just because there are a finite number of them. And when banks around the world decided to shun the currency, its value took a tumble. The people and businesses that make transactions using Bitcoin, therefore, have dealt with their share of disruption. It’s a kind of disruption I’m sure they would rather not have.

Fascinating concept

Whether you like it or not, the concept behind Bitcoin is fascinating. In the digital age, shouldn’t we be able to pay for things and transfer money around with the flick of a switch? The promise of the Internet is that anyone, anywhere with an online connection can transmit a message to anyone else. Why can’t the same be true about money? It’s interesting that although the Internet has become another way of sending mail, the way we send money remains largely the same as it was a century ago.

Having a middleman — a financial clearinghouse, for example — is supposed to lend stability to cross-border monetary transactions. But detractors of that established model would say that in the digital age, where there are no borders, no middleman is necessary. And therefore having one is a redundant and costly part of the financial process.

If a currency is regulated and doesn’t allow its users to be anonymous (and to be without a national identity), then what’s the point of a new digital currency?

The term I’ve seen used to describe the promise of Bitcoin is “peer-to-peer”. If a transaction involves only the buyer and the seller and not a middleman, then it becomes seamless and less costly as well. That’s not only the promise of digital finance; it’s the promise of the entire digital world.

It’s not surprising that Bitcoin has the potential to be disruptive. It arose out of the global economic crisis, when consumers became more sceptical of global financial institutions. Even one of its first and major online exchanges, Mt. Gox, was designed, they said, with the consumer in mind. True, the exchange is facing its share of issues. But the fundamental idea that digital consumers should be free to make transactions in such a way that they don’t have to involve central bank-regulated currencies is bound to remain popular.

We are incredibly familiar with providing solutions to the financial services sector that help enterprises offer a more seamless experience to their customers. That’s why I think the people behind Bitcoin are on to something. They’re addressing the needs of modern, digital consumers who are seeking more efficient and effective methods to conduct transactions. For now, people blazing a trail in the world of digital currencies are experiencing a lot of growing pains.

I predict that because the idea of a borderless, unregulated digital currency is a sound one, eventually there will be plenty of online exchanges and ways to conduct business in such a way. Getting to that point will be a rocky journey.

(The writer is Associate Vice-President and Head, Product Strategy, Infosys Finacle.)

I agree with almost every point made by the author but the anonymous
part. Why does one have to be anonymous? Wouldn't that release the reins
over drug dealers, terrorists and any other anti-social elements?

And the devaluation part is a little obscure to me. Any currency which
is not backed by an asset is useless. So if bitcoins are backed by
money, and if money devalues then eventually aren't the bitcoins
devalued?

from:  Vamsy
Posted on: Jan 8, 2014 at 13:26 IST

Can you also tell us who controls Bitcoins and who decides the quantity
of them in circulation. Do you really believe a currency uncontrolled by
the government would do good. And who tracks the illegal drug trade
transactions. Since when did government control become a bad thing.
Aren't the government made up of people like us and aren't they working
to organize society.

from:  Abhishek
Posted on: Jan 7, 2014 at 22:51 IST
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