Bitcoin is not just a new form of payment, and it isn’t simply a store of value. It is, perhaps most importantly, a public ledger, and it is the part of bitcoin known as the block chain that many argue holds the true innovative potential of the technology.
In essence, bitcoin is a new foundational technology built using the Internet, utilizing both the power of cryptography, as well as aspects of older, less disruptive forms of virtual currency.
Because bitcoin provides a totally new infrastructure, this means there will be a number of businesses built both surrounding it and on top of it. Those built surrounding it, you may be more familiar with today, as companies like wallet providers and processors will store bitcoin and allow you to use it as payment.
However, there is another part of the industry, one that is only in its earliest stages, that seeks to build new projects using the block chain, thereby allowing entrepreneurs to pursue ideas that did not exist at all just five years ago.
Here are six examples of new business models that block chain technology could enable.
1. Record-keeping
Image via ShutterstockBitcoin’s public ledger has the ability to enable trusted record-keeping on the Internet while increasing overall transparency. There hasn’t been a really good way to offer a public database of information prior to this type of cryptographic ledger.
Some interesting projects have already appeared that seek to record public information with block chain technologies. One example is Monegraph, spearheaded by a New York University (NYU) professor to record digital art ownership on the namecoin block chain.
Business cases for an Internet-enabled public record are already percolating as well.
The startup CrowdCurity has used the block chain to help find vulnerabilities in websites. Further, developers looking for easy programmatic access to bitcoin’s ledger can use Hello! Block, a startup offering public ledger data-as-a-service via HTTP.
The block chain could be used in the future to help businesses automate record-keeping and facilitate general business transactions, not only those conducted in bitcoin.
2. Asset distribution
Image via HyperledgerBitcoin’s market capitalization is above $5bn right now. And while that may be a far cry from its peak, the strong value of its network, in turn, gives credence to the value of bitcoin as a new type of asset class.
This means simply that people are beginning to see cryptocurrencies as an asset that can be used to back the value of anything that has worth.
Overstock is working on a new type of stock exchange that uses cryptography called Medici. The retailer has hired the developers behind Counterparty, a crypto 2.0 protocol built on top of bitcoin, to accomplish this. Another is Hyperledger, which is using something called consensus algorithms to back assets. This allows Hyperledger users to quickly create assets without the need for a secure network like bitcoin, which has taken years to grow its vast computational power.
These projects may soon face their own regulatory issues, as evidenced by recent rumors about the potential for such assets to be viewed as securities, but there are some interesting technical ideas that seek to make cryptographic asset distribution a viable business.
Cryptographic asset distribution may allow companies to raise money in a secure and effective manner without relying on bankers who charge massive fees.
3. Wallet technologies
How BitGo explains its multi-signature wallet technology. Source: BitGoWallets that allow users to store bitcoin have been around since the very first software client for the cryptocurrency was created. However, that doesn’t mean this sector is without innovation, as more advanced wallet technologies are now being built by companies in the space.
Probably the most important tech emerging for wallets today is multi-signature. It is a type of private-key security that protects wallet balances by using several keys to unlock funds – hence the name ‘multi-signature’.
BitGo is a company focused on wallet technologies and is building advanced multisig technology that can be used in large organizations.
Similarly, companies like Hive continue to push the envelop with what a wallet can do, offering things like third-party apps, BIPS32 hierarchical deterministic (HD) security and a HTML5 web wallet that is the exact same product across all user devices.
Wallet technologies in the future will allow more flexibility in the way money is handled; creating new financial tools and escrow products that can execute themselves in a trustless manner.
4. Smart contracts
Image via HedgyThe concept of smart contracts was first conceived by researcher Nick Szabo in the 1990s. The idea is to implement programmable, self-executing agreements without the need for a third party.
The true application of smart contacts hasn’t been fully realized yet, but bitcoin’s emergence is generating momentum for this type of digital agreement between parties.
One company, Hedgy, is working to build smart contracts in the bitcoin block chain in order to enforce contractual price agreements. Hedgy’s goal with smart contracts like this is to reduce the risk of bitcoin price volatility.
Ripple Labs is using fault isolation technology developed for the web by Google for its smart contracts project, called Codius. Another effort, called BitHalo, uses multisig technology to create peer-to-peer smart contracts that users can easily transact with one another.
Smart contracts have the potential to replace archaic paper contracts in the future, and offer dynamic agreements that tie into technology systems. For example, a smart contract could be programmed to launch a specific subset of code at a certain date and time.
5. Mining
Image via ShutterstockBitcoin mining, the process by which computers confirm transactions on the network, is likewise turning into big business, and as mining grows more powerful, advanced tools are required to manage these systems.
Mergers and consolidation are occurring in the mining sector as companies try to reduce overall costs associated with mining infrastructure.
PeerNova is a good example of these consolidation efforts underway. The company is the result of a merger between mining hardware developer HighBitcoin and mining-as-a-service company Cloudhashing. Combined, they are now working on advanced mining solutions.
A lot of companies not previously involved in mining have seen its opportunity as well – especially exchanges. BTC China, currently the world’s largest bitcoin exchange by volume, recently opened its own mining pool to customers. Cryptsy, a exchange for many cryptocurrencies, is working on a platform for trading mining contracts.
One of the most interesting things that future mining applications could provide is computational power for solving tough problems by leveraging proof of work to look for solutions to issues like protein folding.
6. Bitcoin support
Image via ShutterstockThese five rapidly developing brand-new business models have sprouted up from the still-nascent cryptocurrency economy. The businesses depend on the smart entrepreneurs who see untapped potential in such an all-encompassing technical innovation.
There are also some ventures that smartly take existing concepts and use the cryptocurrency model.
Microtransaction providers, bitcoin recruiting services and charities that only accept cryptocurrencies are all playing a part in promoting and expanding the community. They aren’t brand-new business models like the ones listed above, but they are supporting the industry with necessary products and services
Every day, more business ideas are formed around cryptocurrencies. The more there are, the stronger the community becomes to help drive the industry forward. It’s easy to imagine there will be plenty more support businesses that will develop around bitcoin, just like in any other industry.
The question is: What other great business ideas will be formulated in near future as this emerging technology continues its progress?
Futuristic technology image via Shutterstock