Bitcoin, Going Native

We all know that bitcoin is decentralized electronic money that runs on a network that can do all kinds of interesting things. The key question is, what can you do with bitcoin that you can’t do with anything else? What does it mean when bitcoin goes native? Note that the term ‘native’ applied to bitcoin is due to Fred Wilson (a venture capitalist based in New York) and expanded upon by Chris Dixon (another venture capitalist based in San Francisco).

Wilson writes (in The Bitcoin Hype Cycle): ‘What’s more interesting is the question of what will lead us onto the slope of enlightenment? I am thinking that we will start to see native applications of Bitcoin. These would be things that simply could not exist without this technology. Donating money to charity with Bitcoin is awesome, and I do it regularly, but it is not a native application of Bitcoin.’

Dixon lists (in Some ideas for native bitcoin apps) five types of native applications: 1) International microfinance, 2) Allocating bandwidth, storage, computing, 3) Marketplaces, 4) Micropayments, 5) Incentivized social software. We will examine each of these and more.

Both of these articles discuss important directions for the potential success of bitcoin. They start to answer the questions I posed at the beginning of this article. While the efficiencies of using bitcoin, for example instead of credit cards are nice, they aren’t the kind of things that are going to cause mainstream adoption. We need to start discussing applications and services that can only exist via bitcoin, primarily via the capabilities of the bitcoin network.

Let’s examine several categories of applications: Micropayments, Peer to peer lending and remittances for the unbanked, asset allocation and sharing, and decentralized security.

Micropayments
Certainly the most discussed ‘native’ application is using bitcoin for micropayments. Proposed as a solution to changing financial fortunes of journalism by Walter Isaacson prior to bitcoin’s existence (or prior to anyone knowing about it), Isaacson wrote in TIME in 2009 about using some, as yet unknown, payment mechanism to pay small amounts for articles. Writing in 2014, Isaacson revisited the concept now pointing to bitcoin as the mechanism that can make these types of small payments practical. I’ve written about micropayments in a prior article as well in ‘Bitcoin Micropayments a New Enabling Technology’.

This post was published at Bitcoin Magazine on OCTOBER 17, 2014.