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The Fifth Element to the Nexus of Forces: Bitcoin

A few years ago, Gartner defined the Nexus of Forces as the convergence of four technologies that together create a monumental shift in business as we know it. These technologies (Cloud, Mobile, Social, Data & Analytics) have since grown and matured, and we can indeed see a significant shift that is starting to happen.

But there is another significant technology driven advance that was not on the radar screen a few years ago: bitcoin.

Marc Andreessen has a great analysis in this post: Why Bitcoin Matters.

The reasoning is simple. Our current financial systems are antiquated and do not serve  the current global consumer and institutional needs. Marc explains how technical advances have allowed for a secure and easy digital cash currency to become available. His business impact analysis is superb.

What bitcoin will mean to business strategy:

1. Digital Consumer Cash – with the appropriate advances in security, consumers will be able to make payments in all venues via bitcoin. I predict that Paypal will allow the use of bitcoin and this will be the tipping point for consumers using bitcoin.

2. International Transactions – with currency exchange, international wire transfers, multiple institutions and clearing systems the current way of enabling international transactions is difficult, antiquated and basically horrendous to use. Bitcoin sweeps through these issues and allows two parties to simply deal in their respective local currency.

3. Currency Fluctuation Risk – with bitcoin this risk only exists if one chooses to take it by holding the bitcoins. However, no risk in the currency fluctuation exists if the bitcoins are immediately converted into local currency. Doing this at the transaction level allows any business or individual to conduct business in local currency, and the use of bitcoin only enables the closing of the transaction.

4. Financial Institution Fees – credit card transaction fees, wire fees, and a variety of other fees go by the wayside and are replaced by minimal bitcoin fees. Profit margins can be improved for each transaction.

Some business strategy ideas to consider:

a. What intermediaries are involved between your business and your ultimate customer, and does a bitcoin transaction enable your business to provide this product or service without some of these intermediaries?

b. Is your product or service currently bundled for practical business reasons, yet can you increase your market penetration if you can accept transactions in a different way?

c. Are there parts of your market, for example international or global markets, that you currently do not serve, but the ease of bitcoin transactions would enable these?

d.  Any business accepts payment today, what is the cost of processing these payments and can these costs be reduced?

There are many of these type of strategy questions to think different about business opportunities and challenges.

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