Bitcoins

2013 was the year that Bitcoin’s became a hot commodity, rising from $60 just two years ago to peaking over $1200 for one coin.  The hot topic is what will be of these digital coins and will the come to replace currency as we know it?

My view is that Bitcoins will stay around and will have value in the future.  I don’t foresee that they will replace the current state sponsored money that we use to buy food and cars with, but I see it more as a tool for micro payments and putting a value on transactions online.

Back in the dot com boom years of 1999, eyeballs was the currency that IPO’s were priced at.  pets.com, Netscape and other sites of that era were based on the value that individual viewership of advertisements were trackable and accountable.  These were measurable by checking the logs and hit-rate of individual advertisements.  Research studies were put in place to analyze the best placement of ads on a website and further tracking technologies such as cookies were enhanced to be able to taylor websites to individual users.

After the dot com crash, investors came to their senses and realized that you can’t make a sustained profit of blanket ad viewership alone.  At this point, Google came about and developed it’s PageRank ad system by offering free services in return for displaying ads.  These ads were free to show on websites and on Google products (Gmail, search and later YouTube).  This business model was different from before because ads only were charged per-click, not per display as in the early dot com days.

Google’s model worked very well, until Facebook came about and became the next hot thing.  Now ads were tailored to be much more specific and marketing teams were able to influence and “convert” key people within groups with selected ads placed within posts from friends and family.  This interaction between the consumer and the company is much more dynamic than car ads on newspaper sites.  Facebook (and Twitter) are the platforms where the collect money for statistics of “Likes” and the ability for companies to more effectively multicast their message.  This adds to the Google model of per-click to put a value on “Likes.”

Now enter Bitcoins.  At first it’s nothing impressive, there have been many attempts to create a digital currency (remember Second Life?).  In short the system is just a bit database (around 12G now) and you end up owning a cryptographic string on this database.  You can trade it with others and it’s not really trackable (not easily at least).  There are exchanges where you can trade the bits of the database for real money, and also buy coffee in some shops.  That’s not the interesting part.  What is interesting is that Bitcoins are not owned or controlled by anyone.  There is no Facebook or Google to regulate it.  The system is shared and the database is distributed and constantly error-checked to verify it’s integrity.

One problem today with international payments is that it’s very difficult to send money across borders.  If you want to buy software or a widget from someone in China directly, it will cost you quite a bit just to perform the transfer.  Paypal and others have tried to simplify payments, but they are still expensive for small transfers.  Bitcoin can solve that.

Currently clicking the Facebook Like button only boosts the ego and reputation of the original post creator (such as a photograph or blog post), why not have an option to transfer a fraction of a Bitcoin for a viewing a great photo or reading a interesting article.  This new business model can change existing subscription models, let photographers make money and make ordering of small replacement parts from China easier by adding value to individually created content.

Will Bitcoins replace money as we know it?  I don’t think so, but I do think that they will replace the micro payments on Facebook, Twitter and Blogs to become a new currency we base online value with.

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