The payments industry has been ripe for disruption for as long as I can remember. Historically conservative and non-experimental, banking and financial services always appear to be the laggard for any new technology. But none of that has stopped recent innovators from pursuing things like Square, Stripe, Dwolla, FaceCash, ZooZ, Affirm, MangoPay, and Balanced. The Internet and mobile payments gold rush is in full swing and venture capitalists are lapping it up.
The amount of money raised by a startup in the space can be staggering too, ranging from $3.4 million to as much as $200 million in the case of Square. But are venture capitalists truly funding disruptive "home runs" if licensed banks and legacy credit card networks are required for their so-called innovations? Also, most would agree that the states' money transmitter licensing infrastructure acts more like a barrier of entry protecting incumbents than providing any protection for consumers.
Doesn't anyone notice the elephant in the room? Growth rates of over 10,000% since inception, measured in transaction volume and amounts. Pervasive international market penetration with full digital and mobile platforms. A passionate and dedicated customer base.
Of course, I'm talking about the distributed payments network and cryptocurrency Bitcoin, which plays a dual role as a transaction confirmation network and independent floating unit of account.
It's easy to understand why certain venture capitalists might be timid about pulling the trigger on a Bitcoin-related investment. Regulatory risk (illustrated by the fallout from Fincen's recent guidelines in the U.S.), on top of typical execution risk demands a greater return from initial investment. While that return may ultimately be there, a skittish board or a wary risk-averse management team might be unable to navigate the onslaught of negative public relations and price volatility.
Any lesser technology with so many forces aligned against it would be unlikely to survive. Bitcoin's persistence demonstrates that we are witnessing something unique in money and payments. For those that do invest and successfully navigate the potential traps, the reward is a first-mover advantage for a new international monetary unit.
Here's the important part. Disruption in the unit of account is the way to disrupt the payments space.
National currency units come with many strings attached and they reek of favoritism and crony capitalism primarily benefiting the well-connected. With a nonpolitical monetary unit, many new possibilities become apparent structurally that would not have been contemplated before, such as: peer-to-peer mobile applications that don't require permission from legacy transaction carriers; global remittances that don't require high-fee currency conversion; merchant categories that are no longer disallowed due to fraud and chargeback risk; and merchant reach into countries that are not even on the map for Visa, MasterCard or PayPal.
It's very telling that, when WordPress announced its plan to begin accepting bitcoin, the blogging platform provider noted, "PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons."
Compared to conventional payments startups, the largest private equity raise by a Bitcoin-related company has been Atlanta-based BitPay Inc. which raised $510,000 in January to expand its lead in the bitcoin merchant processing space. Startup CoinLab also raised $500,000 in April 2012 and foreign exchange platform Coinsetter closed a $500,000 investment round this month. Coinbase, a provider of personal wallet storage and merchant processing services, raised $600,000, although almost half of that was through crowdfunding.
Those are just some of the Bitcoin initiatives with external funding. Many Bitcoin-related companies grow organically with a one- or two-person team, because the technology offers the most open platform for payments innovation in the world today.
As far as I can tell Bitcoin might be a means of payment, store of value and unit of account but i can't see how it's an ethical one which to me is its fundamental shortcoming.
In the end money is a system and so is Bitcoin, but do either of them produce outcomes that add to the health and wellbeing of society?
Ethics is about human choice. Since technology is neither human nor is there any current piece of technology, to my knowledge, sentient, conscious, or capable of qualia -- there is NO WAY to truthfully conclude that Bitcoin is ethical. But I assume you meant ethical in the informal sense, which is addressed below.
Bitcoin, at the moment, IS an ethical currency. Government forced currencies (AKA "fiat") are not ethical. Why is this so? For ethics to exist, choices must have the ability to be made without the presence of violent coercion.
Clearly, government is the biggest user of violent coercion and the evidence of its negative consequences are vast. The democide for the 20th century is, conservatively, over 250 million. Add government vs. government homicide (yes, war deaths really are classified as homicides) for the 20th century -- 160 million (Piero Scaruffi)and it's 410 million deaths DIRECTLY correlated with government. Whether its imprisoning humans for non-violent actions or inactions, causing poverty, violent drug gangs, all the while making generations of illiterate, debt-enslaved people brainwashed into actually ENDORSING their government abusers via voting...my oh my. What darkness statism brings.
On the bright side, look at the evidence found in everyday life where there is no violent coercion (NVC). People awaken to start a new day at a time which suits them (NVC). You eat what you want (NVC). You work (NVC). You drive a car you bought (NVC). You significant other/s (NVC). You google what you wish (NVC). You buy stuff online or at brick-and-mortar shops (NVC). I dare say, you tend to VALUE that which is free of violent coercion.
There is a future where society is ethical. That is a Free Society. Bitcoin can help us get there.
I think Bitcoin is helping us counter-balance the negative effects on money and markets but i think it could be improved upon.
WHat i think we urgently need is a currency the use of which generates outcomes that are diametrically opposed to money. In other words it's use promotes harmony, peace, co-operation, sharing and so on.
Such a currency might be backed by time using time-bank principles.
The first step is getting enough folks to correct their idea that initiating force is OK or "magically" granting moral permission for groups (i.e. governments) to do the same.
500 years from now, humans may awaken to play an hour of a video game which solves some problem our robot servants can't...and that constitutes a week of time-banked work. "Money" will only be known to academics who study ancient history. The rest of our day might be spent basking in a golden glow of sunlight on green grassy hills and at night we tell our children a story of the greatest trick ever pulled was when people believed government was necessary...and they ask, "Was that back when we lived on Earth?"