I loved this discussion of Bitcoin/Blockchain. a16z has invested millions into the Bitcoin/Blockchain space. So have other VC firms. VC Tim Draper has bought millions of dollars worth of Bitcoin. Most people still think they are insane. No doubt, many of those investments will lose money. But, some are going to be long term home runs that will make them gazillions.

I am not concerned with the daily fluctuation in Bitcoin. Do you care where the dollar settles each day? But, I do think a risk management ecosystem needs to exist for Bitcoin to be adopted widely.

The podcast describes how the technology can insert itself into the existing financial system without displacing the US Dollar. I have blogged about Bitcoin before as I was trying to figure out if it was a thing or not. My conclusion is that it’s a thing.

I think that startup ecosystems in places like NYC, Chicago, London, Toronto and Hong Kong are prime areas for Bitcoin innovation since financial networks already exist there. At the same time, many people inside those networks find it hard to think out of the box, or think their silo is impenetrable-so they aren’t open to innovation.

There are several use cases that I see outside of payments. Some of the clearing uses and stock issuance processes are articulated in this podcast.

Currently, I am cogitating how startups might use Bitcoin/Blockchain to make their business stickier and create network effects around their business where none exist today. Many SaaS businesses don’t have network effects-but are very good businesses. Can an innovative use of Bitcoin/Blockchain give their business network effects?

Certainly, issuance of a private currency, a Bitcoin denominated piece of equity, or something like that is possible. But, why not an internal namecoin that gives a market based transfer price within closed supply chain networks? Should make them more efficient and wrench out even more costs. Markets allocate resources better than centralized bureaucracies, and using bitcoin in a supply chain might give a market based transparent transfer price better than the cost accounting department.

In a macro level, exchanges like CME use a clearinghouse to match and clear trades. CME has used the clearinghouse as a competitive advantage-and it’s also created a regulatory network to make it tougher for new entities to compete. Bitcoin/Blockchain might be a way to blow that whole silo up depending on how it’s set up.

Just for kicks, I took a look at CME seat values. They are getting destroyed. The last trade in the CME B-1 is $350,000. On 12/22/2014, one traded for $850,000. This isn’t a sign of Bitcoin having an impact. It’s a sign of massive industry contraction. Sure, they do more volume-but it’s done by a high concentration of firms. That could be dangerous long term for CME.

CME is in no danger today from Bitcoin, but ten years from now that won’t be the case. The same could be said for other exchanges, and the big banks. People and politicians from both parties say we should break up the big banks, but Bitcoin might take care of that soon enough!

The entire financial system will be changed-and the consumer won’t notice much of it. Most of it will be in the back office. Blockchain will drive costs down for producers, and help profit margins-unless companies are created that put them out of business completely.