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Monday, September 12, 2016

BITCOIN WAS GOING to change the world until it wasn’t. But now it is again.

Oh sure, you’ve heard this before. Back in 2013, everyone was sure bitcoin was the next big thing. Then the world’s largest bitcoin exchange, Mt. Gox, imploded, and everyone was sure bitcoin was dead. Pundits tend to think that way: you’re It, or you’re not. The reality of it is a little different. Despite the travails of Mt. Gox—and the Silk Road, the online drug bazaar that relied so heavily on bitcoin—the digital currency never went away. Today, it’s thriving like never before. And some say this is the year it finally reaches the mainstream.

As a currency driven not by a central government but by a vast network of independent computers spread across the globe, bitcoin has been slowed by regulatory problems—particularly in the US. But these are easing, with regulators in New York leading the way. Ultimately, bitcoin can still provide a much cheaper and simpler way of moving money from place to place, particularly when you’re a consumer or business moving it across international borders or a retailer accepting payments from online buyers.

The price of bitcoin stands at $434, well below the high of $1,216 it reached in late 2013. But it’s not the price that matters. What matters is whether people are using bitcoin, and more than ever, they are. Check out the graph below, which shows the number of daily bitcoin transactions. The usage has hit a record high, and in December, compared to the same time a year ago, the average number of daily transactions more than doubled.

A lot of this “usage” is mere speculation—people betting the price of bitcoin will rise. And as bitcoin watcher Tim Swanson explains, many transactions may simply be users shuffling the location of their funds for whatever reason. But according to Coinbase—the San Francisco outfit that runs the world’s largest bitcoin exchange, operates 2.8 million bitcoin wallets globally, and drives bitcoin payments for major retailers like Dell and Overstock.com—about 20 percent of the activity on its network now involves payments or uses as a currency. That may seem small, but it’s up significantly from previous years and continues to rise. “Things are going up and to the right,” says Adam White, vice president of business development and strategy at Coinbase.

In recent months, bitcoin grabbed tremendous attention because its underlying technology, the blockchain, also can be used to reinvent the exchange of stock and other financial securities. The blockchain is essentially a database running across a vast array of independent machines. With bitcoin, it oversees the exchange of money. But it can oversee the exchange of anything that holds value, including stocks, bonds, and futures as well as houses and car titles. Several outfits, from the company that oversees the Nasdaq stock exchange to online retailer Overstock.com, are now building systems that can use the blockchain in this way. But this doesn’t preclude the use of bitcoin as a currency.
In September, several big names in finance and banking invested in the bitcoin startup Chain. This included Nasdaq, Citi Ventures, Capital One Financial, and Visa. All Chain’s investors, says company CEO Adam Ludwin, are commercial clients or prospective commercial clients. In other words, they’re companies that want Chain’s help building bitcoin technologies. Some, like Nasdaq, see bitcoin as a way of trading stock and other financial securities. But Ludwin says his investors are just as bullish on bitcoin as a currency.

“What we’ve built—and only work on with most of our partners—are blockchains that can issue assets of many different kinds,” he says. “You have to be able to trade not only one security for another, but for currencies. What you will see are networks that can handle transactions involving all currencies as well as other types of financial instruments.”

And Chain is hardly the only company pushing the digital currency forward. Coinbase, for instance, just unveiled the country’s first bitcoin debit card, which can help drive the digital currency toward the mainstream in more ways than one. According to the company, more than 7,500 people have signed up for the card since it launched in late November. Using this piece of plastic, they’ve spent more than $50,000 worth of bitcoin.

That’s not a lot—yet. But the Coinbase card lets people spend bitcoin anywhere that accepts a VISA card. The hope is that this will encourage more people to spend their bitcoin, rather than just speculate in the currency. And if that happens, more businesses will begin to accept bitcoin without the VISA. After all, that’s far less expensive than paying the fees associated with credit card transactions. As more businesses catch on, the cycle repeats.

As Coinbase’s Adam White sees it, 2015 was the year that the blockchain moved beyond digital currency. Many observers saw this as bitcoin’s “great pivot“—where its true purpose moved away from online money. But White believes that 2016 is the year the pundits realize that the digital currency can still change the world.

“We’re going to come full circle back to bitcoin,” he says. “In 2015, we saw a lot of financial institutions, banks, thought leaders say: ‘It’s not about bitcoin, it’s about blockchain.’ That is a mistruth.”

Phong Dinh

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