12 Jun 2018

Understanding Tech Through the Lens of Bitcoin

Bitcoin and other crypto-currencies have been the finance world’s rebellious adolescent. Their behaviour has been volatile, irrational and misunderstood. Although specialists have followed cryptocurrency since 2008, it only captured media headlines recently and in 2017, Bitcoin featured as two of Google’s most searched questions namely what is Bitcoin? and How do I buy Bitcoin?

Russel Luck, Senior Technology Attorney at SwiftTechLaw writing for Sasfin, believes that understanding Bitcoin requires an understanding of first principles.

First principles in the technology sector: each innovation is built on its predecessor

Although there are no gurus nor guarantees, the key to understanding the technology sector is an awareness that opportunities happen when new technology changes consumer paradigms.

Very often these technologies create an entirely new consumer market, such as personal computers, cellular telephones, gaming devices and more. By way of analogy, this is very different to sectors focused on consumer precious metals. While the composition of gold or diamond jewellery products might change, the market for its fundamental components (gold and diamonds) is relatively constant.

A first principle within the technology sector is that future trends are directly related to their predecessors.

For example, the internet was a file sharing platform for the CIA to transfer sensitive military documents. This expanded to collating and transferring educational documents from libraries. The convenience of finding online educational information progressed toward the convenience of finding online retail products – the birth of eCommerce. This rise in online shopping required every retailer to have their own website as consumers spent more time online. It logically follows that if retailers require their own website for longer consumer engagement, eventually consumers would want their own personal website for their own personal engagement – welcome to Facebook and the age of social media.

Looking at historical patterns is always kind to the analyst. However, the above sequence demonstrates that technology opportunities are paradigm shifts chronologically built on their predecessor. It isn’t possible to foresee that a CIA file-sharing invention would manifest in today’s social media. However, it’s certainly possible to foresee that the growth of online shopping interactions (eCommerce) would lead to the growth of online social interactions (social media).

Is Bitcoin the future or Barings Bank 2.0?

Nobody knows the future in an ever-changing digital world. However, there seems to be a trend of market disruption when consumer products are reinvented digitally.

For example, bookshops were decimated when literature was repackaged and consumed digitally. Similarly, manual photography virtually disappeared when photographs digitised offering unlimited image capturing. The same can be said for CDs which shifted digitally, and television which has morphed towards Netflix.

Based on the above patterns, it is foreseeable that at some point, a digital store of value like Bitcoin will emerge to satisfy an increasingly digital world.