Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.
Welcome to The Road to Bitcoin Hegemony, a weekly analysis of some the most interesting developments in Bitcoin and why they matter in Bitcoin's journey towards monetary dominance.
History is littered with examples of companies that died because they failed to innovate. But don’t worry, I’m not going to bore you by talking about Xerox, Kodak and Nokia - the typical fodder for a thousand MBA courses around the world.
No, I’m much more interested in those businesses that sparked into life right at the moment of technological change. The ones that thought they were harnessing the future, burned brightly for a year, and then suddenly faded into nothing because they just didn’t grasp the true nature of the coming technological revolution.
It’s the difference between Blockbuster and LoveFilm. The former failed to appreciate the seismic shift that streaming would have on the experience of watching films at home. Big deal: better to have been a has-been than a never-was... like the UK’s LoveFilm. Sure, DVDs-in-the-mail was a good idea for its time. It’s how Netflix started off, remember. But while LoveFilm continued sending DVDs through people’s letterboxes, Netflix was busy pushing a very different kind of envelope.
But while LoveFilm had an early inkling of the future, launching its streaming service as early as 2005, it failed to capitalise on the shift in user expectations that the broadband revolution had brought about. And while a major part of LoveFilm’s business model continued to focus on sending DVDs through people’s letterboxes, Netflix was busy pushing a very different kind of envelope.
The lesson here is that it’s never enough to notice that the rules of the game have changed: you’ve got to understand what people value about the revolution...and then fulfil that need.
So last week’s announcement that the ECB is launching a public consultation on an experimental “digital Euro” came with more than a whiff of LoveFilm.
In fairness, they are not alone, with many countries racing to do the same. These initiatives are not failures of ambition; they show an inability to understand what makes digital currencies valuable to users: fiscally, emotionally, and practically.
Take the obvious financial drawback of the proposed “digital Euro”, which is that its value is firmly tied to the “physical” version. And that means it will share the same fate as every other fiat currency, its worth eventually inflated away to nothing.
High on its own hype and blind to the shortcomings of their proposal, the ECB has attempted to “educate” their half a million Twitter followers about their shiny new digital wealth redistribution technology. Luckily, an army of Bitcoin meme artists, commentators, pundits, and Jedi knights have taken it upon themselves to counter the Euro prop with some agitprop of their own.
The consensus? That the ECB is like a Dad doing the Mashed Potato at his daughter’s sixteenth birthday party: he thinks he’s got some sweet, timeless moves and can’t work out why no one else is joining in.
Judging from Twitter’s reaction, the reason no one wants to dance with the ECB is because they just don’t understand why people value Bitcoin. This is a currency that creates its own value, not a digital version of an already seriously disappointing project. Bitcoin meanwhile guarantees users complete pseudonymity, which the ECB already seems to have ruled out for the digital Euro.
The digital Euro is old-fashioned, value-sucking, inflationary fiat money dressed up as cryptocurrency; a vampire that offers the prospect not of a risk-free return, but rather, a return-free risk. That’s not to say it has no worth at all; I’m sure it will provide a useful case study of sounded-good-at-the-time initiatives for a future generation of MBAs.
As if we didn't have enough to worry about, 2020 is on track to becoming the second-hottest year on record. Don’t blame it on the sunshine (and much less on the moonlight). Blame it on the Bitcoin.
Bitcoin is the whipping boy for all sorts of societal ills, but when it comes to climate change, the detractors may have a point. Bitcoin mining accounts for a stunning 65 terawatt hours of electricity a year, about as much as Colombia or Algeria. That’s a lot of CO2.
Or it would be, if energy grids were still powered by fossil fuels. The real energy problem we face today is how to manage the surge of power from renewables, which generate a glut of electricity during times of lower demand, before tailing off right when we need it most.
As Paul Amery points out in his fascinating new article, traditional energy grids are not designed for energy surplus and so find it particularly challenging to deal with excess generation, as well as handling discrepancies between supply and demand. Some of the best minds in science are grappling with the problem of how to store renewable energy for when it’s needed, with potential solutions ranging from giant flywheels to Elon’s battery farms.
But now, the penny is dropping that Bitcoin’s proof of work mechanism - far from being a terrible energy waster -actually holds the key to utilizing this power surplus in a manner far more responsively and responsibly than anything else that has preceded it.
In the words of Michael Saylor (CEO of MicroStrategy and recent acquirer of 40,000 bitcoin):
Bitcoin is the most efficient system in the history of mankind for channeling energy through time and space. It is literally the ultimate value and energy battery. Few understand now, but it will become clearer and clearer over time.
Michael is right: these are very early days, but the concept is brilliantly simple. Bitcoin mining provides a way to use up the excess energy flooding grids and using it to create something of value.
If the idea of energy-stored-as-value sounds just a little too high-concept, remember how Bitcoin revolutionized the way we think about money. Why can’t it do the same with something as (relatively) simple as energy markets?
As for what it might look like in practice, take a peak at Marty Bent’s recent tweet which illustrates exactly how it’s already been put to work by one farsighted energy firm.
That sound you hear? It’s the noise of Bitcoin miners - like swarms of cybernetic hornets - simultaneously protecting the Bitcoin network while making more efficient use of oil, gas, and renewable energy producers’ excess energy.
Bitcoin - is there nothing it can’t do?
N.B. This article was amended 9.10.20 to clarify that LoveFilm did launch an early streaming service. It was great, too; what a shame they continued to plough money into its physical DVD service long after it was clear that streaming was the future.