Bitcoin moves from hype to disappointment, and on to real utility

Updated December 3 at 9:45 a.m. ET to reflect that Blockstream is based in Canada, not the U.S.

If you hang around the tech scene for long enough you will see some absolutely amazing ideas being turned into businesses.

Some arrive too early to be successful, some aren’t executed successfully and some are just so ‘out there’ that the public at large can’t get their head around the idea, no matter how good it is.

Bitcoin (and cryptocurrencies generally) is in that last category right now.

The potential for this area is huge. But currently, even many sophisticated early tech adopters are scratching their heads unless they have a really compelling personal reason to start adopting Bitcoin (like buying large quantities of drugs on the dark web or moving vast sums offshore from China…).

The nuts and bolts

Still, I believe that Bitcoin is going to be one of the most dynamic areas in tech over the coming five years. Before I explain why, it’s worth going over some of the ‘nuts and bolts’ of the technology.

Bitcoin is a software-based online payment system that has been building momentum since 2008.

It is open-source software, which means that it promotes free access to anyone that wants it. Bitcoin is the native currency of the public ledger for the system. All payments are recorded on this ledger, which is called the block chain.

There is no central administrator for the system. This is important: Currencies are generally administered by governmental authorities. And so governments around the world really don’t quite know what to do with Bitcoin (which is currently the largest cryptocurrency/digital currency).

However, Citi’s chief economist argued in a recent research paper that gold is a commodity like bitcoin and other cryptocurrencies — and I agree.

Most people will obtain Bitcoins by swapping them for cash or other products/services.

Many of the business models that are emerging around Bitcoin relate to wallet or storage technologies. Just like cash, people want to know that they can store it safely and transfer it both securely and cost effectively.

Bitcoin is still some way off the mass market though, and a combination of huge speculation along with very large demand spikes (particularly in Asia, as money gets moved offshore) has meant that the price has been very volatile.

The hype and the reality of Bitcoin

Since I have been watching Bitcoin, it charged up from $90 per Bitcoin to $1,000, but then collapsed. It’s now bumping along around $360-380.

A steady price and an increasing amount of use cases means that more people will begin to look at using Bitcoin.

The main benefits are that payments with Bitcoin are private, fast, and cheap. Clearly payments being made in secret are a concern to law enforcement agencies around the world, but there are a lot of investors and companies out there that want to keep their (quite legal) business activities out of the limelight.

There’s been a lot of hype around the $21 million seed round in Blockstream, a high profile Canadian company invested in by the tech glitterati which is focusing on the platform around Bitcoin (block chain and side-chains off the main block chain).

But London is growing a really healthy digital currency ecosystem. The U.K. Digital Currency Association is doing a great job at pulling the ecosystem together, and well done to the guys at Elliptic for raising £2 million. There’s no doubt that we will see a lot more London-headquartered companies in this space taking on serious investment over the next few years.

A corporate partner, Richard Goold heads the US desk and co-chairs the firm-wide tech sector group at Wragge Lawrence Graham & Co. He spends his working life leading complex corporate transactions, generally in the tech sector and usually across borders. To accompany his insights in Fintech Monthy, he will be writing a monthly column on the biggest trends in fintech.

This story originally appeared on Tech City News. Copyright 2014