Bitcoin and disruptive innovation

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Have a look at any recent list of ideas for exciting technological innovations and blockchain will be at the forefront. There are no shortages of proposed blockchain applications, promising the disruption of everything from simple bookkeeping up to the entire global financial system.

“What an exciting time! IBM, JP Morgan, and Facebook are considering blockchain-based products…”

So now, 13 years since the Satoshi’s white paper, where is the disruptive innovation? What has been displaced? Standing out amidst the myriad failed applications and missed opportunities is the harsh reality that most digital currency fans post more tweets than transactions.

Innovation is not invention. Innovation is a process of turning opportunities into ideas and then turning these ideas into commercial practice. Innovation is driven by the ability to spot opportunities and take advantage of them. One way of innovating is by finding new ways of serving established markets (sustaining innovations). While finding new operational efficiencies and/or improving products is an essential pathway towards profitable innovation, it is not what has been promised by Bitcoin heads: disruptive innovation.

Disruptive innovation is characterized by the transformation of historically expensive and complicated products possessed only by the lucky or wealthy few into products accessible to far wider markets. Consider the transition from the mainframe computer to the PC, film to digital cameras, and video rental shops to online streaming. Each of these disruptive innovations started by offering a product to a small, niche market (ex. Netflix provided services to movie buffs that didn’t necessarily care about getting the new releases immediately) and was able to grow their market share from this less-demanding space on-up, pushing incumbents up and out along the way. Clayton Christensen, the brilliant mind credited with defining the term “disruptive innovation”, had a go-to example utilizing the steel industry, explaining how mini mills disrupted from rebar on up.

There is no shortage of analyses that can be done to describe the specific characteristics of disruptive innovations (Radical/Incremental, Similar/Heterogenous, Relative Advantage, Compatibility, etc.). Still, there are a few that stand out immediately when comparing the possibility of meaningful disruptive innovation using Bitcoin (BSV) versus “crypto.” This time let’s focus on “Bitcoin” Core (BTC).

Consider the trialability of a simple token transfer. Some of the early Bitcoin users reading this will remember the excitement and ease of sending small amounts of Bitcoin to friends and family to demonstrate the power of the technology. The experimentation on a trial basis was near-frictionless, and the degree of possible innovation was immediately observable. This experience has improved continuously on Bitcoin (e.g. sending a penny of value while using Paymail.)

Today, the trial experience of most uses of BTC Core-based innovations involves a referral link to sign up on an exchange, proceeding through the A/O process (including KYC), to fund the account with fiat, and lastly to buy BTC (to only then ‘hodl’ for appreciation). While the exchange is somewhat of an innovation as it is a commercial practice, I think we can agree it is unexciting and far from disruptive. Further, this is not to describe a use of Bitcoin, but instead, a workaround that aims to achieve a hamstrung use case of Bitcoin and, worse, only by use of a third party. Someone looking to try BTC Core may not even be able to. Why is that?

As of November 25, 2021, the day’s average BTC transaction fee was over $2. This reduces much of the trialability of BTC in the wider, less-demanding market. It cuts off the possibility for the small casual transactions referenced in the very introduction of Satoshi’s white paper. Even more outrageous is that BTC has a minimum transaction size of 0.00000546 BTC (which amounts ~$0.22 at time of writing), which voluntarily removes itself from consideration from a few vectors of possible disruptive innovation (anything dealing with microtransactions, for one). The counterarguments can be given that second-layer solutions will soon™ provide an alternative solution, or that the user can use the testnet, but this is not using Bitcoin and only adds complexity while reducing trialability, observability, and the perception of the relative advantage.

The relative advantage is always moving. Although BTC Core has the market interest from fancy lights and the ‘get rich quick’ crowd, it is a platform built to speculate on speculation, which only survives when the token price appreciates. This is not a platform with solid fundamentals to innovate with. Almost a world away in comparison, Bitcoin, just by virtue of the unchanging protocol, massive scale, and the tools available in Script, is a stable, powerful platform for innovation.

I will clarify further that a market disruptor is not necessarily a disruptive innovation. McDonald’s and Days Inn did a tremendous job capturing the lower-cost markets, but their models did not have the upward ladder to continue to push out the competition. They are incredibly successful businesses but not technically disruptive innovations. If you are considering the many ways that BSV can be utilized for disruption, whether in Product, Process, Position, or Paradigm, perhaps keep this vector of scalability in mind; and maybe not worry about ‘number go up’ quite as much.

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