Electronic money is not a new idea. The Electronic Fund Transfer Act was passed by the U.S. Congress and signed by President Jimmy Carter 35 years ago (1978). Other forms of electronic money include payment processors, direct deposit, and digital currencies such as Bitcoin. What distinguishes Bitcoin from other electronic money is that it is a cryptocurrency. Cryptocurrencies are a type of digital currency that is created on an infrastructure that relies on cryptography, decentralization (no central bank), and peer-to-peer networking. Wikipedia lists 47 cryptocurrencies. Bitcoin, established in 2009, was the first.
Will Bitcoin replace the dollar, euro, yen, franc, kroner, et al? Possible, but most authorities seem to be saying it is doubtful. Will Bitcoin dominate as a new method of payment, replacing Western Union, PayPal, credit cards, and various banking services? Although I am not an authority, I would say very possible. Alan Meckler, chairman and CEO at Mediabistro, recently said that Bitcoin has “all the trappings of the web circa 1995″. Alan and I met at Internet World in 1994 and we both had a bullish view of the future of the Internet. We were not alone, but there were many naysayers at the time, including Bill Gates. More than a few bank and insurance executives told me that the Internet was interesting, but they would never connect their company to it. The web lacked good security, had no authentication, was slow, not always reliable, and was missing the many supporting services that would be needed to make it feasible for electronic commerce. The rest is history.
In the early days of the web, Internet World, created by Alan Meckler, was a thriving tradeshow that attracted thousands of attendees and vendors: vendors to share their vision and demonstrate their products, attendees to find out if the web was real. Mediabistro, a public company in New York (MBIS) that is a provider of jobs, news, education, events, and research for the media industry, has created an Internet World-like tradeshow called Inside Bitcoins. The purpose of the shows is to allow Bitcoin and the related virtual currency industry to share their vision. The expos provide the latest information on government compliance, marketing, managing and launching new businesses in the world of virtual currency. To see what the conferences are about, watch this video from a recent Las Vegas event. The WSJ provided a good overview of the conference.
Banks, credit card companies, and money transfer companies do not like Bitcoin because the new digital currency model threatens the status quo and related fees. In the early days of the World Wide Web, there were similar views to what we hear about Bitcoin. Music and book publishers did not like the idea of seeing their business model disrupted. Technology companies, including IBM, with large investments in dozens of different proprietary networking software did not like the Internet protocol (TCP/IP), which was a fraction of the cost of their offerings. Many derided the Internet as being slow, insecure, not scaleable, unreliable, not enterprise-ready, etc.
What about the other 46 cryptocurrencies and others likely to emerge? It is certainly possible that an alternative to Bitcoin may emerge that is superior. From my perspective, based on the history of the web, it is all about the grass-roots. There is a grass-roots movement underway with Bitcoin. You can see it in the blogs and twitter. The infrastructure of Bitcoin is built on open-source software — visible for all to inspect and contribute to. It is already evolving. It will get better and better. There are currently more than one million Bitcoin wallets and more than 2,000 vendors who accept Bitcoin. I would never bet against a grass-roots movement. I am looking forward to attending Inside Bitcoins in New York in early April.
Disclosure: I am a board member and investor at Mediabistro.