Back in the early 90s, I presented the keynote address at a National Association of Broadcasters meeting in Orlando. I said that the Internet was going to democratize content creation and distribution, and that television stations would someday compete for audience share with a couple of teenagers in their parents’ basement. I also predicted that newspapers and traditional media, like magazines, would suffer from low-cost Internet competitors. I gave the NAB attendees what turned out to be a fairly accurate vision of the future — and their reaction at the time was laughter. They simply could not see that future coming to pass, and didn’t prepare for it. Much like Kodak could not see a future where digital imaging replaced film.
Today Bitcoin enters the financial market, not as a financial tool, but as a financial technology. By all appearances, economists and the financial industry don’t regard Bitcoin as any kind of threat to their future — but, on that point, they are mistaken. There are a few, here and there in the financial industry, who get it. At least one of the major banks, Wells Fargo, organized a conference to evaluate the potential and associated risks of Bitcoin. Outside that token effort banks, for the most part, don’t want anything to do with Bitcoin. I believe they are repeating the mistake Kodak made with digital imaging.
Banks will eventually wake up to the threat to their business model, but probably not until it’s too late.
Big banks and financial institutions don’t see any threat, or opportunity, in Bitcoin for the same reason the NAB attendees didn’t see any threat from the Internet in 1995. Major banks and investment houses dominate their industry; in fact they are the industry and the threat from a little peer-to-peer digital token just doesn’t register on their radar. They may even get a laugh out of it, the same way Swiss watchmakers had a good laugh over digital watches, the way RCA must have chuckled at the first blurry, low-cost televisions to come out of Japan.
Disruptive technologies are always a surprise to the status quo but, in nearly every instance, the decimated industries had a chance to shape emerging technologies and to co-opt them into their business model. Every professional photographer today could be shooting with a Kodak camera, or a camera with a Kodak sensor, but Kodak just didn’t see the potential. Big automakers thumbed their noses at electric cars, lobbied against laws encouraging their manufacture, and told the American driving public they didn’t want them. That lasted until Tesla came along and forged a niche in the automobile market. In some countries Tesla is the best selling car brand. Big automakers reluctantly added their own “me too” electric car offerings — but you can tell, even today, they are reluctant participants.
Likewise the financial industry will have its own day of reckoning with digital currencies, and it’s not going to take 20 years this time. Bitcoin is a financial technology that is efficient and convenient. Bitcoin exchange between two individuals cuts out the overhead of banks, and ancient financial institutions like the US Federal Reserve.
If you and I want to make a trade in Bitcoin it takes 10 minutes, no banks required. Compare that to the recent experience I had selling a vehicle. The buyer had to go through his bank to get me a check, which I then had to deposit in my account where it went from my bank, through a ping pong route of Federal Reserve banks, to his account and all the way back through the same Federal Reserve system. It took days for the funds to clear. Compared to Bitcoin, our routine financial transactions are positively barbaric, particularly in the modern age of the Internet.
If Bitcoin has a weakness it’s security. If someone writes you a bad check, you have recourse through the law and courts. If a vendor rips you off, you can complain to your bank and the credit card company to get the charges reversed. But if you lose or have your Bitcoins stolen, you’re out of luck. If you get ripped off, there is no place to complain or lobby to get your Bitcoins back. Once they’re loose, once they’re transferred, your Bitcoins are gone.
Despite that, Bitcoin remains wildly popular with certain tech-savvy elements in society and, just like the Internet, this is only the beginning. Digital currencies will continue to grow, evolve, and gain wider acceptance. Process improvements in Bitcoin exchange will develop, including an appeals process for getting your money back on a bad deal.
Banks will eventually wake up to the threat to their business model but, if the history of technology is any guide, probably not until it’s already too late.