The “Bitcoin Effect”: The Future of Bitcoin Is Not in Itself

“You cannot change things by attacking the status quo. You can only change the status quo by establishing an entirely new paradigm that makes the existing paradigm a thing of the past.” —Buckminster Fuller

Bitcoin's industrial chain is based on Bitcoin's principles and utilizes the principle of "currency programmability": based on blockchain's distributed technology and decentralized principles, it realizes the integration of the two revolutions of currency and finance.

Both are rooted in similar cryptographic technologies, but have different branches. Both paths create opportunities for startups, investors, consumers and corporate customers to disrupt, innovate and challenge the existing system. The two have established an inseparable "offensive and defensive alliance", and the foundation is blockchain, and encryption is the backbone of this foundation.

To fully understand the concept of blockchain and the benefits of cryptography to the field of computer science, we must first understand the concept of "decentralized consensus", which is also the key principle of the computing revolution based on encryption.

Decentralized consensus breaks the traditional model of centralized consensus: when a central database is used to verify the validity of transaction rules. Decentralized consensus (based on the Bitcoin protocol) is to transfer power and trust to a decentralized network, and allow its nodes to be open to individuals and businesses, and continuously record their own transactions on this "block", creating a unique "industry chain" or "blockchain". (Hash code) encryption technology is used to ensure that the transaction source is reliable and does not require any central intermediary authentication. The combination of cryptography and blockchain technology ensures that the same transaction is no longer recorded repeatedly.

Unbundling to this extent could help spur new ways of developing software and spark a wave of innovation related to both monetary and non-monetary decentralized applications.

Existing cryptography-related technologies have their own characteristics, some are based on the Bitcoin blockchain itself, while others are based on independent decentralized technologies; some are based on the Bitcoin currency, while others are based on alternative cryptocurrencies. All these different permutations create a rich ecosystem environment for basic innovations in cryptocurrency.

If you think Bitcoin and its unique blockchain will have a monopoly on the future of cryptocurrencies, it’s like saying LinkedIn was the only social network with a clear lead in the space in 2006, when Facebook, Twitter, and other social platforms were still in their infancy.

We need to think of what’s happening today as a diverse ecosystem that is a fusion of the best of computer and crypto science, not just an ecosystem centered around Bitcoin technology.

There is no future for Bitcoin and its blockchain. The cat is out of the bag — innovation around digital currency technology is surging. At the heart of this revolution is a shift in trust from humans and centralized organizations to computers and decentralized organizations, with a fundamental decentralized consensus holding them together.

If social networks dominated 2004 to 2014, then trusted networks will dominate the next 10 years.

However, what most people don't know is that Bitcoin starts with just one protocol, and a fairly simple one at that. No matter what complexities are built on top of it, it's as simple as TCP/IP is to the Internet. The ecosystem built around Bitcoin really helps to further enrich what Bitcoin does, not diminish it.

Regardless of how any of these companies and projects, such as Ethereum, Blockstream, Maidsafe, Mastercoin, Counterparty, Stellar, Factom, Codius and NXT innovate with new technologies, services and applications, they increase or test the limitations of what Satoshi Nakamoto originally envisioned.

Today, the future of Bitcoin remains uncertain, but various models continue to emerge. Although the overall development trend is not completely clear, the following aspects we believe are the most exciting and promising areas that Bitcoin can explore, both in terms of currency applications and decentralized applications.

Money Services

If you live in the West or a more developed country, perhaps the banking system and currency are generally stable, and you are very satisfied with the services provided by the bank. However, according to research, half of the world's population has no bank accounts and no transaction records, and the number of people who do not go online exceeds 4 billion.

If you want to delve deeper into the future of decentralized banking services for the masses, the success of Easypaisa in Pakistan and M-Pesa in Kenya is undoubtedly the best case. Most of their services are SMS-based, mobile-based banking services that have been widely popular among users. People can use it to pay various fees, transfer money, purchase goods and apply for services, and also support other types of transactions. In Pakistan’s mobile financial transaction market, Easypaisa’s share exceeds 50%, while M-Pesa’s market share in Kenya exceeds 70%, contributing to more than 30% of Kenya’s GDP.

