Organizations that build Bitcoin capabilities early will be propelled, not disrupted.
“Bitcoin changes absolutely everything.” Jack Dorsey, June 2021
Introduction
Bitcoin has become both unstoppable and ubiquitous, and it’s time for enterprise leaders to act.
The Bitcoin network has operated without interruption for more than 15 years amidst a never-ending stream of attacks from governments, media outlets and hackers. And yet every ban, media hit piece and exploit attempt has only made the network grow stronger and the exchange rate climb higher (usually after a temporary correction). Bitcoin’s anti-fragility, or unstoppability, is no longer a fringe point of view. It has become widely accepted by respected leaders across industries, from cryptography, to finance, to economics to politics.
The Spot Bitcoin ETFs that were approved in January showcase a prime example of Bitcoin’s maturity and mainstream adoption. Notably, Blackrock’s ETF (Ticker: IBIT) is already the fastest growing ETF in history. The early growth is impressive, particularly given that these products are still in their infancy and largely untapped by the institutional market.
Beyond the 11 approved US Bitcoin ETFs there are many other use cases driving demand. Corporations, countries and communities of every size are: holding bitcoin to diversify and de-risk, adopting the Lightning Network as first-movers in a technological revolution, and saving in bitcoin to opt out of monetary debasement. The result is a simple (albeit staggering) example of what happens to price when demand is high and supply is fixed. Hundreds of millions of people already have exposure to the bitcoin exchange rate, and will take notice of its ability to knock a portfolio out of balance. As the number goes up, so does the demand, resulting in the feedback loop that gives bitcoin its extraordinary price runs and extreme volatility.
As time marches on and bitcoin’s market cap consumes an increasing number of the world’s biggest assets and companies (As of this writing, it sits between Meta and Silver at $1.272 T), the question for companies has shifted from “if” they build Bitcoin capabilities to “which of these monetary properties should we take advantage of first.” The possibilities are vast, and we’ll cover many of them briefly in this piece, and more in depth in the coming months.
What to do about bitcoin?
This article explores how organizations can begin developing Bitcoin capabilities, to experiment and become familiar with the network and its use cases. When Bitcoin crosses the chasm, the organizations that know how to use, accept and hold bitcoin are likely to emerge as the foremost leaders of the global digital economy. New companies will emerge from seemingly nowhere. Fast-acting traditional companies will leapfrog their competition. Laggards may die and become footnotes in history, leaving behind hard-earned lessons learned and misty-eyed nostalgia (Remember Blockbuster? 🥹).
Bitcoin is as disruptive as the internet. But since the internet already covers much of the world, Bitcoin adoption can happen at an even faster rate. This is not a novel concept – this is the law of diffusion of innovation (aka the chasm, the s-curve) playing out in real time. To see this truth, you only need to understand that Bitcoin is useful across borders and contexts. We won’t cover all the use cases in depth, but when you learn how mining Bitcoin is bringing electricity and internet to remote parts of the world, you may find yourself staring into the metaphorical rabbit hole whispering to yourself: “Bitcoin changes absolutely everything.”
Introduction to enterprise Bitcoin use cases and capabilities
Companies that wield Bitcoin well – and early – will make money, save money, reduce counterparty risk, differentiate brand, and more. The first mover advantage is powerful, as customers and employees alike are likely to be attracted to the businesses who spend the time understanding and approaching this period of creative destruction with decisive action. Beneficially, Bitcoin’s properties can be adopted in piecemeal, and capabilities can be organically developed across many areas of the organization. Let’s dive into a few of the initial use cases to consider when exploring ways for enterprises to adopt Bitcoin:
Use case 1: Bitcoin as a store of value
Store of Value is often the first use case that comes to mind when thinking about Bitcoin, and for good reason. Bitcoin’s compound annual growth rate (CAGR) is 104% since 2011. The asset has produced these gains largely without tapping into institutional adoption. Only in recent years have large organizations begun to take notice of the properties driving Bitcoin’s value.
Bitcoin’s total supply is capped (21 million) and its issuance schedule is predetermined (to reduce the amount of new coins mined by half until roughly 2140). These two key components, protected by a system of actors with aligned incentives, give bitcoin its knowable, predictable scarcity. Organizations that spend time understanding these monetary properties of Bitcoin (the network) are coming to the conclusion that not having exposure to bitcoin (the asset) in 2024 is more risky than holding it.
Microstrategy (MSTR), the most notable company with a publicly disclosed bitcoin acquisition strategy, has seen its stock price rise more than 1,000% since it began acquiring the asset in 2020. The country of El Salvador, another early adopter of Bitcoin, buys 1BTC per day, regardless of price, and shares its public BTC address for all to audit.
Those interested to dive into the ins and outs of corporate Bitcoin adoption can explore the entire Bitcoin for Corporations playbook made available by Microstrategy online and at their yearly conference.
