“A standard protocol for machines to negotiate bitcoin payments for resources”

Great idea from Brian Armstrong of Coinbase:

1/ Seems like there should be a standard protocol for machines to negotiate bitcoin payments for resources.

2/ Examples could be getting access to wifi hot spots, your car finding charging stations, mesh networks (net taker/giver).

3/ Devices could be like vending machines, you drop them out somewhere, and they generate rent for providing resources to passing machines.

4/ Sample protocol (a) i need X, anyone have it? (b) I have X for sale at Y (c) I accept, payment embedded (d) I reject, stop pinging me

We are dying to fund people working on ideas like this, or like these or these.

Some ideas for native bitcoin apps

Fred Wilson calls applications built using Bitcoin that couldn’t have existed prior to Bitcoin “native Bitcoin apps“. Most of the applications built so far on Bitcoin are not native by this definition. You can buy something at an e-commerce site using Bitcoin and it is cheaper than using a credit card but buying things online isn’t a new activity.

What will these native Bitcoin apps do? That is very hard to predict, just as it was hard to predict back in 1993 what the successful native Internet apps would be (try to find someone in 1993 who predicted Wikipedia, Twitter, blogging, etc). But we can make some guesses. Here are some of mine:

  1. International microfinance – Soon 5 billion people will have internet-connected smartphones but most still won’t have bank accounts, access to credit, etc. Bitcoin removes most of the cost and friction of cross-border transactions and allows anyone with internet access to participate in the global economy. Early examples of international microfinance services include P2P lending sites like BTCJam and Bitbond.
  2. Allocating bandwidth, storage, compute. Bitcoin could enable new ways to share and trade networked resources. For example, people have been trying for years to create mesh networks with only occasional success. It is possible that these systems mostly failed because they didn’t offer the right incentives to share resources. Bitcoin provides a mechanism for network nodes to pay for resources at the protocol level.
  3. Marketplaces – Ask anyone who runs a marketplace and they’ll tell you that paying out to people with bank accounts is a huge headache, and paying out to people without bank accounts is altogether impossible. Using Bitcoin, we could take ideas like crowdfunding and crowd labor services (oDesk, 99 Designs, Beacon Reader, Mechanical Turk) and open them up to anyone with a smartphone.
  4. Micropayments – The world just ran the first large-scale micropayments experiment – in-app payments on iOS and Android – and it was a huge success. In-app payments quickly became the dominant business model for mobile games, with some games generating billions a dollars a year using them. What would happen if we enabled micropayments on the web and not just for native mobile apps?
  5. Incentivized social software. Up until now, social sites have had to rely on non-monetary currencies such as likes, followers, karma, upvotes, etc. With Bitcoin we can add actual monetary incentives to the mix. This is happening organically on Reddit where users are tipping each other using Bitcoin and Dogecoin. A good exercise would be to go back and look at the history of failed social sites and try to rethink them using financial incentives.

The first phase of Bitcoin was about laying the foundational infrastructure – gateways, consumer wallets, developer platforms, merchant services etc. The next phase will be about native Bitcoin apps – building new things that could never have been built before. These will likely be the applications that drive Bitcoin adoption into the mainstream.

“Bitcoin is the currency the internet deserves and needs”

George Gilder discusses the importance of Bitcoin in a very interesting interview:

To have a civilization you need more than just bits and bytes. You need contracts, transactions, provable facts, titles, notarization, identities etc. You need all these other factors that can’t be accommodated very well on the existing internet. So you have to banks and all these other outside channels to conduct transactions. You have this comedy of bogus contracts to you are supposed to sign to proceed – click the button to accept the contract etc.

The internet is full of junk. It pretends that a lot of that stuff is free which of course is a lie. So it’s full of lies. It’s a hustle. This is the result just having pure Shannon information. Shannon identifies information exclusively by its surprisal- the unexpected bits. That’s how you measure information and bandwidth across the internet. Shannon’s a great genius. He created to perfect theory for the network layer. But as you know you need more than three layers on the network. You need a whole apparatus on top of the network layer.

Bitcoin is a breakthrough in information theory that allows you – without reference to outside 3rd parties – to conduct provable, timestamped transactions that can’t be changed, can’t be faked, and can’t be duplicated. Bitcoin is the currency the internet deserves and needs.

Bitcoin and volatility

The beauty of software platforms is that you can solve almost any problem by writing more software.

For example, one of the most common criticisms of Bitcoin is that it is too volatile and speculative to be used as a payment system.  Merchants want the stability of government-backed currencies. Buyers don’t want their Bitcoin exposure to fluctuate whenever they transact in Bitcoin.

Coinbase has solved this problem. Merchants can instantly convert any Bitcoin they receive into dollars.  Buyers can automatically replenish any Bitcoin they spend. Transactions that use Coinbase this way create zero net Bitcoin exposure for either party. Volatility is no longer an issue.

Four categories of Bitcoin-related projects

New Bitcoin-related software projects are launching every day. From what I can tell these projects fall into four main categories:

Bitcoin apps and services: These try to make Bitcoin more accessible, stable, secure, and useful. Examples: wallets, merchant services, fiat-to-crypto exchanges, crypto-to-crypto exchanges, Bitcoin derivatives exchanges, tipping services, and merchant microtransaction services.

Bitcoin protocol extensions: These are applications that use the Bitcoin blockchain as a global, secure, single-instance database and generally ignore Bitcoin-as-a-currency. Examples: Mastercoin, Colored Coins, and a Princeton project that is building a predictive market.

Altcoins: These are basically Bitcoin variants with branding and technical modifications (and their own blockchain). Like Bitcoin, the primary purpose is to allow the store and transfer of value. Examples: LitecoinDogecoin.

Appcoins: These are new projects that are inspired by Bitcoin’s architecture but are intended to do things besides storing/transferring value (they also use their own blockchain). Examples: Namecoin, Ethereum.

To me, the first two categories are probably the most interesting. If there is one thing we’ve learned from the development of Internet protocols like HTTP and SMTP, it’s that network adoption is key. There will always be better protocols, but the combination of broad adoption and open extensibility generally wins. (Although Naval and Balaji make a compelling case for Appcoins here).