You might think that SMS-based transactions are pretty simple, and that’s exactly what this type of service is all about: a return to simplicity. Bitcoin, at its core, is all about providing a simple service to its users.

Microtransactions and transfers

Bitcoin is the perfect tool for microtransactions. There is no reason not to use Bitcoin to complete online transactions under $10. Credit card or PayPal services have not been developed for such small transactions because the transaction fee may account for a large part of the transaction amount (at least in the free era, which makes users feel very uncomfortable). Bitcoin was used for donations, rewards, etc. in the early days, or as promotional gifts for marketing purposes. Some bloggers have even added a "reward" button to their websites, which may indicate that likes will become a new way to express appreciation.

At a higher level of currency operations, Bitcoin is very suitable for transferring money on local network structures, and the global remittance market of $400 billion may be disrupted because Bitcoin's advantages in transfer speed and simplicity of operation greatly reduce the cost of remittances. In addition, we will soon become regular users of cryptocurrency wallets, the inherent function of which is that users can transfer or pay through programmatic conditions or regulations based on smart contracts.

Currency is content

Some might agree that Bitcoin will have a greater impact than the Internet itself, because the Internet does not have its own currency. The Internet is missing a native currency, and Bitcoin is that currency. We can think of Bitcoin as a decentralized content, just like content exists in an unbundled form throughout the Internet; however, content is obviously well integrated into websites, applications, and services.

Bitcoin brings new meaning to money. If you look at it from an evolutionary perspective, content that existed in print newspapers and magazines has evolved to appear on the Internet and then transformed into digital form. Users want to use free content, which is freely distributed on the Internet, bringing new innovation models. With digital currency, we can easily separate this transaction logic from the currency itself. Bitcoin will gradually be integrated and embedded into the infrastructure of the Internet, and we will regard it as a native content.

Blockchain Technology Stack

There is a new technology topology emerging that attempts to build new applications based on the Bitcoin protocol. Joel Monegro of USV proposed a five-layer architecture for blockchain uncertainty: miners and blockchains, overlapping networks, decentralized protocols, open source and commercial APIs, and applications. This architecture fully reflects that the future development direction of Bitcoin is good. Whether this technology topology or other forms of topology can be achieved is irrelevant.

More importantly, the concept of blockchain and related technologies are inspiring developers' unlimited imagination, and they are innovating in the decentralized way of services, protocols, infrastructure and applications. In the long run, they are bringing greater consumer motivation, more extensive personal data ownership and lower transaction fees.

Digital Rights and Smart Assets

If you are the creator or owner of digital assets, imagine if you could connect those assets to the blockchain, binding your ownership in an immutable way that could not change unless you decided to transfer or sell them. It would be completely under your own control, and no one else would have the right to interfere.

Essentially, you will be creating "smart property", an asset or thing that knows who the owner is. The blockchain can be used as an auditable database, linked to your cryptographic signature, and your smart property can be linked to a unique digital fingerprint based on its content. Imagine the portability, convenience, and discoverability that come with these features. This will be the perfect "lubricant" to drive decentralized P2P transactions.

Businesses like Mine allow developers to build tools that permanently link identity, reputation, digital profiles and metadata together, with blockchain as proof of ownership. This will create new market opportunities for trading these assets securely and efficiently.

Smart contracts based on proof of work

A smart contract is a small program that you can entrust to manage your money and build relevant institutions around it. The basic idea behind smart contracts is that the governance of transactions between two or more parties can be systematically verified through the blockchain, rather than through middlemen, rule makers or regulators.

Why rely on a central authority to determine whether an agreement has been reached between two or more parties after they have conditionally set the terms and meaning of the agreement in a procedural manner? Why not do this when the benefits of doing so can be both automatic release of funds and performance of services in a continuous manner or payment of penalties?

At the heart of this is the important concept of “proof of work,” which is an essential part of the original vision of blockchain as a tool for definitive authentication of transactions.

Proof of Work is the "right" to participate in the construction of the blockchain ecosystem. It is expected that in the near future, people will regularly assign and execute smart agreements based on Proof of Work and Smart Assets. Smart contracts may be the "sweet spot" of Ethereum because they represent atomic units at the code level, allowing anyone to develop with their own rules.

