1. Balance Sheet Ice Cube Machine

The U.S. company Microstrategy sparked a new era in August 2020 when they announced that they had moved to corporate Bitcoin standard by investing 250 million USD in bitcoin as a “capital allocation strategy.”

Their rationale was that after central banks started expanding the fiat money supply at unprecedented levels in the spring of 2020, holding USD on the company’s balance sheet was like holding a melting ice cube.

With the money supply expanding, the USD’s purchasing power for scarce assets has kept plummeting. We can see this rising USD prices of stocks, real estate, education, health care, bitcoin, and high-quality food. Even the US government’s own Consumer Price Index exceeded 6% in October 2021.

With Bitcoin’s credibly enforced finite supply of 21 million bitcoin and mathematically predictable issuance rate, bitcoin provides a perfect antidote to the idea of a melting ice cube.

If the past indicates the future, bitcoin’s 100–200% annual increase in purchasing power allows companies, which store a part of their balance sheets in bitcoin to have a shiny ice cube machine of one melting ice cube. Ice cube machine keeps all your ice cubes frozen (store of value) and adds more over time (rising purchasing power).

Bitcoin’s price is volatile short term. Simultaneously, every over five-year investment in bitcoin has always been profitable, which highlights the fact that bitcoin works well as long-term savings technology.

Companies with free cash on their balance sheets should consider allocating a portion of free cash in the scarcest, and most advanced, monetary asset available. Established companies, such as Tesla, have already started investing in bitcoin and the same option is increasingly available for businesses of all sizes around the world.

2. Cross-Border Value Teleporter

I work as the CEO of Oivan, an international IT consultancy with 170+ people and offices in five countries. Our finance team spends a good chunk of time and effort moving funds internationally via the current banking system. The system works but could be more efficient.

Bitcoin can help with cross-border payments in two main ways:

1. Sending larger amounts of bitcoin from one country to another.
2. Sending cross-border fiat transactions by using the Lightning Network.

The first case uses Bitcoin’s core feature, the possibility to transmit value from one entity to another through a permissionless open monetary network. A company wanting to send 100k USD from the USA to Vietnam can just convert 100k USD into bitcoin with a crypto exchange service in the USA, then send the bitcoin to the Bitcoin wallet address of the Vietnamese recipient.

The transaction can be made in 10–60 minutes and with a very small transaction fee. The trade-offs are the costs and counterparty risk associated with using a crypto-exchange service, and the price volatility risk.

It’s not impossible, that the 100k USD sent from the USA to Vietnam can be 80k USD when it reaches Vietnam 10–60 minutes later if bitcoin’s dollar value rapidly drops 20%. Equally, the 100k USD sent from the USA to Vietnam could be worth 120k USD in 10–60 minutes when it reaches the recipient if bitcoin’s price quickly rises 20%.

To summarize, for companies ready to live with bitcoin’s short-term price volatility, it already works extremely well for cross-border payments.

However, the second way Bitcoin can enable cross-border payments will likely be more relevant for most businesses in the near future: making international fiat payments through Bitcoin’s Lightning Network.

Lightning Network is an emerging Layer 2 payment protocol, which allows for fast, cheap, and more private transactions among the nodes participating in this open network. Lightning Network is widely expected to be the main way Bitcoin can scale up to support billions of users doing everyday payments, which the original Bitcoin base-chain cannot effectively handle.

One of the most innovative new ways to use Lightning Network has been to use it for cross-border fiat transactions. In other words, Lighting Network allows individuals and businesses to send, for example, USD from the USA to El Salvador, instantly and with close to zero fees. The prime example of Lightning Network-based cross-border fiat payments is the Bitcoin service Strike.

Strike’s service uses Bitcoin and Lightning Network “under the hood” as payment rails, but from the end-user experience is magically simple: User A in the USA can send 10 USD to user B in El Salvador, and 10 USD will reach its destination in a few seconds.

Hidden from the users’ view, Strike converts the 10 USD to bitcoin in the USA, beams the bitcoin instantly to El Salvador, and converts the bitcoin to USD a few seconds later.

In the future international companies can use the Lightning Network to conduct cheap and instant cross-border payments without being exposed to the volatility of bitcoin’s price.

In any international business, the possibility to send funds in seconds to group companies in different countries can increase efficiency and lower the risk for operational hiccups caused by delayed bank payments.

3. Bankless Neobank

1.7 billion people in the World are unbanked, and many of them operate small businesses. A growing portion of them have smartphones, and Bitcoin gives them free and instant access to the most advanced open monetary network in the world.

As described in the previous chapter, Lightning Network enables instant, almost free, payments both locally and internationally. Bitcoin’s wealth preservation features allow small businesses to accumulate savings, which can be used to expand the business or to survive temporary economic downturns.

During the economic shutdowns caused by Covid, many restaurants and small shops went out of business when consumers were encouraged, or forced, to stay home. Simultaneously the USD value of bitcoin went up 15–20 times. The small businesses that had some bitcoin saved up often had better chances to survive the downturn than the ones that didn’t.

Furthermore, with bitcoin on their balance sheets, small businesses can protect their hard-earned wealth against devaluations of their local currencies, which are frequently happening around the World.

