I’m fascinated by Bitcoin. Not the currency per se, but rather the “why” and “how” of it.

I’m excited, for example, by initiatives to create a more-transparent financial system. Don Tapscott and Anthony Williams talked about this in their 2010 book, Macrowikinomics, which looks at five metrics for success (collaboration, openness, sharing, integrity, and interdependence) and how they are being applied in a variety of sectors–including banking and finance. 

It’s not just me. VCs are intrigued by Bitcoin too.

The current issue of Fortune has an article entitled “Why Venture Capitalists Are Right to Be Crazy About Bitcoin.” The author writes:

Bitcoin’s primary significance is not about whether it supplants cash. It’s about a revolutionary computer-science breakthrough that has the potential to upend all sorts of established industries.

 

Think, for example, payment systems–and lower fees and alternatives to all those dollars, euros, and pesos banks charge you to move your own money.

It’s about virtual currency. Maybe.

New America Foundation and Slate  teamed up February 11 for a half-day symposium to look at Bitcoin and other cryptocurrencies. This wasn’t a gathering of hackers and starry-eyed dreamers; the speakers included federal and state government officials, a Senate staffer, and prominent lawyers and academics.

Here are a few key takeaways from the event:

1. Cryptocurrencies aren’t likely to supplant national currencies. Simon Johnson, a professor at the MIT Sloan School of Management, pointed out that “money is about sovereign authority,” and that governments have been built on developing the power to determine what is and isn’t legal tender. His point: it’s unlikely that an independent [unregulated] cryptocurrency can succeed long-term. That doesn’t mean Bitcoin or another cryptocurrency can’t thrive; just that it probably will have to coexist within the broader monetary system. Johnson suggested that it’s more likely that what will emerge is an alternative to traditional banking that lowers transaction costs (a la M-PESA).

2. Regulation is coming. Attorney Carol Van Cleef discussed how the patchwork of state and federal regulations in the U.S. is slowing innovation. “What we’re really talking about is frictionless payment,” she said, adding that “the Bitcoin community is pushing forward on the technology.” Right now, most of the big players in the cryptocurrency world are offshore.

3. This isn’t a U.S. issue. Over 14,000 people streamed a two-day hearing by New York State’s Department of Financial Services on how to regulate cryptocurrencies. Over half of them logged on from outside the U.S. (many from China). The head of that agency, Ben Lawsky, said that most of the existing regulations were written over 150 years ago (e.g., to regulate money transmitted via Western Union). New York State is looking at writing new rules for virtual currencies and grappling with questions around consumer disclosure, collateral and investment requirements, open ledgers, safe harbors, and more. Said Lawsky: “If we create a smart regulatory scheme, then the idea is to separate the wheat from the chaff. The good firms who want to do this the right way will hopefully succeed.”

Bitcoin may be Alta Vista, but Alta Vista spawned Google.

Okay, that’s not technically correct. But Alta Vista had the right idea (indexing online information) before being supplanted by Google (which came up with the better business model).

Constance Choi of the Digital Asset Transfer Authority said that cryptocurrencies are today where the Internet was in the early 1990s. Entrepreneurs who paid attention to the Internet then, and built business models that leveraged the early technologies, were smart. I’ve written before about how Web 1.0 led to data democratization and what that meant for my business. 

This stuff matters, and it’s likely it will matter to your business too. I’m not sure where the cryptocurrency movement is going, but I figure keeping an eye on it is a good first step.

Photo by taxcredits.net (Flickr).