Bitcoin As More Than A Currency: Some Use Cases
As an ex trader, I've been curious (and admittedly skeptical) of the hype around bitcoin. My view is generally hype is negatively correlated with return (in the short term). Part of the issue is that I really didn't understand Bitcoin. I still dont, but my understanding has improved after reading
And talking to a few folks working on bitcoin in various capacities. Here's what I get
- Bitcoin (the protocol) solves the Byzantine generals problem - its a way of identifying a "bit" (any piece of data, a document) as unique, in the same way that I can verify that the burger in my hand is unique - no other entity, human or otherwise, can possess a that "bit" so long as I have it.
- By extension, it's a way of transferring that unique bit from one entity/individual to another, and verifying that the "other" entity now possesses it.
So far, not complicated - if you buy these 2 things, then the implications are much wider than currencies, which is why you see graphs like these:
In startup circles they often say that something has to be 10x better than the alternative to encourage adoption, and 10x is a high standard when you’re talking about something as easy to understand and pivotal to people’s every day lives as cash. For now, bitcoin doesn't meet this standard (but that doesn't mean it won't - it's a chicken and egg problem and adoption from companies like Overstock go a long way).
Here are a few ideas for bitcoin. In each I've included what it replaces - hopefully that helps clarify the idea.
As a currency Bitcoin is more useful today as a way to get value out of certain currencies and into others. In certain parts of the world with unpopular government action (Greece) high inflation (Argentina) or currency controls (China), bitcoin is attractive not as an alternative to the local currency, but as a way to shift your holdings into another currency. So long as those trends remain, bitcoin will have a place. Replaces: Black market money transfers
Digital Rights Management If you can identify a particular file as unique, then you can exchange that file for money (or bitcoin if you prefer). This is useful for music - you could develop a non-proprietary file format that would only enable the file to be played on signed devices, which would cut piracy. Think of Apple's AAC files, but they don't have to be played in iTunes. Other areas where this could be applied: document signing (verified by a unique wallet), and stock photos (replacing watermarks, hence verifying whether an image was paid for, or stolen). Going one step further - usage of the file could even prompt an (opt-in) payment flow (in bitcoins!) Replaces: Watermarks/Getty Images, AAC files, Signatures
Oauth and Identity Identity used to be top down (the government or some other central authority certifies who you are). More recently Facebook has taken a more social tack - you are who you say you are because your 1000 friends say so. An identity unverified by a network is more likely to be false (because by definition, every person knows at least one other person, often more). A login with a bitcoin wallet for example could replace Login with Facebook/Google without much of the privacy challenge. Replaces: Driver's license, Login with Facebook, Login with Google
Enterprise Security Today, to log into your corporate environment, you use a random number generated by an RSA fob. Given that the solution to the byzantine generals problem depends on a certain percentage of devices on the network verifying a unique transaction, a corporate network could be instructed to only permit devices verified by a certain percentage of nodes, to log in. This means that in order to hack the system and enable an unverified device to gain access, an attacker would have to verify at least that percentage. Replaces: RSA Security Fobs.
I'll admit I'm way out of my depth here - much of this is beyond my technical grasp. But given my limited understanding this is what I've been able to come up with, and if I'm even half right, it's huge.