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More Startup Companies Are Staking Their Business On Bitcoin Technology

( [email protected] ) Dec 02, 2014 02:22 PM EST

Bitcoin

With all of the publicity surrounding Bitcoin these days, a great deal of attention is being paid to the digital currency's price (currently around $375 to the dollar). Yet the real story may not be in what a Bitcoin is actually worth, but how a surprising number of startup companies are designing their fledgling business models around the technology tools that make the cryptocurrency actually work.

Bitcoin is both an innovative payment system and a new kind of digital money. It operates with no central authority or bank involvement (so far). It is basically cash that can only be transacted over the Internet through a user-controlled, open source network.

All Bitcoin transactions worldwide are entered into a shared, publicly available, online digital ledger called the blockchain. It is where every single transaction ever executed with the currency can be found, and this is the key piece of technology that is becoming viewed as the most significant development in the Bitcoin story.

The reason is that the blockchain represents a new way to store and exchange things of value. It verifies transactions and records them securely and almost instantaneously (money can be exchanged between China and Canada in ten minutes or less).

This is in contrast with the current banking system where an electronic transfer of funds from one bank to another literally right next door can take upwards of a week or more.

Lured by the promise of a better way to manage the international monetary system, a number of companies are building their businesses using the blockchain. A good example of this can be found in the startup called Hellobit. Their premise is to "send money globally at half the cost by harnessing the power of the Bitcoin network."

Using the blockchain to record its transactions, Hellobit is seeking to replace Western Union or MoneyGram by allowing a customer to send Bitcoin to anyone worldwide. The recipient gets a text message and the location where they can exchange the Bitcoin for local currency. Hellobit claims their cost of delivery is 50% less than Western Union and their initial target markets are India and the Philippines.

Another company is using the blockchain to keep track of contract data and verified agreements. SmartContract allows users to sign for purchase agreements with Bitcoin. This is a significant development because it represents an initial step towards the use of this system for the "holy grail" of buyer/seller agreements: the real estate escrow contract.

SmartContract said last week that they are working on a real estate contract that will release payment with a home deed, but the difficulty still lies with the bank lenders' willingness to recognize this kind of high level transaction.

Active participation by banks in the blockchain process is an uncertainty at this point. During a DEMO Fall 2014 presentation last month in Silicon Valley, Justin Litchfield, the founder of a Bitcoin exchange company called Obsidian, announced that he had partnered with a national, FDIC-insured bank. This attracted notice from investors because it is believed to be one of the first times that a Bitcoin exchange had successfully entered into such an agreement.

Litchfield would not disclose the name of the bank. His stated goal is to allow users to store money in U.S. dollars and make Bitcoin exchanges using the blockchain platform through a bank.

While some new companies are seeking to capture their share of the escrow business, another startup - Pavilion.io - is seeking to eliminate the need for escrow agreements entirely. Founded by two 17-year old high school students, Pavilion.io has built what they are calling a "Trustless Exchange" that operates on the blockchain and uses multi-signature technology.

Under their model, shipments from UPS or FedEx are delivered and funds are released to the seller once the delivery of a package has been verified. They are targeting their technology for initial use by eBay and Alibaba with the stated goal of "eliminating angry buyers who purchase a good that never arrives."

These are just four examples of companies in the Bitcoin space who are using the blockchain to drive their businesses, and there are many more. Despite the growth of new ventures based on this technology, a number of industry leaders remain divided on whether Bitcoin has the staying power to become truly transformative.

"Will Bitcoin will be the first or last cryptocurrency?" asked Reid Hoffman, co-founder of LinkedIn, during a Dreamforce 2014 session in San Francisco just a few weeks ago. If the technology behind Bitcoin is truly revolutionary, there are quite a few startups willing to bet their business that it will be around for a long time.