Decentralized P2P Marketplace

Decentralized P2P marketplaces are a supercharged version of some of today’s most successful third-party marketplaces, such as Uber, eBay, and Amazon. In fact, decentralized P2P marketplaces are poised to replace these companies that operate semi-centralized marketplaces.

In a decentralized P2P market, one person can trade with anyone else, with less control from a central authority and more convenience. Trust, rules, identity, reputation, and payment options are also embedded peer to peer. People who participate in this decentralized P2P market have great trust in this way of trading and are fully aware of the risks and benefits.

Startups are examples of decentralized P2P markets and related services, such as La'zooz in the transportation sector and OpenBazaar in the P2P trading sector. Compared with traditional third-party markets, decentralized P2P markets have much less friction in the operation center. In addition, there are many benefits to decentralization rather than centralization.

Digital Equity

Not only does Bitcoin allow businesses to mint their own currencies, tying appreciation to their success or failure, but it also supports the full lifecycle of equity insurance, governance, and trading.

Digital equity crowdfunding projects can replace traditional forms of stock issuance. The meaning of "equity" is not fixed and can be readjusted on the blockchain, so the legal nature of a certain business can be re-evaluated. This specific use is also related to the concept of distributed autonomous organization (DAO), because by operating in collaboration with autonomous agents, fully autonomous corporate entities can contribute to the overall valuation through the collective wisdom and actions of users.

This allows companies to conduct global IPOs from day one of their operations. While the upward trend may be slow, valuations will initially be commensurate with the maturity of business operations, and users will contribute more to decentralized businesses, and the overall value and equity will continue to grow. Companies like Swarm can control the distribution of digital equity and easily deal with the complex, procedural management based on smart contracts.

Decentralized identity

Your identity is your own, not someone else's. We all have our own passport (although it is associated with a certain country), and you can use it to travel anywhere because it is widely accepted. But it is difficult for us to transfer our identity from one website to another, or use it on another website.

Why can't we distribute our identity (and even our online reputation) to various networks, along with its characteristics, parameters, and own them? Why can't we use our identity to access websites or web services and use it like a passport on other websites? Decentralized identity also lays the foundation for the development of various interesting decentralized applications. Openname is developing a decentralized identity tool as a basic protocol for decentralized applications.

A technological renaissance on the road ahead

For Bitcoin to succeed, we must try new things that were previously impossible. Copying existing systems is only a starting point. It is more desirable to create something new rather than to fight everything old, and it is easier to create new systems that circumvent the old ones. Of course, Bitcoin can copy some of the functions of traditional currencies, but this is not the most interesting part of Bitcoin's development.

Innovation can only be seen by focusing on applications in new, pure Bitcoin areas without being constrained by any complex traditional heritage.

Imagine a new realm and new business where you can own your identity online, bind digital assets to the blockchain, accept payments or buy things in Bitcoin or other digital currencies without having to exit your existing bank account. Imagine you can choose the principles of your business activities through smart contracts that protect you, and then integrate yourself as a node in a decentralized P2P market to eventually be discovered and do business.

This is the future of the “web of trust”

The future success of Bitcoin does not depend on whether regulators allow users to transfer value from other financial assets to this virtual currency. Bitcoin is a currency in its own right, with its own technology stack, and is creating its own wealth. Bitcoin's own wealth creation activity will dwarf the value created by the transfer of inconvertible paper money to virtual wallets (about $5 billion as of December 2014). The transfer of inconvertible paper money is just a starting point to guide Bitcoin's direction.

Because of this, going head-on with existing stakeholders and regulators will ultimately be futile. Bitcoin economic development will come from the creation and appreciation of Bitcoin's own value in its own ecosystem. For example, users can use digital currency to purchase real services, decentralized application members can add the value of digital currency to decentralized organizations through their own actions, and new crypto tokens will continue to be mined and linked to new business models established based on blockchain protocols.

This is all just happening, and the momentum is unstoppable. It’s not just a new paradigm, it’s a sign of a renaissance in technology, computer science, and cryptography.