There was excitement in the bitcoin community recently when 21 Inc. announced plans to market embedded chips for consumer devices – thus allowing smartphones and other devices with Internet capability to earn digital currency continuously. The company’s move into the business-to-business segment of the technology sector is seen as an important step in establishing digital currency as a mainstream payment option for consumers. The addition of former Treasury Secretary Lawrence Summers to its advisory board and a successful effort to secure significant venture capital – believed to be in excess of $116 million – have helped the ambitious startup put the bitcoin concept and its own enterprise in the spotlight.
Here’s what is involved and some of the possible implications for businesses and financial institutions.
Embedded mining chips give consumers a new way to pay for goods and services – an option made possible by interconnectivity and internet access. Bitcoin chip-enabled smartphones, tablets and other Internet-enabled devices will be able to handle small continuous transactions from a managed pool of bitcoin earnings. Existing bitcoin mining transactions verify and manage digital commercial transactions through an international network of dedicated computers. The mining chips manufactured by 21 Inc. are designed to facilitate small-scale transactions – from consumer direct to supplier. The bitcoin model currently in use decentralizes transactions across the country or the globe, and maintains a core ledger that is constantly authenticated and updated. Increasingly, the original model is reliant on high-powered computer and data centers to maximize the payout and minimize operating costs. Money is made by companies that are running the bitcoin data centers (comparable to how a bank makes money through fees, interest rates, etc.). A co-founder of 21 Inc. has made it clear that the company is not entering the competitive and large-scale bitcoin mining business. Instead, 21 Inc. aims to be a player in the Internet of Things (an umbrella term for an era dominated by interconnected devices), in which Internet-enabled devices will be able to draw from an infinite pool of digital currency to make micro-transactions.
What are the advantages?
For the most part, 21 Inc. plans to generate the company’s revenue through selling chips to manufacturers of smart devices, rather than by being a bitcoin mining-for-profit enterprise. This should benefit the consumer who may share in some of the revenue generated by data mining or save by avoiding credit card fees or interest rates.
Internet-enabled commerce using digital currency, as outlined by 21 Inc., is not possible under the existing multi-layered international financial networks. Imagine the convenience of (chip-enabled) smartphone transactions that can operate without all the back offices of credit card companies, banks, currency traders and other traditional financial institutions.
Will a bitcoin function become a must-have that consumers demand for their Internet-enabled devices alongside RAM, hard drive capacity and other basic features? Time will tell. But in the meantime, even bitcoin doubters have to admit that 21 Inc.’s successful fund-raising and the presence of a former treasury secretary on its board make this digital currency start-up one to watch.