Bitcoin (et al.) has been described as many things: A digital currency… a commodity… even as a savior of the world as we know it (from the point-of-view of disintermediation).
But I haven’t heard anyone call it what it actually is: A protocol.
A software protocol is just a set of rules. When programmers play by those rules, computers can communicate with each other.
And Blockchain — what Bitcoin is based on — is just such a protocol.
Generally speaking, protocols don’t have any cash value. For example, we don’t get paid by waiting until everyone’s meal is served before eating. But by following that simple dining protocol, it makes for a better dining experience for all involved.
But Blockchain, via Bitcoin, does have cash value. And that’s the real innovation here — a financial innovation. Bitcoin’s value isn’t just as a trusted digital currency or as a storage of wealth, but has grown into a proxy for all value that will eventually be created by companies using the Blockchain set of rules.
Think about all the value created by another popular protocol, the HyperText Transfer Protocol (“http”) — the thing that enabled the entire Internet. Former CEO of Cisco, John Chambers, once pegged it at $19 trillion (with a “t”)… a bit bigger than our national debt to put that huge number in perspective.
Imagine if someone created a “httpcoin” trading vehicle back in 1994 that proxied the future value of the Internet? WOW THAT COULD HAVE BEEN WORTH A LOT, LIKE MAYBE $19 TRILLION!
So fast forward to Bitcoin and you can now get a sense of why Bitcoin’ers are so excited… why some have even “expertly opined” that the value of a single Bitcoin could go to $1 million or more.
That the “digital currency” community was able to do this with the Blockchain protocol — whether they meant to or not — is, of course, utterly cool… even if it all blows up one day.
And it will blow up one day… as it should… as value gets transferred from the Blockchain proxy to those companies actually using the protocol to make products that create the real value.
What value will be left in Bitcoin?
Eventually just the digital currency utility it provides a customer, a tiny fraction of what the entire industry may be worth at some point in the future…
… or said another way, a tiny fraction of what it’s worth today.
Isn’t that apparent?
Royal Blog 