Bitcoin is not for the big guys

Tuesday 03 November 2015

Big businesses are looking at bitcoin. Are they in for a disappointment?

In a recent article I looked at the last couple of years in Bitcoinland, concluding that what happened represented something like the dotcom bust for crypto. That naturally raises questions about the kind of companies that will weather the storm.

Read also: That was our dotcom bust. Now what?

The parallels are obvious. Huge VC and popular investment - in bitcoin’s case directly into the currency as well as the infrastructure - before the world was really ready to provide the customers and the revenue streams. After the dust settled, those who are left standing have to pick up the pieces and forge viable companies from what’s left.

In the case of the internet, there were plenty of companies that never made it ( springs to mind as a case study in failure). And there were some that did, like Amazon and eBay - big companies that had the VC investment and the right vision and business model, and could not only survive but thrive.

But is that really the internet’s success story? Is it not more the hundreds of thousands, millions of individuals and small businesses that built something new and different and profitable on top of this new technology? Technology that, after all, offered nothing less than the democratisation of information - access to know-how, customers, facilities and more. How many successful organisations today do not have a website? Not many.


Large, unwieldy and with voracious appetites: big corporations are not best suited to leverage what bitcoin offers

It’s my assumption that bitcoin’s success story will be similar, only more so. Like the internet, crypto is a democratiser, an enabler. And, far more than even the internet, it’s about dispersing power. Decentralisation is not just a benefit, it’s a core feature. Crypto brings low transaction costs and independence from single-point-of-failure control. That’s built into how it works. Change or try to co-opt that and you kill not only what it does, but what it is. Unfortunately, big businesses like centralisation and top-down control. There are a few companies that received huge amounts of VC funding but neglected to limit their burn rate that are cottoning on to that problem right about now.

That’s why I’m sceptical about big businesses leveraging bitcoin to turn a profit. Sure, there will be some that manage it. Exchanges, for example, need banks and regulatory approval, and those are things it’s easier to access when you’re large and influential. But centralisation is anathema to crypto. Not just ideologically but practically, because you can't control the thing that will cease to exist if you tame it.

What is more likely to drive adoption, in my mind, is the thousands and thousands of small businesses and entrepreneurs who realise there are benefits to using crypto - lower transaction costs, access to international markets, circumventing capital controls or state intervention, finding customers who aren’t able to use credit cards for one reason or another.

Naturally, some big companies can do just that, too. But imagine the state of bitcoin in five or ten years. Will there be an equivalent of Google - a huge company with an effective monopoly on the market? That would be inconceivable, if only because it would crush the thing it was supposed to profit from. More likely, bitcoin’s success story will be one that is as widely dispersed as its network. 

And that means some big companies are going to have to have difficult conversations with their investors.

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