Why Bitcoin’s Erratic Price Doesn’t Matter

Bitcoin prices have dropped almost 60% since January, outpacing the Russian ruble. Critics say that’s proof digital currency has failed.
Ignore them. Bitcoin’s price is irrelevant to the key question of whether the underlying technology will disrupt finance. There are many signs it will.
Bitcoin is much more than just a currency. Investors from Silicon Valley to Wall Street are now pouring money and expertise into what they view as an adaptable technology platform. Software developers anywhere can use bitcoin’s open-source code to create specialized applications that let businesses undertake commercial exchanges without using middlemen. These applications threaten to make redundant many services provided by banks, foreign-exchange houses, escrow agents, clearing houses, notaries public and even lawyers.
Of course, none of that guarantees that bitcoin will succeed. Detractors will rightly argue that householders won’t save or transact in a unit of exchange whose value fluctuates wildly. Indeed, while bitcoin transactions continue to rise, and even though a growing list of merchants accepting bitcoin now includes Microsoft, Expedia EXPE 0.31% and Dish Network DISH 0.30%, digital currency’s portion of global commerce remains minuscule.
But it doesn’t matter that mom and pop aren’t comfortable with bitcoin. What matters is whether the exploding software innovation around cryptocurrency leads to solutions that allow corporations and governments to derive benefits while protecting themselves from risks, including the volatility. The vision that many in Silicon Valley have is that bitcoin, or perhaps some clone of it, will work in the background of the global economy. Mom and pop won’t even know it’s there.

This post was published at Wall Street Journal on Dec 21, 2014.