“If you can’t explain it simply, you don’t understand it well enough.” -Albert Einstein
Would Einstein understand Bitcoin?
Bitcoin is one of a series of newly created virtual currencies. If it can achieve adequate acceptance, it can provide the same utility as your current electronic banking, but with a very important difference. No bank or government is involved, and transactions are entirely anonymous. For a more detailed description visit http://www.bitcoin.org.
While the block chain technology can likely fulfill Bitcoin’s original intended role as money (being a store of value and a medium of exchange), its price volatility makes that application an unlikely result. The creation of Bitcoin is a process akin to digital alchemy, which limits the rate at which it can be produced. But every drug dealer, terrorist, tax evader and libertarian (and probably some political leaders) across the planet were prepared to pay a hefty premium for the ultimate secret bank account. The supply and demand dynamics created a price trajectory that reflected what Mr. Greenspan would likely describe as “irrational exuberance”. The dollar price of Bitcoin two years ago was $571. It peaked in December of last year just north of $19,000 and is currently trading at less than $7,000.
So the question for entrepreneurs is “Does my long term business strategy need to include the coming impact of virtual currencies or block chain technologies?” We think the answer is probably “not yet”.