In today’s parlance, this headline would probably be considered high quality fake news. It does, however, have some accurate underpinnings and is an eye-opening example of the emerging power of the blockchain and why blockchain matters.
In May of 2010, an early bitcoin supporter named Laszlo posted on a forum an offer to pay 10,000 bitcoins to anyone who would deliver pizza to his Florida home. It took a few days but his offer was accepted and pizza was delivered. At the time, 1,000 BTC was valued at $41. Given the price of a bitcoin as I write this post, if Lazlo spent the same number of bitcoins today for pizza it would have cost him the equivalent of $26,000,000. Quite incredulous.
The majority of people today do not understand what a bitcoin is and even fewer have heard of the blockchain. In brief terms, bitcoin is money–except it is in digital form. However unlike the US dollar, Chinese Yuan, or other government-issued currency that most people around the world use each day, bitcoin is not issued or controlled by a centralized government or institution. Its origin and use has no borders and bitcoin is available to anyone with an online account. And because one of the key technology building blocks underpinning bitcoin is the blockchain, digital money can be sent anywhere at any time in a safe, secure, and anonymous manner.
Blockchain technology is considered by some to be the most significant technological advancement in decades. It is a peer-to-peer open distributed ledger technology which can, for example, enable two strangers from different parts of the world to exchange money (bitcoins) with total trust and confidence, without the need of a financial institution. Think of the ramifications of that for a moment: no need to apply to a bank and get its permission to open an account, no need to pay exorbitant fees to a bank, no need to wait days for a bank to clear wire transfers, and perhaps best of all, no need to provide a centralized institution with all your personal information, including social security number, financial history, etc. All of which we trust these institutions to store safely, but as we have seen, many have not earned that trust. In fact, it seems commonplace these days to learn another giant institution’s security system was breached and some hacker has stolen our personal and private information. Blockchain-based applications do not have this vulnerability because there is no central institution storing our personal information–so there is no central institution for a hacker to breach.
Another key driver contributing to the ascent in the price of a bitcoin is its advantages as a store of value versus a country’s local currency. Over the last 6 years, bitcoin has outperformed fiat currencies around the world–so a growing number of people across the globe are preferring to exchange some of their local currency for bitcoin. But purchasers of bitcoin should be warned, even the most promising new technologies will experience setbacks and bitcoin will experience its share of setbacks as well. In a future post I’ll discuss some of these setbacks and how bitcoin survived some very interesting controversies. At this point any investment in bitcoin should be considered a speculative investment.
The uses and impact of blockchain technologies go well beyond bitcoin, though. There are also other blockchain based digital currencies with unique characteristics and other technological developments underway to enable more blockchain based consumer and business applications.
Do you think the fundamental technology behind bitcoin’s astounding value appreciation is worthy of your understanding? For those who are curious about why blockchain matters and want to learn more, there are multiple avenues to investigate–including books and articles for reading, podcasts for listening, and videos on YouTube to help get educated. For those who choose to wait and see, that’s fine as well; just prepare for your world to change in ways you could not have imagined.