Payments Views


It’s About the Blockchain

We’ve been working with bitcoin at Glenbrook for a few years now, teaching about it in our boot camps, and holding one-day workshops on math-based currencies and blockchain technology.

I have one conclusion. The focus of the evolution of digital money is shifting. Where that evolution will take us is still unknown.

To borrow a term from biology, the digital money ecosystem is beginning a period of adaptive radiation, a process that takes place when a founding entity morphs into multiple types, as each adapts to fill an unoccupied transaction niche or, usually later, to displace the incumbent. Bitcoin is, of course, the founder entity. Now, both entrepreneurs and big enterprise players are driving that evolution.

We Started with Currency

In the Digital Currencies, Bitcoin and the Blockchain workshop, we examine bitcoin against its multiple roles of currency, commodity, and payment rails. Today, the interest is squarely focused on blockchain as asset register. It’s been an instructive transition.

A couple of years ago, I wished for a quiet, even boring year for the Bitcoin ecosystem. I knew there’d always be the next bitcoin-soaked Silk Road story but calm in the exchange business and a measure of USD price stability for the currency were what I wanted to see.

Sometimes wishes are granted.

The bitcoin currency has stabilized. The winnowing of faulty exchange businesses has tossed out the scary incompetents and left well funded, better run firms who believe in the niceties of regulatory compliance, business insurance (things go wrong even in well run firms), and customer service. In percentage terms, the price volatility of bitcoin is not much different than that of the euro and the dollar over the past 18 months. So, the frothy “gotta get in” investment rush is over and a more mature market has emerged.

Bitcoin as Commodity

There is good evidence that bitcoin behaves today a lot more like a commodity. When many producers are present, commodity costs tend to be tightly coupled to the cost of production. Think wheat, corn, and iron ore. Yes, there are external market forces that push the cost around but when production costs exceed market price commodity producers either look to lower production costs further, horde their product, or get out altogether.

With bitcoin, that production cost is heavily influenced by the cost of power. Miners all over the world search high and low for the best energy deals, even into the mountains of Tibet.

Another feature of commodity prices is their relative stability when production and demand are in balance. We’re seeing that now. However, expect a price jump when the current cost/reward equation is changed next year and the bitcoin reward per block found is halved.

All About the Blockchain

2015’s story is the interest of fintech vendors, financial institutions, start-ups, and other enterprises in what blockchain ledgers have to offer. We’re seeing experimentation built on the bitcoin blockchain itself. We’re also seeing collaborative efforts among small groups of businesses (like Chain) evaluating the utility of private blockchains for the management of assets such as private company stock. The possibilities are almost endless — we discuss dozens in our upcoming workshop. With multiple proof of work and consensus-based ledger models to choose from, entrepreneurs and incumbents have non-trivial decisions to make.

No doubt, some of the announcements of pilot tests are just PR link bait because, while having your name associated with “bitcoin” was a toxic linkage, the word “blockchain” is cool.

Build It and Will They Come?

In the workshop, we also examine the transaction niches where blockchain tools could be of use including those not reliant on bitcoin itself.

We will see an evolution in incentives as well.

  • Bitcoin Miners Do It for the Bitcoin. Satoshi programmed, into the heart of bitcoin software, the reward of bitcoins to the miner that solves for the next valid block in the chain as the incentive for transaction processing and the creation of new bitcoins.
  • Want Some of My Currentcy? Other incentive models exist. Ripple has reserved a portion of the currency it relies upon for its own benefit.
  • For What’s Next. The operators of private blockchains may have no expectation of a reward at all. Stellar, a Ripple derivative, expects others to run its servers not in anticipation of a reward for work performed (a.k.a. mining) but simply as a platform service required by the value-added services built on top. Like basic internet services – DHCP, DNS, and HTTP servers come to mind – the value will emerge from what they enable.

Déjà Vu All Over Again

The coming period of experimentation reminds me of the internet’s first commercial flowering. Enterprises of all types examined how to use internet protocol technologies for their own purposes through intranets, extranets, and virtual private networks. Ever since, we’ve been building on that experience, producing no end of surprises.

For the early internet hippies, today’s “Net” doesn’t look like their original vision. The free exchange of ideas, not advertising, was supposed to be the lifeblood of the “Net.” The eventual internet dominance of firms like Facebook, Google, Amazon, and the other firms making up today’s online elite were not in that plan.

I suspect the bitcoin hippies will be just as disappointed in their baby’s next growth spurt as large financial institutions, internet players large and small, insurance companies, and perhaps even local and national governments adapt blockchain technology to their purposes. And just as with prior cycles, incumbents have no guarantee of success. While they may have reputation and regulation in their favor, neither is a certain barrier to competition.

Glenbrook’s next Virtual Currencies, Bitcoin, and the Blockchain Insight Workshop is coming up October 22 in New York City. It’s a great opportunity to work through these, and many more, issues. Eric McCune and I hope to see you there.

This post was written by Glenbrook’s George Peabody.


0 0 vote
Article Rating
Notify of
Newest Most Voted
Inline Feedbacks
View all comments
Michael Elling
5 years ago


As a 3-4 layer private protocol, the IP stack lacks price signals and incentives. Advertising and privacy have become the currency, which is not sustainable. Think Soylent Green where we are the food. Without “settlements” to clear supply and demand north-south and east-west in the informational stack the current model fosters silos and monopolies both in the core and at the edge.

I suspect the blockchain will be a key component in the development of settlement exchanges that will develop in the coming decade as a market driven solution to today’s net neutrality debate that misses the mark completely on both fronts. But it requires a better understanding all around of what these settlement exchanges look like and how they should be regulated.


4 years ago

Well this is one aspect of digaitl currencies which intrigues me and that is i’t vs a gold standard. I started thinking about what makes gold valuable and it is things such as limited supply, dividability, durability. In my opinion this is what makes gold valuable, these are also attributes of bitcoin. It took me a while of thinking to think of it but it seems to be that if you put aside history and any technical flaws that could exit bitcoin would win out over a gold standard.Hopefully that makes sense, I might even think of doing a follow up on this issue now that I think about as not a lot of people have tackled the issue of digaitl currency as the new gold standard.