Bitcoin Is Dead, Long Live the Blockchain

 | Jan 21, 2016 | 2:00 PM EST
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A revolution is at hand in finance, economics, markets and the way human beings interact with each other. And if you are not actively engaged in understanding it now, you risk having your investment capital obliterated as it slams into all of these systems and changes the way they work. 

This is not hyperbole, so you had best take note. 

About a year and a half ago, I introduced what was, at the time, a conceptual framework for a blockchain system that would operate on an open-mesh networking platform, in the column, Ethereum Is a True Game-Changer

Built by nonprofit Ethereum, this blockchain platform has since gone from idea to practical application, and was tested recently by 11 major banks as a platform for trading. 

But this is just the beginning of its application. I expect that the adoption of this technology will grow fast, and it will cause enormous disruption to every aspect of commerce, in the process. 

Any company not making the investment in adopting this technology will cease to exist, and even adopting it is no guarantee that they'll survive. 

The companies most actively engaged in building the supporting hardware and software associated with the implementation of the Ethereum platform are still Microsoft (MSFT) and Cisco Systems (CSCO), although every other technology company will have to, if only for survival's sake. 

The companies most actively engaged in the implementation of Ethereum for real commerce are in the financial sector now -- principally banks and consumer revolving-credit providers. 

These include all of the world's largest banks and credit card companies. The credit card companies to watch are MasterCard (MA) and Visa (V). This is a risky proposition for them, as their businesses will be radically altered by this development -- and they may not survive, even as they are on the cutting edge of bringing Ethereum to practical application. 

I addressed that issue in the December column, There's a Problem in the Credit Card Space.

Do not confuse Ethereum with Bitcoin. Bitcoin was never a viable blockchain platform for commerce. Ethereum is. I'll not address here why Bitcoin is not viable, but if you want me to write a column explaining it send me a note to rogerarnold@gmail.com, and if I get enough responses requesting it, I will do so. 

You can also read this recent commentary from former Bitcoin proponent, Mike Hearn, on the subject, but there is much more that he's not addressed. 

Ethereum is a disruptive technology far greater than the Internet, itself. It will bring the dark web into the light and provide a platform for disintermediation that is almost unfathomable, today. 

The disruption in commerce afforded by the introduction of the Internet as a viable, and ultimately preferable, alternative to traditional bricks and mortar retailers has been the downfall of those not making the transition properly. 

The easiest examples of this are Amazon (AMZN) versus Sears Holdings (SHLD).

What Amazon did to Sears is what the Ethereum platform may do to Amazon, as producers start to use the Ethereum blockchain to bypass intermediaries in order to deal directly with end consumers. 

The Internet provided a different means of intermediating between producers and consumers, albeit one that has proven to provide financial efficiencies for all parties. 

Ethereum allows for real and substantive disintermediation, affording producers globally the opportunity to interact directly with customers and bypassing banks, credit companies, Fed wire and clearing services, and, perhaps most importantly, the companies that have become the giants of advertising to consumers, namely Facebook (FB) and Alphabet (GOOG). 

The process of Ethereum adoption will represent a surge far greater than what has preceded it in how technology is reorienting commerce. 

Even as many are still disoriented by how quickly the Internet allowed for the creative destruction of previous ways human beings interacted, the Ethereum will magnify that further. 

I addressed this issue and the ramifications for investors last October in the column, Investors Slow to Deal With Rapid Change. I'm not advocating taking any particular investment position on this matter as yet, but that is something I will address in future columns.  

Right now, however, it behooves investors to be aware of this disruptive technological breakthrough, and monitor it. 

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