What are the real benefits of bitcoin?

Welcome to part three of our four-part educational series on bitcoin. If you haven’t read part one or two, it would be advisable to read them first so part three won’t seem like gobbledegook.

Satoshi Nakamoto, the anonymous person or team that created bitcoin, wasn’t very clear about its purpose. This has left many to theorise about the real intent. Of the many theories about why bitcoin was invented, the one I like best is that it was created as a prototype to introduce blockchain to the world.

In part one, I briefly introduced you to blockchain. I will attempt to give you a more descriptive understanding here. You can break down the term in two parts: Block and Chain. A block is a bundle of data that represents an entity, an item, or even a person. A person’s name, date of birth, height, colour of eyes, and address can be considered a block of data that describes them. Over time, if that person moves to a new home, we create a fresh block with the updated address – leaving the old block untouched. These blocks are then linked in sequence, forming a chain. Every change adds a new block to the chain, hence the term blockchain.

LINKED LIST OF DATA

This concept isn’t new or unique in computer science – it’s commonly described as a linked list of data. What makes Satoshi Nakamoto’s blockchain unique is its use of cryptography (the practice of scrambling content to make it unreadable without the proper key) and its immutability (the blocks absolutely cannot be changed once created).

These features make bitcoin’s blockchain technology perfect for numerous applications. I mentioned land titling in part one, and there are other applications such as vehicle registration, legal contracts, and elections. I believe Satoshi Nakamoto’s primary intent was to promote blockchain technology. Bitcoin tokens were just the first product built on it. Many other applications have been built on blockchain technology since then, including fintech products like stablecoins – tokens backed by real liquid assets such as gold or US dollar fiat currency – that eliminate volatility by maintaining a fixed value of $1 per token. There’s also the Lightning Network, which enables extremely fast token transfers, and CashApp, a popular American payment app, though not built on the bitcoin blockchain, allows users to access both bitcoin tokens and US dollar tokens on a Visa card.

There are also many non-fintech products such as Blockstack for Digital Identity & Authentication, Chronicled for supply chain tracking, and OpenLaw for creating immutable, legally binding contracts, among others.

MOST DRAMATIC IMPACT

The bitcoin token was the first and the one with the most dramatic impact. The fintech industry has seen the most innovations primarily due to blockchain’s cryptography, immutability, and the divisibility of each token. This makes them ideal for financial transactions. You can send tokens anywhere in the world at lightning speed. When these tokens gain market acceptance, they can be used to pay for goods and services. For example, I could purchase an electric vehicle from China with bitcoin tokens without involving the banking system. Similarly, I could send bitcoin tokens to relatives anywhere in the world using the Lightning Network mentioned above.

There’s a growing acceptance around the world of bitcoin tokens as a token of value in exchange for goods and services. Today, a number of businesses in Jamaica, especially on the north coast, accept bitcoin in exchange for goods and services as they see it as a token of value that they can exchange for other goods and services, maybe even with their suppliers. Merchants such as Amazon and Digicel, or example, now accept bitcoin as payment on their online platform. The benefits of accepting bitcoin tokens is not lost on merchants or customers. Among the benefits for merchants are its lower cost per transaction, instant final settlement and versatility where these tokens can also be used as loyalty rewards or promotional gifts.

BITCOIN’S VOLATILITY

You might ask: What about bitcoin’s volatility? A merchant might accept $100 worth of bitcoin tokens in the morning only to see their value drop to $95 by evening, resulting in a $5 loss. This is where stablecoins come in. Many ecommerce applications built on bitcoin’s blockchain actually use stablecoin tokens instead of bitcoin tokens. As mentioned earlier, these tokens aren’t volatile – they’re stable, so the $100 received in the morning remains $100 in the evening.

To conclude, what are the real benefits of bitcoin? In my opinion, they lie in the blockchain technology and its many current and potential applications – from disruptive fintech solutions to election certification, authentication, and identity systems. Currently, most attention focuses on fintech applications. However, thousands of innovators worldwide are creating non-fintech applications to solve real-world problems using bitcoin’s blockchain technology. This evolution mirrors the Internet’s development where email was initially the main use, but today we can’t imagine life without it.

In part four, we will discuss Jamaica’s preparations for this ongoing technological revolution.

Michael Ennis BA, MBA, is an information system consultant. He is not an investor in digital assets, including bitcoin. He however, is a director of a bitcoin technology company. Email: mail2michaelennis@gmial.com