Bitcoin: It’s the platform, not the currency, stupid!
The new nature of the firm
In 1937 Ronald Coase published a groundbreaking article, The Nature of the Firm. In it he posed a very simple question: “Why do firms exist?”.
In his research he came up with the concept of transaction costs to explain the nature and limits of firms. Companies exist primarily because the underlying coordination mechanisms of the market aren’t perfect.
During the Industrial Revolution hierarchies became the dominant way to organize the world. Untill now it has been the most efficient way to overcome transaction costs. The internet changed all of this. The internet makes it possible to cut down in transaction and communication costs.
By doing so, the Internet introduces a new kind of firm, almost by definition. The Decentralized Autonomous Corporation (or a Dapp) represents this new nature of the firm: a company where software is in control.
Hal Varian, Chief Economist of Google, calls these new kinds of firms “micro multinationals” and believes that these companies will rule the world in the coming years: “If the late 20th Century was the age of the multinational company, the early 21st will be the age of the micro multinational: small companies that operate globally.”
Bitcoin Saves Capitalism
Within a few years we will see many new and different types of DACs – powered by initiatives like Colored Coins, Mastercoin, Nextcoin, Ethereum – that will replace centralized commercial services such as Facebook, Twitter, YouTube, eBay, stock exchanges, Spotify, Netflix, ISP’s, Gmail, online sports-books, voting booths, SSL, cloud storage like Dropbox, and much more.
Companies like Google, Amazon, Facebook etc. have disrupted various industries around the world. Soon it will be their turn to be disrupted by these DAC’s. “The DAC that creates the best automated model for both investors and customers in a particular market will be able to come out on top. This is capitalism in its purest form.”
The Bitcoin block chain offers a platform that isn’t controlled by anyone. Everybody can participate voluntary and the system cannot be manipulated by governments, corporations, bankers etc. So no more crony capitalism and cleptocracy
In his upcoming book “The Capitalist’s Dilemma,” author and Harvard Business School Professor Clayton Christensen distinguishes three kinds of innovation: empowering, sustaining and efficiency innovations.
“Industries typically transition through these types of innovations. […] The dials on these three innovations are sensitive, but if set in a recurring circle — with empowering innovations creating more jobs than efficiency innovations eliminate, and the capital that efficiency innovations liberate being invested back into empowering innovations — the economy is a magnificent machine.”
However the economic engine is broken:
“Capital sits unused on the balance sheets of corporations and languishes inert in private equity funds. Capitalists seem uninterested in capitalism, even as eager entrepreneurs can’t get financing. […] At the heart of this paradox is a doctrine of finance employing measures of profitability that guide capitalists away from investments that can create growth.”
The solution to this problem is complicated.
According to Andreas Antonopoulos, the answer to this problem lies within the Bitcoin protocol:
“Right in the middle of the Cash Flow stagnation, you have Bitcoin now, not just creating a new model for currency, but at the same time creating a new liquidity pool, that has been built on top of this vibrant, innovative economy, where now you see hundreds of startups, creating thousands of jobs, creating this incredible amount of innovation, in financial services, in cryptografie, in security, in distributed systems, in technology and we’re only seeing the beginning of this. And as this wave accelerates, it’s generating it’s own economy. […] That is the biggest disruptive potential of bitcoin.
“Not that it is a better currency that takes over the other currencies, and absorbs their economic activity, but that it forms the basis for a free market economics that enables innovation. […] Economic activity that in the end may end up dwarfing the traditional financial sector. And not replacing it by absorbing it. But replace it by making it irrelevant. By rendering it obsolete.”
Bitcoin is capitalism 2.0
The future will not be centralized! Democratization is the transfer of any kind of power from the elite to the crowd.
Bitcoin is the third democratization. The first was the Internet, it enabled the democratization of information. The second democratization started with 3D printing, it’s the democratization of manufacturing where factories become obsolete. They are no longer needed to build a product. Now we are on the break of a third democratising force. It’s the democratization of money and finance. No more monopolies that control our money and business. Bitcoin is about freedom.
In this new era where technology is transferring power to the people, the world of finance will be unbundled. Banks used to do everything. Now all kinds of startups are picking of services. Alexander Pease, a venture capitalist at Union Square Ventures, made a great slide deck in which he showed how companies are innovating in the world of finance. He calls this process the “disaggregation of a bank”. In his opinion all kinds of startups are eating traditional banks for breakfast.
Within a few years we will see many new and different types of DACs – powered by initiatives like Invictus Innovations, Mastercoin, NXT, Ethereum – that will replace centralized commercial services such as Facebook, Twitter, Youtube, eBay, stock exchanges, Spotify, Netflix, ISP’s, Gmail, online sportsbooks, voting booths, SSL, cloud storage like Dropbox, and much more.
The currency application of Bitcoin was version 1.0. The block chain is Bitcoin version 2.0. Bitcoin 2.0 is real capitalism. It enables a market with true self-regulating behavior, as Adam Smith ment with his “invisible hand”. Individuals can make profit, and maximize it without the need for government intervention. “Bitcoin 1.0 is monetarism 2.0 and Bitcoin 2.0 is capitalism 2.0” as financial pundit Max Keiser so eloquently said in one of his reports.
A frictionless and transparent marketplace that is executed on top of the Bitcoin platform will put a lot of pressure on existing companies. They are not used to compete with automated services like DACs and Dapps. Companies will have to make decisions with the speed of the internet, which is by definition impossible. These companies will “try to preserve the problem to which they where once the solution”. But the dramatic changes in business will unearth a major gap between traditional approaches to strategy and the way the real world will work. It is “the end of competitive advantage” as we know it.
Next: Bitcoin shortens the life span of companies