In a popular story published in Dealbook, venture capitalist Marc Andreessen discussed his views on the popular virtual currency Bitcoin. The article is a good, decently level-headed discussion on the current Valley thinking about Bitcoin and its potential.
One thing that bothered me though was this line early on in the article: “What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014.”
References to these sorts of “revolutions” or “waves of technology” are always interesting to me as an on-and-off again historian of science and technology. Revolutions are never point events, but rather process events – they have significant antecedents and gestation periods, and their effects are often time-delayed.
Take the personal computer. It is actually really hard to point to exactly when the PC revolution took place. Was it the launch of a specific model, the development of a particular piece of software, or maybe a particular marketing campaign that made it take off? The answer, of course, is no. The PC developed over two decades (possibly more), and over the years, the hardware and software co-evolved, supporting each other in growth.
Now take the internet. The internet has been in existence since the 1960s, and email has been available since the early 1970s. Andreessen uses the year 1993 as his benchmark, but the National Science Foundation didn’t even allow commerce on the internet until 1995. The internet is still evolving today, and it is almost two decades later.
Now, what about Bitcoin? Clearly, the currency has a huge opportunity given the number of digital transactions going across the web. The question I have is more mundane though – how much of an improvement does Bitcoin make over existing transactions, and are there new transactions or other software that can be built with Bitcoin that makes it a “fundamental” platform technology.
For existing transactions, most of which can be served with existing technologies, the main benefit is cheapness, and potentially less painful checkout processes. Since Bitcoin works essentially like cash, questions related to your billing address, credit card numbers, expiration dates, etc, can all be eliminated. Cheaper fees disproportionately affect international currency transfers, which will be far easier in a Bitcoin world.
The key question then is around the creation of new transactions. Andreessen writes:
“A third fascinating use case for Bitcoin is micropayments, or ultrasmall payments. Micropayments have never been feasible, despite 20 years of attempts, because it is not cost effective to run small payments (think $1 and below, down to pennies or fractions of a penny) through the existing credit/debit and banking systems. The fee structure of those systems makes that nonviable.
All of a sudden, with Bitcoin, that’s trivially easy. Bitcoins have the nifty property of infinite divisibility: currently down to eight decimal places after the dot, but more in the future. So you can specify an arbitrarily small amount of money, like a thousandth of a penny, and send it to anyone in the world for free or near-free.”
This is an interesting scenario, and there are certainly some other classes of transactions that are possible, but I feel the field here is so much more limited than the potential that came from the internet and the personal computer. The reality is, commercial transactions today are actually pretty decent for those in the developed world.
We are certainly going to hear a lot about Bitcoin in the coming months. But before we start comparing it to the PC and internet, let’s realize that the world we are envisioning here is likely still a long time away.