When I first encountered Bitcoin I was convinced it was a bubble - and that’s exactly why I bought it. I figured I could make a quick buck off of the Greater Fool Theory - all I needed was few people that were more foolish than me to take these “coins” off my hands at higher prices. But somewhere along the way I realized that I had stumbled onto the most important change in financial history.

You read that correctly…I believe that Bitcoin is the most important technological breakthrough in the history of money.

For more than 5,000 years our system of money has required a middleman - a trusted third party that verifies ownership and transfers value. From the Temples of Babylonia to Giovanni Medici to James Pierpont Morgan, banking dynasties have been built by serving as the middleman.

The Middleman is Obsolete

With 31,000 lines of code, the creator of Bitcoin (Satoshi Nakamoto) made the middleman obsolete. Bitcoin does to the financial middleman what email did to the US Post Office.

From Chapter 5 of The Bitcoin Big Bang - A Decentralized Financial System

Bitcoin has done what no other computer program has done in the history of financial systems—it has automated the role of the middleman. Moreover, the developers of Bitcoin have given it away for free. The Medici family gained power and wealth by making a simple improvement to the existing system. Imagine if they had invented a new system altogether. The revolutionary accomplishment of Satoshi Nakamoto was to reduce the complicated tangle of global financial middlemen into an elegant software package that can be downloaded onto a smart phone. This feat is not just astounding it is unprecedented. The history of business is replete with examples of industries that have been transformed beyond recognition by disintermediation. When was the last time you walked into a travel agent’s office? Or asked a real estate agent for a brochure? Or looked in the phone book? Because of the need for trust and security there is one industry that has been missing from the list—financial services. Now the Bitcoin protocol can disrupt the trusted third party of financial services allowing peer to peer lending, banking and transacting to flourish.

Historic Breakthrough

Money is an old technology that has not changed in over 5,000 years. The same centralized system of middlemen that existed during the Renaissance period still governs the modern financial system. Bitcoin (with a capital “B”) is the technological breakthrough that will transform our system of money from centralized to decentralized.

A decentralized financial system is better, cheaper and faster - and it is these attributes that will serve as the foundation for historic change. The internet decentralized the transfer of information and gave people more access than any time in human history. Bitcoin does the same thing for money.

Smart Money - Set It and Forget It

But wait there’s more! Bitcoin does not just remove the middleman, it allows us to program money. For the first time ever, we can program money to work for us - allowing us to do more than any piece of paper could ever dream.

For those interested in what the future of money could be, I highly recommend this presentation by the Winkelvoss’: Money is Broken; Its Future is Not.

Make Your Milk Work for You

So how does Smart Money work and why should you care? Let’s use the real world example of the carton of milk in your refrigerator. The technology already exists that can sense when your milk is running low and can send you a reminder to buy more.

This means that you get an alert on your phone and have to stop at the grocery store and pay with paper or plastic. With smart money, you can program the entire transaction into your carton of milk.

When the milk is running low, a message is sent to your grocery store to deliver more milk - along with this message is a payment in bitcoin. When you arrive home your milk is waiting for you and has already been paid for…just try doing that with a piece of paper.

The Future of Money

This new system of money may be threatening to those who currently sit at the middle of the system, but it should not be feared. Bitcoin is a transformational technology just like the automobile and the internet. If history has taught us anything it is never to bet against human ingenuity. This is an extraordinary time in the history of money and I am excited see what the future holds.