AP Bitcoin will change a lot more than finance. It could also change how software is built and upend a bunch of today's biggest web companies, argues Joel Monegro of Union Square Ventures.
His argument starts with the block chain, the shared ledger in which every Bitcoin transaction is recorded. Validating these transactions requires computing power. When each transaction is validated, a new block is added to the chain, which makes future transactions even harder to compute.
Bitcoin was designed this way to make sure that the same Bitcoin, which has no physical form, isn't spent twice by the same person. This also gives Bitcoin some inherent value — people or organizations have to spend a lot of money to run the computers that validate transactions, and the complexity of those computations is always increasing as the chain gets longer.
But Monegro argues that these technical underpinnings of the Bitcoin system may have more long-term potential than the currency itself.
That's because the block chain is not controlled by any one person or entity, and information in it is freely available to other software programs. So programmers are starting to build things on top of the block chain that have nothing to do with digital currency.
For instance, some programmers have developed a protocol called La'Zooz for real-time ride sharing. That could eventually disrupt Uber. Others have created OpenBazaar, a protocol for a peer-to-peer trading network that could disrupt eBay. Both use the block chain for some basic computing tasks.
Here's a simple way of thinking about it. The block chain itself is immutable, like bedrock. Bitcoin is like a building on top of that bedrock — it has a foundation on which programmers have defined some of the basics of how it works, then a bunch of stories on top of that in which people interact with it.
But it's now possible for other folks to build their own buildings on top of the same bedrock.
" The block chain is great at two fundamental things," Monegro says. "Distributed consensus, which is basically having a large network of computers agree on a value of something ... that's a key component for any decentralized system. The other thing is time-stamping, holding a chronological order of things happening."
As new businesses crop up that depend on these functions, they'll benefit from turning to the Bitcoin block chain, rather than having to build a similar system from scratch.
This concept isn't new. Many tech companies have technology platforms that others can build on, from Microsoft to Google to Facebook.