The Battle For Merchants Is Over, The War For Consumers Is Just Beginning

Tools Are Emerging In 2015 That Will Give The Average Consumer The Confidence To Put Their Income Into Bitcoin / Blockchain Based Assets

The Bitcoin community made huge strides bringing merchants onto the Bitcoin Network during 2013 and 2014. This trend has culminated with the recent addition of Microsoft to the list of major technology companies now accepting Bitcoin.

The Battle For Merchants Is Won

I believe the primary reason for the incredible merchant adoption success of the last 24 months, can be summed up in four simple words.

“Why not accept bitcoin?”

That is to say, merchant services companies such as GoCoin, Coinbase, and Bitpay have systematically removed any reason for merchants to hesitate in their decision to accept BTC.

The most fundamental of the services provided to the merchant is the removal of currency price risk from the equation.

By allowing a merchant to accept BTC from customers and then having the revenue immediately converted to the merchant’s national fiat currency of choice, the merchant can treat Bitcoin simply as a payment network and not take on any currency fluctuation risk.

Despite this incredible success with merchants, the adoption rate of bitcoin among users (while substantial this year) has not kept pace.

This may partly explain the confounding trend of ever increasing merchant adoption juxtaposed to a declining bitcoin price during 2014.

The War For Consumers Is Just Beginning

I believe the reason for the comparatively slower user adoption can be explained by the fact that unlike merchants, one can not yet say to the average consumer “Why not digitize your money into bitcoins?”.

For those of us that ask our friends and family this question the response is that they often don’t feel comfortable putting their money in a currency which may quickly rise or fall in value. In short they don’t want the currency fluctuation risk. Which is perfectly rational.

If the average user is living pay check to pay check, a drop in the price of bitcoin would cause real and immediate problems with them paying their mortgage / rent and other bills.

So while the case for bitcoins being a great store of value for one’s long term savings is very strong (having increased in value more than 1,000% in USD terms the past 24 months), the case for holding ones bill money / discretionary income in bitcoin / blockchain assets in general is still weak. As a result bitcoin is currently relegated to the more narrow role of a savings instrument / store of long term value.

USD and Gold On The Blockchain

Fortunately there has been real progress made on the front of removing currency risk for the average user, while at the same time keeping all of their income in blockchain assets which are instantly interoperable with the bitcoin payment network when it comes time for the user to spend their money.

Tether.to and Digital Tangible represent significant steps forward in this regard, allowing the average user to hold a token backed by USD held in a bank account or gold coins held by professional vaults respectively. Both tokens are secured by the full hashing power of the Bitcoin blockchain by the Omni and XCP protocols respectively.

Suddenly a user can hold all of her funds in a blockchain based asset that is directly tied to the purchasing power of these two massively liquid and global markets for USD and gold.

From here its simply a matter of exchanges and merchant services integrating these new technologies and providing this option to their existing users. For example Bitfinex recently completed an integration with Tether thus opening up their exchange as a means of moving from Tether to BTC.

This adds to a trend that has been building since late 2014 when both Coinapult (with their “Locks” feature) and Bitreserve launched services to hedge bitcoin currency exposure against other assets.

As other major exchanges, merchant services and popular wallets such as GoCoin, Coinbase, Blockchain.info, Bread Wallet, and Bitpay integrate these solutions, they will then be able to make these types of token exchanges a seamless flow for their users.

I believe thanks to these pioneering projects 2015 we will be the year we are able to say to the average user:

“When are you going to digitize your money into bitcoins?”.

The Challenge of Counter Party Risk Remains

The remaining challenge with any system where physical capital is held on behalf of someone else, is that there is a third party involved. Somewhere there is a vault operator that must be properly accounting for the asset and not issuing multiple receipts for the same asset being held.

Its incumbent upon the Tether and Digital Tangible’s of the world to offer solid real time auditing + 100% blockchain based transparency when it comes to the ownership of assets listed. These tools are critical in building community acceptance of their best practices.

Provided this can now be better accomplished with immutable records published on platforms such as Factom and secured by the blockchain this age old challenge of counterparty risk may be more addressable than it has been in the past.

Time will tell the extent to which these new auditing tools and blockchain immutability will reduce counterparty risk.

But personally I’m making it one of my core missions in 2015 to support technologies that make it possible for our community to reach the average user with the same value proposition and confidence we have been able to offer merchants the last few years.

We now have the technology, lets go make it reality.

Full Disclosure:

I serve as the Managing Director of the Decentralized Applications Fund and hold tokens as a LP and GP in the Fund. I serve as the Chairman of the nonprofit Factom Foundation and plan to hold the tokens. I have served as a Board member of the Omni Foundation and hold the tokens.

While I do not hold shares, equity or tokens in the Coinbase, Blockchain.info, Bread Wallet, Bitpay, Go Coin, Digital Tangible, Bitreserve, XCP, Coinapult or Tether projects, I do know nearly all of the teams and maintain a friendly relationship with them. All that is to say, I AM POSITIVELY BIAS in regards to these projects.

Appendix Covering Fiat Currencies:

This article should not be interpreted in any way to presume that I am arguing in favor of national fiat currencies. As many have pointed out it is an illusion to think of fiat currencies as “stable” given over time fiat currencies almost always decline in value and the vast majority throughout history collapse and cease to exist all together.

With this said, for the moment the average user still has most of her bills and expenses denominated in her local fiat currency. Thus by placing fiat currencies on the blockchain the user inherits the capabilities of bitcoin, with the currency denomination they are accustomed to.

I believe these technologies enable the average user to transition more smoothly from the world of fiat to the world of bitcoin based and denominated assets. This bridge is important. Without these bridges the journey of mass adoption of bitcoin and blockchain based assets would be significantly slower over the coming months and years.

Ultimately in a world in which the people now have a choice between a currency or asset with counter party risk and one without counter party risk I believe over time they will overwhelmingly choose the one without the counter party risk.

Inflation of the money supply is theft, lets remember that above all else.