How blockchain will drive commerce
Wednesday 20 July 2016
The blockchain will help drive commerce, but probably not in the way we originally thought.
For its formative years, bitcoin was a stunning financial phenomenon. Despite its crazy volatility, it exploded in value from literally nothing - there were no markets back in 2009 - to over $1,000 at the end of 2013. Early in 2010 you could buy a bitcoin for one cent; there aren’t many assets that appreciate 100,000 times in four years.
Unfortunately, that rise and the financial speculation that accompanied it has largely set the tone for bitcoin. It focuses on bitcoin as a store of value - an inflation or downturn-resistant commodity like gold - rather than as a medium of exchange, like dollars. And that is where cryptocurrencies truly excel, in the near-frictionless movement of money around the world. It is an exceptional way to shift funds from A to B, quickly and cheaply, utterly regardless of location.
Bitcoin isn't driving commerce yet, or vice versa - but there are big opportunities for blockchain tech here
Money isn't bad (yet) enough for bitcoin adoption
It took a lot of the community a while to catch onto this, but this is property that many people came to believe would drive bitcoin adoption. Surely, they argued, businesses would value such a fast, secure, low-cost means of transacting - one that removed the problems of credit card fees and chargebacks.
It turns out not to be the universal case. Most businesses don’t feel they need a new medium of exchange. There are a handful of legitimate businesses for which bitcoin offers an overwhelming advantage, and a few more illegal ones. Most, though, don’t have enough of a problem with money in its current form to take the risk of trying something different. There is not enough friction to adopt bitcoin. In time, no doubt more use cases will come. But right now, there are easier wins.
Rather than replacing regular money in transactions, one major use case for bitcoin and wider blockchain currencies is likely to be as a complement to the traditional financial system. I’ve argued that there are three clear major use cases for crypto at the present time: remittance, tipping and loyalty. Bitcoin has the first one in hand, and applications are being developed on top of it to allow the swift and low-cost international transfer of funds. Tipping is still in its infancy, but various crypto platforms are exploring this area.
The last is loyalty, specifically the creation of blockchain-based rewards points that carry value beyond their redemption criteria with the issuing business. Done right, this transforms loyalty points from a kind of pseudo-currency to a form of parallel money, and the fractured, inefficient and ineffective loyalty sector into a marketplace that would provide genuine benefits to customers and incentivise meaningful repeat custom for merchants.
You can read more about BitScan’s loyalty initiative, Incent, and the thinking around it in the following articles:
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