Bitcoin 2.0: Disrupting Finance and Beyond?

Most people have heard of Bitcoin; fewer people are aware of the engine that makes it run. That would be the “blockchain,” a distributed public ledger that allows the registry and transfer of digital assets—such as bitcoins—without the need for a central authority to verify transactions. (It is called a blockchain because each “block” represents a group of transactions that have been deemed valid by network consensus and added to a growing “chain” of confirmed transactions.) As more people awaken to the potential scope and force of this new idea, it is powering what has come to be known as Bitcoin 2.0 (or, more broadly, Crypto 2.0)— that is, the use of blockchain technology for things other than just digital currency.

The first wave of 2.0 projects mostly see themselves as disrupting traditional financial services, which are heavily dependent on centralized third parties, and replacing them with peer-to-peer exchanges. (Paul Brody, formerly of IBM, characterizes this as recreating the functionality of a bank in a distributed way.) Beyond that, a smattering of newer companies is extending the blockchain idea to areas ranging from crowdfunding to social media and even supply-chain management. On the horizon is a tantalizing vision of the blockchain as the spine of a new Internet-like value protocol that would support a wide range of DApps (decentralized applications).

Meanwhile, most 2.0 companies are still in their infancy–this is very much a world of startups, seed money and big dreams. It remains to be seen whether or not any of these business plans are either scalable or sustainable.

Some of the most intriguing projects include:

  • Blockstream. Blockstream is an open-source project that is creating a blockchain-based platform that could eventually be used for registering and trading all kinds of assets, from stocks and bonds to currencies and smart contracts. Key to the Blockstream idea is the “pegged sidechain”—that is, smaller blockchains with specific uses that branch off from the Bitcoin blockchain and can interact with the Bitcoin ecosystem and with each other. Last November, Blockstream completed a $21 million funding round that included such industry heavies as Eric Schmidt of Google and LinkedIn cofounder Reid Hoffman.
  • Lighthouse. Spearheaded by Bitcoin insider Mike Hearn, Lighthouse has created a special digital wallet for decentralized crowdfunding using the Bitcoin blockchain. The beta version of the app—which uses smart contracts to commit funding pledges to specific projects—launched in January 2015 on Mac, Linux, and Windows. Unlike Kickstarter, Lighthouse doesn’t charge processing fees, and donors will be able to cancel their smart contracts at any time.
  • Counterparty. Considered by some to be the market leader of the 2.0 movement, Counterparty is an open source peer-to-peer financial platform built on the Bitcoin blockchain that operates as a kind of decentralized currency exchange and offers users the ability to create and trade their own digital assets. The company’s plans for 2015 include releasing a desktop wallet and launching smart contracts on Bitcoin’s main network. Last October, Overstock CEO Patrick Byrne announced a partnership with Counterparty to help develop a cryptocurrency stock exchange called “Medici,” which will be built on top of the Counterparty protocol.
  • Ethereum. Possibly the most ambitious of 2.0 projects is Ethereum, which is building its own dedicated blockchain (using a new, more flexible programming language than the one used by the Bitcoin protocol) to create a platform that can potentially support a wide range of decentralized smart contracts and DApps. Last year, the company raised about $15 million by holding a public sale of its own cryptocurrency (Ether). Its highly anticipated platform is expected to be launched this spring. Ethereum was recently tapped to be the backbone of IBM’s ADEPT project, which is experimenting with creating a blockchain-based peer-to-peer platform for the Internet of Things.
  • Colu. An offshoot of ColoredCoins—a way of using the blockchain as an explicit registry by “coloring” a bitcoin to stand for a specific asset—Colu is an application programming interface (API) and an app that aims to provide consumers with an easy way to buy and “store” goods and services using the ColoredCoins protocol. The fledgling company recently announced $2.5 million in new funding.
  • Gems. Gems is a decentralized encrypted instant messaging service built on top of the Counterparty platform. Part of the strategy is to reward people who contribute to the network (for example, by introducing new users or opting to view an ad) with a token called a GEM that can be traded for a bitcoin. The service will be accessible through both Android and IOS apps. The company has raised about $600,000 through a crowd sale (which was managed by another decentralized crowdsourcing startup, Koinify), and just received a $400,000 investment from Magma VC.
  • SkuChain. The founders of new “stealth” startup SkuChain believe that blockchain tech can help create more transparency in supply chains, by managing letter-of-credit to bill-of-lading workflow, tracking goods as they move from manufacturers to retail outlets, and by augmenting bar codes in the consumer packaged goods segment. While this company is very much in the planning stages, it may start out using the Dogecoin blockchain (a non-Bitcoin, or “altcoin”), with an eye to eventually building its own custom blockchain.
  • Filament will allow old-school industrial companies to retrofit their machines, buildings or other equipment with sensor modules that can either connect to a cloud server or use a mesh network to communicate with each other, even without an Internet connection. In the future, Filament would like to create a kind of platform for the industrial Internet of Things, using the Bitcoin blockchain as a backbone, Telehash for secure device-to-device communication, and BitTorrent for firmware updates. (This is similar to IBM’s ADEPT project for the consumer-facing Internet of Things, except that IBM plans to use Ethereum’s blockchain.) Company principals are also working on a draft proposal for a decentralized domain-name system tentatively called “blockname,” which could look for device addresses on the blockchain.
  • Brand-new startup Storj is a decentralized cloud storage platform that will use a blockchain-based solution to let people store files online without depending on a central server and without sacrificing their privacy, as data will be encrypted. (The idea has been described as Bitcoin meets Dropbox.) In addition to leveraging a peer-to-peer open ledger system for storage, the company will allow network users to “rent out” extra hard drive space for “Storjcoin X,” its own native digital currency.