Players in the financial and technology sector have different opinions about bitcoin. For skeptics, the cryptocurrency is reminiscent of Holland’s notorious Tulip bubble of 1637. They generated a wild, speculative mania and disappeared, leaving behind pretty flowers and wrecked investors.
Meanwhile, for supporters, bitcoin is the internet: a symbol of decentralization that reached its full potential decades after its first introduction. If that’s true, bitcoin has the vast potential of reaching billions of users despite its shortcomings.
In retrospective, bitcoin appears like a mix-bag of the two. As an investable asset, it is highly speculative – just like the Tulip Bulbs. People buy it because they want to sell it later at a higher price.
On the other hand, bitcoin starts behaving like the internet because of its underlying properties. Except for this time, decentralized information has been replaced by distributed finance. Big data centers are now a separate set of small computing machines joining together to run a public ledger. And the TCP/IP protocol is blockchain, the very same ledger maintaining validated and confirmed financial records.
The parallels are obvious.
Comparing TCP/IP with Blockchain
Both are like constitutions: they have a predefined set of rules and anyone looking to use their applications, i.e. internet and bitcoin, should abide by them.
Transmission control protocol/internet protocol came into existence in 1972. The protocol governs the transmission of information by breaking it into small, digitized packets with address information. TCP/IP releases those units into the network where they get transferred to their rightful recipients. Nodes at the receiving end reassembles the dissimilated packets to interpret the original data. This process creates an open, public network of information with no central authority in charge.
First used in emails, TCP/IP are now the backbone of the world wide web, the very thing the world today calls the internet.
Blockchain is similar if not entirely the same. It records financial transactions between two parties without requiring a bank or any related financial institution. It then maintains those records on an open, public ledger, accessible to anybody with an internet connection.
First used in bitcoin, blockchain is now the backbone of many projects, with the most notable ones being Ethereum and Ripple. Corporates and small startups are further integrating blockchain for managing private records. Companies like Nasdaq, NYSE, Bank of America, Fidelity, and others starting to test blockchain to replace their current validation systems.
Could Bitcoin become a Multi-billion Dollar Entity like Internet?
Any technology waits for a point where societies recognize its potential in transforming an already-established protocol. If adoption is 10, bitcoin is somewhere standing at 2.
The blockchain’s first application is slowly making its way into the mindsets of societies, economics, and political systems. In Venezuela, bitcoin is offering people a way to safeguard their savings from the country’s hyperinflation crisis. In Hong Kong, citizens are turning to bitcoin against cash shortage. And – as controversial as it may sound – the cryptocurrency is also assisting money launderers, drug dealers, and terrorists in moving money around.
But bitcoin’s widespread adoption is still 8-points away – just like it was for the internet back in the nineties. The boom did not come overnight – and there was skepticism. Nobody would have predicted the internet to become the new DNA of how the world operates. Bitcoin is standing before the same set of critics and supporters.
Users are entering the bitcoin network for all kinds of reasons: to get rich and buy themselves a Lamborghini, to safeguard themselves from poor economic policies, and to merely use it as a mode of payment. At its start, bitcoin was a payment protocol. Now, it is a store of value/safe haven/hedging asset. The definitions are changing which, in turn, are changing the way the society perceives bitcoin.
Could the cryptocurrency become the next internet? It is too early to predict. ARPAnet, the TCP/IP’s first message-sending application, ceased after the advent of better solutions. Bitcoin is not perfect, but it surely is the beginning of a new wave of financial solutions. Not a Tulip bulb, for sure!