Blockchain technology has the potential to not only change the way that finance works, but to change the way that software itself is engineered. “Blockchain” has been quite the buzzword in the last 6 months and for good reason. The blockchain is an area of information technology that powers cryptocurrencies like Bitcoin and Ethereum and is becoming more and more applicable in other areas of business.
As the price of Bitcoin rises steadily month after month, many people are beginning to think that Bitcoin will be the future. In reality, Bitcoin is just one use case of blockchain technology. Every cryptocurrency, including ones such as Litecoin, Ethereum, and Dash, use the blockchain to operate. So, what exactly is the blockchain, and why should startups care?
What Is Blockchain Technology?
Blockchain technology is a new type of internet. At its most basic level, the blockchain can be viewed as a distributed model where no one person, user, or company has control over an app or currency within its network. The core characteristic of blockchain technology is that it is distributed, and this is the thing that makes it so valuable. The most common use of blockchain technology has to do with cryptocurrencies and therefore, it makes sense to look at the option of implementing Bitcoin into a startup’s business.
Bitcoin is a digital currency that is sometimes referred to as “digital gold”. Although the adoption of Bitcoin has not yet gone mainstream, the amount of people who are learning about and buying Bitcoin is going up every month. By integrating Bitcoin payment into your startup, you are able to open new channels for accessing customers. The benefits of allowing a customer to purchase your products or service in Bitcoin are:
1. The value of Bitcoin has consistently gone up over time. It is safe to assume that this trend will continue, despite its daily fluctuations.
2. It’s a lower friction way for a customer to pay.
Companies like Tesla, Fiverr, and Badoo all take Bitcoin as payment and make accepting Bitcoin as easy as possible. The adoption of Bitcoin is only going to go up, so it might be a good time to start using it to your advantage.
Ethereum Smart Contracts
Although Bitcoin is the most talked about implementation of blockchain technology, there are still several other ways that it is used. The second example came about in 2015, when Vitalik Buterin created another cryptocurrency called Ethereum. The key difference with Ethereum, however, is that it has the ability to include a smart contract.
Smart contracts help facilitate the transaction of cryptocurrencies under a set of conditions. For example, let’s say that you bet your friend, Steve, $50 that the Jets are going to win the super bowl. The Jets win and you win the $50, but Steve didn’t want to give up the money. Steve doesn’t pay you, and you are left without your winnings.
If this bet was facilitated through a smart contract, you both would put $50 in a “pot”. Now, once the game decision was final, the winner of the bet would be automatically transferred the funds. In the case of Ethereum, mathematics is what is controlling the transaction, and there becomes no more need to worry about Steve.
So, if you wanted to help facilitate the transaction of some sort of currency, which is contingent on a set of rules, then using Ethereum’s smart contracts would be the best way to start. This can work in everything from banking to investment properties. Ultimately, because the conditions are programmable, the ways that a smart contract can be used by a startup are only limited by one’s imagination.
Another way to implement blockchain technology in your startup is through the creation of a token that can serve as alternative means of financing.
Initial Coin Offerings
Initial coin offerings, or ICOs, have been a popular part of the blockchain over the last several months. To sum it up, if a startup does not want to raise funding through traditional means, such as venture capital, they could opt in for an ICO. An ICO occurs when a startup or established company creates their own cryptocurrency and sells it to their future users or customers. It is the crowdfunding equivalent in the world of cryptocurrency.
Companies like Filecoin, Tezos, and Bancor have all raised hundreds of millions of dollars through their ICO. Currently, this space is very crowded, but some speculate that regulation is coming. In any case, this can be a great way for a startup to make use of blockchain technology.
Although blockchain technology is only in its infancy, it is clear that through its decentralized core a new wave of applications will arise. With the ability to accept Bitcoin as an alternative payment, execute smart contracts within one’s app, and to fund one’s startup through an ICO, blockchain technology is already impacting the ways that startups are built. Whether or not it is a game-changer, we will have to see over time.