In 2021 Venezuela, Zimbabwe, Sudan, and Argentina have experienced high inflation, and even Western countries are now experiencing record levels of inflation with the USA’s CPI hitting 6% in October 2021.

4. Best Savings Technology

Progressive banks and fintech companies have already added the possibility to invest in bitcoin for their customers. For example, the neobank Revolut has been offering simple bitcoin investing for years.

However, in most countries, Revolut users cannot actually own the bitcoin they buy, which goes against the key principle of true Bitcoin ownership. The proper way to own bitcoin is to keep it in a bitcoin wallet that you control completely.

Nonetheless, giving people easy access to experimenting with bitcoin as an investment, is often the first step towards more sovereign Bitcoin use.

In the past weeks, several financial institutions, such as JP Morgan, Bank of America, Monetary Authority of Singapore, and Morgan Stanley, have made statements that support the view that Bitcoin is here to stay.

Simultaneously, the majority of the world’s financial services institutions are either actively resisting Bitcoin or sitting on the sidelines. The situation reminds me of the time when taxi unions around Europe were unsuccessfully resisting the rise of ride-hailing companies.

In the end, it’s futile to resist an idea whose time has come, and eventually, the resistance will switch into a rush into adding Bitcoin features to most financial services in the world.

In preparation, our company is building the white-label Bitcoin app Hatch, which financial institutions can implement quickly and with minimum Bitcoin knowledge.

Hatch is based on our over eight years of concrete expertise in developing Bitcoin services in the highly regulated Finnish financial market. The first version of the Hatch includes all the core features of a bitcoin investment app:

– Buying bitcoin with local currency, either spot buying or automatic recurring buys
– Highly secure vault for custodial storage of bitcoin
– Easy way to withdraw bitcoin to user’s own wallet
– Comprehensive educational material explaining what Bitcoin is and how it works

As an active design decision, the default version of Hatch does not support selling bitcoin, as our mission is to support long-term savings philosophy rather than short-term speculation. Based on the client’s requirements, the sell option can of course be added. We are now working hard on the product development, and plan to launch the first version of Hatch in the spring of 2022.

5. Energy Efficiency

One of the popular criticisms of Bitcoin is its use of large amounts of electricity. It’s true, that when viewed purely as a software platform, the Bitcoin Network uses a significant amount of electricity.

The University of Cambridge estimates that Bitcoin mining uses around 115–135 TWh of electricity annually, which is less than 0.1% of the World’s annual electricity consumption of around 170.000 TWh.

When viewed as an open monetary network that’s already used by around 100 million people, using 0.1% of the World’s electricity seems to me like a worthy use of energy.

Critics of Bitcoin’s energy usage should think about how much energy the current fiat monetary system consumes, taking into account that dominant currencies are ultimately backed by large political systems, heavy financial infrastructure, and the largest militaries on our planet.

The mainstream reporting of Bitcoin typically overlooks the fact that the game theory behind Bitcoin’s energy consumption automatically incentives bitcoin miners to seek the cheapest, often stranded or wasted, forms of energy.

Examples of stranded energy sources are, for example, hydroelectric power plants, which have been built away from main population centers. Examples of wasted energy sources are, for example, oil fields that flare natural gas into the atmosphere. Innovative companies, such as The Great American Mining, are now building new businesses by using the otherwise wasted natural gas emissions as fuel for bitcoin mining.

The free-market incentives that drive bitcoin miners to use the most efficient energy forms will ultimately drive the whole energy industry forward. Bitcoin mining facilities built on stranded energy sources, can also over time become hubs for local commercial activity.

Miners searching for “unfair advantage” with the cheapest possible energy prices, will be the first to adopt new technologies that allow Bitcoin mining with cheap renewable energy. I strongly believe that the energy efficiency leaps accelerated by Bitcoin will over time start benefitting the wider business community as a whole.

For further information, Swan Bitcoin produced a great documentary about Bitcoin’s energy use, which you can view here for free. Also, for a deep dive on energy dynamics, this fantastic article by Lyn Alden is highly recommended.

Way Forward

Understanding Bitcoin’s significance takes time, as it combines technology, economics, and game theory in a totally novel way. After spending over four years actively in the scene, I have garnered a firm conviction that Bitcoin is a once-in-humanity-level discovery.

By separating money, the world’s operating system, from the governments, and by providing an open fintech system for everyone to benefit from, it is hard to see how anything could dethrone Bitcoin from its position as the best monetary system people have ever used.

Many people and businesses think that they are too late to the “Bitcoin game”, but we are still very early. The amount of Bitcoin users is expected to grow from around 100 million people to over 1 billion people in the next ten years. Companies of all sizes can already join the future of decentralized finance by starting to adopt Bitcoin in their business today.

Oivan’s blockchain and decentralized ledger technology (DLT) experts have been building commercial blockchain solutions since 2013 and we are ready to help you. Learn more about our Blockchain service or contact Oivan CEO Rami Korhonen at rami.korhonen@oivan,com | +358407307813 for more information.

Photo by CardMapr on Unsplash