Why Bitcoin’s Greatest Asset is its Community

Nicholas Tomaino
May 11, 2014 at 12:35 UTC
Updated May 12, 2014 at 10:18 UTC

Nick Tomaino is currently on the business development team at Coinbase, and is also a first-year business school student at the Yale School of Management. Prior to that, he worked in venture capital, most recently for Softbank Capital. 

community

While the protocol underpinning the network will always be key, an engaged community is more important to the future success of bitcoin than its underlying technology.

There is a large and rapidly growing community of developers, merchants, users, miners, and investors in the world that believe in democratizing the financial markets and making money accessible and easy-to-use for everyone the world over. People tend to underestimate this community.

Union Square Ventures, one of the most successful venture capital firms of the past decade, is famous for its simple 140-character investment thesis:

“USV invests in: large networks of engaged users, differentiated through user experience, and defensible through network effects.”

USV has had tremendous success investing in networks of people that have specific expertise, creativity and passion, like Twitter, Tumblr, and Kickstarter. Particularly given the strong emotional aspects of money and the open-source nature of the bitcoin project, it is the expertise, creativity, and passion of the community that will ultimately determine bitcoin’s future.

It is common for newcomers to bitcoin to say “I believe in digital currencies but I don’t think bitcoin will be the winner.” However, those people underestimate the power of the bitcoin community.

Developers

I haven’t met anyone that personifies the ethos of the community better than Gavin Andresen. Andresen is a scientist and hacker who began working on bitcoin’s open-source project in 2008.

Up until last month, Andresen was the lead developer for bitcoin and is still a very active contributor to the Bitcoin Core code. Andresen, along with Wladimir Van der Laan (who replaced Gavin as lead developer), Pieter Wuille, Greg Maxwell, and Jeff Garzik are the five core developers who actually accept code changes and apply them to the Github repository.

These five, along with thousands of others from across the world, spend their time maintaining and improving Bitcoin Core, which is only in version 0.9.1. The talented and rapidly growing developer community, led by Andresen and Van der Laan, is working hard to improve the code and there will be lots of future improvements to the five-year-old technology.

Merchants

Right now, bitcoin is more compelling for US merchants than US consumers because merchants are able to use bitcoin as a more efficient payment protocol without worrying about the volatility or tax implications associated with it.

Overstock.com, Tiger Direct, CheapAir, and Fiverr are a few of the merchants using bitcoin. In total, there are currently over 60,000 merchants using bitcoin and that number is rapidly growing.

Users

People are generally emotional and naturally sceptical when it comes to money. So it should be no surprise that to date, the most widely discussed bitcoin users have been Satoshi Nakamoto, the anonymous bitcoin creator, and Dread Pirate Roberts, the anonymous founder of Silk Road – the online marketplace for illegal goods that the FBI shut down in October.

This mysterious ‘Internet money’ surely can’t be real money used by real, law abiding citizens for real purposes, right?

That assumption turns out to be wrong. Coinbase has over 1,200,000 consumer wallets held by people across the world that use bitcoin because it’s a cheaper, faster, and safer way to send money and an attractive alternative way to store value.

The users I know use bitcoin not because they engage in illegal activities, dislike banks, and don’t trust government, but because they understand the benefits of the technology.

Miners

Miners are not widely talked about, but they are an essential part of the community because collectively they form the infrastructure that powers bitcoin’s payment network.

The mining community is generally made of mining pools such as GHash.IO, Discus Guild and BTC Guild, and mining hardware manufacturers such as KNCMiner and Cointerra.

Blockchain has a chart on the distribution of hash rates in the network that is helpful in understanding the major players.

These mining pools are financially incentivized to uphold the security of the network and verify transactions. The hardware companies are dedicated to finding ways to mine more efficiently and they are an important player as the technology matures.

Investors

Venture Capitalists and institutional investors have increased their interest in bitcoin over the past year.

High profile Venture Capitalists like Fred Wilson and Marc Andreessen and investment managers like Bill Miller of Legg Mason and Mike Novogratz of Fortress have publicly spoken about investments in both bitcoin the digital currency and the bitcoin ecosystem.

Furthermore, Bloomberg recently announced that it is now offering price info and news on bitcoin to all of its users.

While the high-profile investors’ involvement in bitcoin is not quite as important as the merchants, developers, users, and miners, their presence does lend credibility to the digital currency and is likely helping to accelerate adoption.

Community image via Shutterstock

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