Global, June, 14 2015 -
Innovation and disruption are well and good, but without practical insertion of innovation into an existing industry or technology there is no value.
The Bitcoin community is in a near-constant state of debate. What will the price do? What does Bitcoin mean for the future? What industry will it disrupt? In an earlier article I talked about where Bitcoin is going, and that question is very much in debate. An important question, whose answer can provide guidance on where Bitcoin is going, is where does Bitcoin fit? Innovation and disruption are well and good, but without practical insertion of innovation into an existing industry or technology there is no value. So where can Bitcoin insert itself to solve a valuable problem?
A much-hyped industry in which Bitcoin can make an impact is microfinance. Microfinance is broadly described as financial services to the poor, or those with poor credit. As a result, the amounts loaned are typically small in nature, not exactly “micro,” but certainly not as large as traditional loans for things like auto financing or mortgages. Traditional lenders are burdened by significant overhead in their business model. This is due to legal requirements like Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, and prudent business practices that involve due diligence in evaluating loan applicants, servicing loans, and supporting local branches. Digital forms of payment significantly lessen the institutional burden, especially when paired with a peer-to-peer (P2P) lending system that enables users to lend directly to other lenders, in which case, the institution is simply a middleman connecting the two.
Related to microfinance are micropayments. If you frequent common internet watering holes you’ve probably seen ChangeTip in action. A similar application focused on monetizing content like blogs and informational sites is CoinTent, which offers to revolutionize how content providers do paywalls. In daily use cases, buying items like drinks, prepared food, and other small goods cost little but offer small margin to the seller. This motivates sellers to avoid credit card processing fees, and Bitcoin is an attractive way to do so, prompting some to suggest that microfinance is the future for Bitcoin. Microfinance is a large portion of daily spending, and returning credit card fees to the pockets of sellers could be a substantial hook for attracting interest in Bitcoin.
Another important solution that Bitcoin may prove valuable in is offering superior remittance capability. The status quo is for remittance processors to take a substantial fee, and this eats into the wallets of often already cash-strapped families. Africa has a significant market for remittance, and pioneers are already pursuing Bitcoin remittance services there. By demonstrating proof of concept for a financial system built on the blockchain, these entrepreneurs offer a glimpse into the future of Bitcoin as well as blockchain-style technology, and they add firepower to arguments in favor of Bitcoin, which has no shortage of detractors. An ironclad method of silencing doubters is by achieving success.
The fervor surrounding Bitcoin and digital currency in general has been growing for years, so through which industry valve will all of this energy and pressure finally emerge? In a series of articles we’ll take a look at use cases, predictions, and investments that portend coming events in the Bitcoin industry, and offer some insight into how investors are positioning themselves to make a difference and make a buck. Or, you know, a bit.