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Bitcoin is not just digital currency. It’s Napster for finance.

Bitcoin is not just digital currency. It’s Napster for finance.

140117173247-bitcoin-620xaFORTUNE — In 2013, bitcoin’s valuation didn’t just skyrocket, but its infrastructure, services, and adoption exploded as well, culminating in recent announcements that major online retailer and NBA team the Sacramento Kings would accept the digital currency as payment.

Some still doubt bitcoin’s usefulness and durability, but 2014 may leave skeptics even further behind — developers and entrepreneurs are already hard at work building features on top of the Bitcoin protocol that will allow for the decentralized execution of financial services, from currency hedging to loans to stock issuance to rental and purchase contracts. These new services rely on the same innovative proof-of-work model of distributed security and record-keeping that has kept the bitcoin currency secure as its value ballooned well past $10 billion. In the long term, peer-to-peer finance threatens to weaken banks and other financial agents just as peer-to-peer file sharing did the music industry — and some of the architects of this financial Napster seem gleeful about the possibility.

The Bitcoin protocol (crucially distinct from bitcoin, the currency it underlies) was built from the ground up to support far more complex transactions and relationships than simple value transfers. (Example: “Send five bitcoins to Steve.”) Some of the kinds of transactions that Bitcoin can support include so-called M of N transactions, which require agreement between a certain subset of a group, and can be used for escrow, mediation, or shared financial management; time-locked transactions, in which bitcoins are distributed on a strict schedule, useful for trusts or wills; and even data-conditional transactions, in which a script uses a data input such as a regular Google search to monitor real-world events that would automatically trigger disbursements or other actions. More conditional on infrastructure development is the possibility of “smart property,” with contracts enforced by digital locks interacting with the Bitcoin blockchain to manage real-world leases, mortgages, and purchase contracts.


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This entry was posted on January 21, 2014 by and tagged , .

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