Ten Years In, Bitcoin Fails To Meet The Mark








The end of this month, Oct. 31, 2018, will mark the 10th anniversary of the day that a link to a paper, authored by Satoshi Nakamoto, describing the digital currency called Bitcoin was first publicly circulated.

Jan. 3, 2019 will mark the 10th anniversary of the first Bitcoin block that was mined by Satoshi, giving birth to the notion that a digitized, anonymized currency sent over a permission-less, distributed ledger could democratize how money would move between people and parties around the world.

Ten years after PayPal launched, it was operating in 190 countries and had 60 million users.

Ten years after Amazon launched, it was nearing 70 million users and had just launched Amazon Prime.

Ten years after Visa and Mastercard launched, they had each licensed their tech to thousands of banks that had cards in the hands of millions of consumers, who were using them to buy things at millions of merchants.

Ten years after Apple launched the first iPhone, it had sold 1.2 billion of them, and had firmly and fully ignited the mobile commerce revolution with the notion of apps and a robust developer ecosystem.

Ten years after Bitcoin launched, it remains the go-to currency of criminals and a way for cybercrooks to wash their money. Well, that’s when it’s not being bought by speculators as a digital lottery ticket. Seventy-five percent of Bitcoin transactions are the result of miners moving money between themselves and speculators trading it — the transactions that it powers are nefarious in nature, at best.

Bitcoin’s processing operation is highly concentrated within a handful of miners in China — which is getting more concentrated now, since the price of Bitcoin has crashed and fewer players can afford to keep the lights on (literally, since Bitcoin processing requires a massive amount of electricity).

Bitcoin exchanges are routinely hacked, and those funds are usually lost forever.

Bitcoin is anything but free and, in fact, it can be pretty pricey for senders and receivers. Miners, despite eschewing capitalist regimes, as it turns out, like the capitalist way of being paid for their services.

Sending money over the Bitcoin rails is also anything but fast. Despite very low transaction volumes, it can take as long as an hour or more to take a round trip on its rails.

Yet, what’s amazing to me is that we are still, as an industry, talking about it — Bitcoin, now crypto, blockchain — as if its potential to revolutionize our global financial system, and the way money moves between parties around the world, is just around the corner.

It isn’t because it won’t.

The innovation touted 10 years ago, that has garnered billions of dollars of venture capital (VC) funding, hasn’t turned out to be the “internet of money” as advertised.

Nor is it now (nor will it ever be) the single digital currency that will democratize the movement of money from anyone to anyone for free — or free from the centralized regimes that Bitcoin enthusiasts said only made money more expensive and out of reach for the underserved in developing economies.

Only recently has the media started waking up and piling on.

But only because it has to now.

Of Fads And Frameworks

I’ve been writing about Bitcoin, blockchain and the smoke and mirrors of their promise to change our financial system since 2014.

In those pieces, I acknowledged Bitcoin as an interesting, even fascinating, innovation. But as the salvation of our global financial system, not even close.

At least once a year, I reprise the theme, mostly to remind everyone that the innovation that truly has the power to change the world is built on a framework that respects — and reflects — how networks work and how they scale. Those frameworks have launched thousands of successful platforms and tubed many thousands more.

The design principles of these complex networks are the subject of many articles that my colleagues and I have written about for a decade or more — and captured in two books that were published by Harvard Business School Press in 2007 (Catalyst Code: The Strategies Behind The World’s Most Dynamic Companies) and 2016 (Matchmakers: The New Economics of Multisided Platforms).

Those frameworks start with finding a problem that needs to be solved by eliminating friction or adding value to platform stakeholders. The platform becomes the source of that value. That value is used to build those networks using sound business models, with strong, principled governance that builds the trust that delivers scale.

All of that turns out to be really important, and has proven to be time and time again, when it comes to moving money.

The corner that…

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