In the beginning of 1995, Harvard professor Clayton M. Christensen defined a new term and phenomenon that today is slackly used by many researchers, executives, and consultants to describe any situation in which an industry is shaken-up.[i]
Although Christiensen defined his significant concept, “disruptive technology” precisely[ii], yet at present it is widely used as a buzzword in discussions of technological progresses specially in Bitcoins and Blockchain space.
The theory behind the term he coined, explains that the phenomenon of disruptive innovation initially is formed in a niche market that may seem insignificant to the industry executives, but eventually the new product or idea completely redefines the industry. The innovation of interest transforms the existing market or sector by leading ease, convenience, availability, and affordability where barriers and high cost are the status quo. It will tend to invert existing pricing schemes and profit margins.
Disruptive innovation allows for a large segment of consumers even at the extreme bottoms of a market to access a product or service that was traditionally only available to consumers with extra money or expertise.
The Personal Computer is a typical example of a disruptive innovation.
DEC[iii], the firm that led the minicomputer market in the 1970s was considered to be the leader in technology. At its peak performance in the late 1980s, DEC had $14 billion in sales operating over 95 countries[iv]. The firm’s market value reached $21.6 billion, and its founder Ken Olsen “America’s most successful entrepreneur” by Fortune magazine in 1986.
Measuring it by today’s standards, Ken Olsen would have been considered the “Steve Jobs of his time”.
DEC hit success with its PDP-11 family series of minicomputers, with more than 600,000 units sold. The processors had an outstanding characteristic in which peripherals such as video terminals and line printers are equally upward and downward compatible in their ability to interface with all PDP-11s series. DEC Charged an average $10,000 for their PDP-11 minicomputer consisting only of 5 components.[v]
In the same era, home computers also known as micro computers were entering the market, and became common during the 1980s.[vi] They had less powerful hardware and software and were marketed to consumers as cheap and handy computers, targeting single nontechnical users.
The Tandy Corporation was one of the leading computer technology companies in the 1970s and their most popular item – the TRS-80 – arrived on the market in the late 70s and was instantly popular. Its price at $600 made it affordable for many ordinary people to own a personal computer at their homes. In fact, over 10,000 units were sold within the first month of the TRS-80 being on the market. The low cost and ease of PCs meant that a lot more people could tinker with them. [vii]
Dan Bricklin one of the first tinkerers, invented Visicalc, the PC’s first “killer app”[viii] – this spreadsheet application was called the first killer app for personal computers because it turned the turned the PC from a hobby into a business tool. Over time, people progressively figured out how to use these cheap and simple computers to execute functions that had previously required a minicomputer to perform.
It was extremely difficult for a firm as DEC used to making tens of thousands of dollars per computer to start selling computers for a small fraction of that price. DEC was hesitant to embrace the market potential of personal computers, and it found itself quickly tumbling behind its rivals as it entered the 1990s and was unable to catch-up.
The Bitcoin and Blockchain scene today looks a lot like the PC market in the late 70s. Many people today look at Bitcoin with mystery and curiosity. The financially included groups are satisfied with the banking services they already have and can’t imagine why anyone would want to use an alternative system that’s much less widely accepted, offers no consumer protection, and is often attributed to illegal activity.
Arian Van Os , Head of innovation at ABN Amro said the Dutch state owned bank wants to stay away from Bitcoin, because of the digital currency association with drugs and illicit activity[ix]– a statement that is repetitive by many financial industry incumbents, because they fail to understand : what is Bitcoin and Blockchain ? and what can we do with it ?
Bitcoin is best explained when used. Most of the literature available on the subject, is in English language, and the information needs to be updated frequently.
Oxford Dictionary defines Bitcoin: as a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank[x] – and it defines Blockchain as a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.[xi]
In simpler words, Bitcoin is like your email service instead of sending and receiving texts between internet users – value can be exchanges directly with no middle man, on a fully 100% trusted network, and at zero or minimum fees. Value can take the shape of money, land title, stocks, food, cars … The activity is recorded on an immutable public ledger, containing signed and verified records of these transactions. The transfer is secure, transparent, and reviewable were no one can challenge its legitimacy.
Bitcoin brings the wonders and opportunities the PC brought in the early 80s, and attaches it to the most important power of society: money. The open source and decentralized nature of Bitcoin and Blockchain empowers users and allows anyone to be part of the technology opening a world of opportunities far beyond our surroundings and state of being. Applying this innovation to the finance and banking sector challenges the status quo of financial institutions and their monopoly on creation and distribution of money. It invites the low end, most deprived user to express and exchange value by simply combining a Bitcoin software and a device connected to the internet.
Geeks are playing around with this technology and exciting applications in all fields financial and non-financial keep popping up. Bitcoin-based banks, casinos, drug empires, derivative and future markets, retailers, remittances, notary, and many more. The new applications seem weird with low marginal profit, but they satisfy the Disruptive Innovation characteristic of allowing consumers at the extreme bottom to benefit from an array of services and products where barriers to entry are high -challenging the current status quo of money and banking and competing with existing schemes of payments, it will move up the market and eventually displace traditional competitors.
Non-technical consumers will start using Bitcoin, when their need for cheap international money transfers is growing, or through some other applications that hasn’t been invented yet.
Bitcoin’s Visicalc is yet to be discovered and it is a matter of time that Bitcoin and Blockchain will meet the requirements for mass adoption.