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When the Bitcoin craze hit mainstream in 2012 like a hit album, many just finding out about it thought the digital cheddar was the most innovative thing since MP3s—while those in the know were thinking: What took you so long?
Not that Bitcoin was in danger of obsolescence. Instead, many observers and analysts were quick to strike a distinction between the Bitcoin brand and the larger market force of what’s called “cryptocurrency,”a mysterious sci-fi-sounding reference to what experts expect will fast become the norm in our everyday transacting lives. Cryptocurrency is basically cashless money, with encryptions attached to keep consumers protected from digital street muggings. Early cryptocurrency? One could describe cashless wire transfers for comparison, though that’s never really been as encrypted as pure “CC.” Future cryptocurrency? That’s what we’re beginning to see as societies increasingly rely less on hard paper cash for commerce.
Hence, crypto is going nowhere. Bitcoin is only as solid as the brand can—or can’t—make it. We use the term Bitcoin more for ease of commentary than we do to offer a technically reliable or accurate explanation (it’s like back in the day when everyone thought AOL was the Internet). Gartner’s 20th Anniversary Hype Cycle on Emerging Technologies, pulled together by analysts Hung LeHong, Jackie Fenn and Rand Leeb-du Toit, noticeably puts cryptocurrency on the list of technologies to watch “because of the hype and potential significance.”
Gartner’s David Furlonger explains that the “somewhat opaque nature of [Bitcoin’s] original founding and organization, together with huge volatility in its value, has prompted significant research written about its use as an alternative currency.” He’s also quick to add that it’s not all about Bitcoin since “[o]thers include Litecoin, Peercoin (also referred to as PPCoin), Freicoin, Terracoin, Devcoin and Namecoin, although none have as much circulation.”
But Bitcoin hype has regulators twisted in knots about next steps. That’s not such a bad thing since the debate over virtual currency morphed from its treatment as a novelty to now being taken seriously; we know that it’s 1) going to be a trend of significant market value and penetration and 2) will be huge enough that governments will have no choice but to regulate it. In the U.S., legislators and regulators already have their forks and knives out. Policy makers such as the European Central Bank are still not sold, citing privacy and security concerns that have led to charges from ECB members like Yves Mersch who worry Bitcoin is too decentralized and prone to heavy exchange rate losses. China doesn’t like what it can’t firmly control.
At issue now are impending regulatory dimensions when virtual currencies really take off. Lawmakers rarely think that far ahead when legislating, so of course there is no real clarity on how exactly one controls the cryptocurrency economy, especially when it’s operating very much like an underground money market. At the moment, laws like the Bank Security Act, constructed for simpler times, and as one would expect, don’t allow cryptocurrency transactions—and even Bitcoin proponents can’t make up their minds if cryptocoins are hard currency or not.
This will change, as venture capital investments in Bitcoin continue to soar. CoinDesk’s State of Bitcoin report, in fact, shows investments in crypto-coinage up by 28 percent, from $57 million in the first quarter of 2014 to $73 million in the second quarter. Online storefronts like Square Marketplace are getting in on the early adopter action while Google and Amazon mull it over. Professional sports teams like the Sacramento Kings also accept it, as does online storefront Overstock.com.
“Bitcoin is not a panacea,” cautions Forrester analyst Denee Carrington in an authoritative March note exclusively devoted to the topic. “[B]ut for many it represents the dawn of a new disruptive payments innovation. Bitcoin and its developing ecosystem have captured the imagination of many—entrepreneurs, big business, and government regulators—by demonstrating one way to tackle the embedded inefficiencies in our global payments systems.”
Congress, predictably, is slow to act, but not for lack of interest. Any time you see a full-blown Congressional Research Service brief on Bitcoin (which also means Congress is apparently discarding the more appropriate cryptocurrency term and opting for the lazier brand name) means the move to legislate is near. That might please old school financial services giants unnerved by crypto currencies since “[b]anks, insurers, and wealth management firms are besieged by a wave of disruptors that aim to use digital tools to deliver superior customer experiences at a fraction of the cost,” as Forrester’s Oliwia Berdak explains in a July research note on digital disruption in the financial retail service sector. The financial services sector, through its lobbyists, may have the chance to turn the cryptocurrency tide to their advantage—hence, greater regulation could be just one cleverly worded amendment away.
Ultimately, it’s clear a brave new market is emerging and ready to open. With rising cryptocurrency investments triggering a wave of Bitcoin-inspired startups, a new cashless industry space will find itself looking frantically for the talent and tools to run it.
Charles Ellison is a senior analyst relations strategist for TEKsystems. He keeps close tabs on changes and public policy shaping the innovation space. He is also a former congressional staffer, senior aide to state and local elected officials and an expert advocacy strategist. You can reach him with questions and comments @twoARguys via Twitter.