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Don’t be fooled by Bitcoin. It’s an early incarnation, an experiment, of something much bigger. Maybe even a new era.
As of very recently – less than a generation - 100% of world wealth has a smart device. And those devices are always on, and always interconnected. That is a radically different environment from the one that begat our current architectures, designs, business practices. It may be the start of a second generation of computing.
Those of us experienced in the first great age of computers are mostly still wedded to the stack. We were taught the OSI seven layer diagram; communications protocols at the bottom, user interfaces at the top. We had to design around long, slow pipes; limited CPU and RAM. Multiple concurrent sessions could be counted on one hand. Some things have improved - where once we could only use 18 bits to carry reference material in a payment, we’ve now got 140 in SEPA –but most of these innovations are sustaining, not disruptive.
One of the natural design consequences of the ‘stack’ was the single ‘gold’ data record. The amount of money you have is the amount the bank’s systems stack says you have. No argument. Stacks ruled.
Blockchain changes that. ‘The open public ledger with distributed proof of work, is a genuinely new way of solving a problem in the digital world and solving it in a way that has no physical analogue at scale.’ Once more than half the other participants agree the new truth, that’s the new truth. Consensus rules.
The consensus model is still in its early stages; nobody knows how it will develop. Regulators worry about the possibilities:
'it is conceivable in time that there could be an asset price crash among free-floating digital currencies that had the potential to affect financial stability'
implying perhaps that a consensus model supported and trusted by a large number of disparate people from many nation-states is more vulnerable than a fiat currency supported by a government; an uncertain hypothesis at best.
The regulatory environment established for the ‘stack’ world may inhibit ‘block’ innovation. Whilst the law’s the law, bankers want to create space to see if we can solve old problems in new and better ways. The EBA has recommended that market participants should become ‘obliged entities’, so they can ‘innovate and develop outside of the financial services sector’.
That may help to identify and thus perhaps overcome issues and weaknesses. The Bitcoin experiment has already highlighted at least 3:
Without these, a shiny new thing may soar through the early-stage tests of excitement and innovation, but will struggle with the harder and less press-worthy challenge of commercial scalability. We are fixated with ‘disruptive’ start-ups; we often ignore the next stage. Few startups survive and prosper beyond the funding rounds.
But there is a fundamental reason why Blockchain, or distributed autonomous computing, or something very like it, is here to stay.
Today’s consumers each have more computing power than space agencies, banks, telcos, research agencies, security agencies, weather forecasters – each had late last century. And all smart devices are interconnected, 24 x 7; so in aggregate, consumers today have far, far more computing power than any other group ever had. Or ever will.
That is a new computing environment. Virtual currencies are unlikely to be the only category for which it provides fertile soil.
Disruptive innovation is invisible when sought out through the norms and standards of today – though it is starkly obvious through hindsight.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Nikunj Gundaniya Product manager at Digipay.guru
11 October
Priyam Ganguly Data Analyst at Hanwha Q cells America Inc
Fang Yu Co-Founder and Chief Product Officer at DataVisor
09 October
Alexander Boehm Chief Executive Officer at PayRate42
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