Use case 2: Bitcoin as a medium of exchange
Bitcoin is more than just an asset. It’s a decentralized monetary network that enables worldwide transfer of value to final settlement, without counterparty risk. Payments can happen in minutes (onchain, or “layer one”) or near instantaneously using the Lightning Network (a layer two solution built on Bitcoin).
The Lightning Network uses payment channels to route bitcoin between two or more nodes. Since these transactions are “off-chain,” they typically happen instantly and for extremely low fees (often cents or fractions of a cent). Where onchain Bitcoin can be compared to a global base layer network like Fedwire, Lightning unlocks many B2B and B2C payments use cases in an open protocol fashion. Nicolas Burtey covered this concept in the 2020 article “Lightning as a Retail Payment System.”
Lightning for enterprise is rapidly maturing, as detailed in “Future of The Lightning Network,” a panel discussion between David Marcus (previously Meta, PayPal) and Michael Saylor (CEO Microstrategy). Marcus’s company, Lightspark, recently rolled out Lightning Network payments for Coinbase and believes that the network is now ready for enterprise applications.
Companies that choose to use Bitcoin and Lightning for their strong medium of exchange properties are building at the cutting edge of monetary innovation. While there are headwinds to manage in the accounting, tax and compliance areas, enterprise consultants have been building teams to help guide clients through the uncharted territory. Companies who experiment and build competency with Lightning now will tap into first-mover advantages over the long term.
Here are some medium of exchange use cases worth experimentation and exploration:
- Intra-company transfers
With bitcoin, sending money between divisions, business units and regions inside of an enterprise can happen directly, without relying on third-party institutions. When Bitcoin infrastructure and compliance processes reach a certain level of maturity, using the Bitcoin and Lightning Networks will surface as a faster, cheaper, trust-minimized method of moving value within an organization. - Pay suppliers and vendors with bitcoin
Eventually, organizations may begin incentivizing their B2B customers to pay them using bitcoin. Whether for cost savings, reduced payment friction or speed to final settlement, building enterprise payment processes and accounting capabilities will prepare organizations to seamlessly adapt and benefit from this next phase of payment technology adoption. - Accept bitcoin for goods and services
Receiving bitcoin can save both enterprises and their customers significant time and money. In a world where credit card fees add 3-4% to a purchase (depending on geography, it can be far greater), the benefits are clear, and meaningful. Due to the current tax treatment of bitcoin, retail payments adoption is not yet seeing rapid demand growth. That said, if bills like the “Virtual Currency Tax Fairness Act” (2022) finally make headway in Congress, they could break the dam holding retail bitcoin payment adoption back.
Use case 3: Risk mitigation
It’s no secret that the global financial system is on an unsustainable path. In fact, Jerome Powell has used those exact words many times since taking on the position of Fed Chair in 2018. The implications of this unsustainable path have been felt multiple times, most recently during the collapse of Silvergate Bank, shuttering of SVB and ensuing introduction of the BTFP (Bank Term Funding Program) in 2023.
The current fiscal situation has enterprises asking themselves many questions:
- What risks are we exposed to when the next financial crisis hits?
- How may increased quantitative easing (QE) or other types of money printing affect us?
- What impact do we face due to rehypothecation risk?
The answer to these questions extend far outside the scope of this article, but Jeff Booth’s book “The Price of Tomorrow: Why Deflation is The Key to an Abundant Future” is a great resource for a further look. What’s in scope of this article, is how Bitcoin might offer a mitigation strategy for enterprises looking for protection against any number of risks, including a financial crisis.
Alongside precious metals and a very short list of other assets, bitcoin is the only asset that can be truly self-custodied (held without counterparty risk). Unlike precious metals, bitcoin is easy to verify and transact with. As outlined in “Bitcoin First” from Fidelity Digital Assets (and many works before it), bitcoin possesses the best properties of both fiat and gold as money.
Holding bitcoin is not without risk, either. Outsourcing custody to a third party (such as Coinbase, where most of the ETFs funds are held) means trusting your holdings to organizations outside your control. Over time, the tools, processes and regulations for enterprise self-custody are becoming more advanced and robust. As with other enterprise bitcoin use cases, the key takeaway is to learn, experiment, and build competency while tracking the progress and adoption of the asset on the global stage.
Use case 4: Brand and loyalty building
Brands and consumers alike have long competed to be seen as the innovator in their respective categories and groups. Consider Dominoes in the pizza/QSR space, who has a section of their website dedicated to celebrating their experience innovations. Or Home Depot, who bet big on technology and ended up named one of the world’s most innovative companies by Forbes in 2017. In previous years, brands have won their consumers’ hearts and minds with great websites, interesting social media engagement, and seamless omnichannel customer experiences. Soon, bitcoin may find its way into the list of indicators that a company is operating at the cutting-edge of technological trends. While many companies have experimented with Bitcoin over the years to varied levels of success, timing enterprise program rollout to coincide with increased consumer bitcoin adoption will ensure executives can reap the desired benefit from their strategy.
Bitcoin adoption for brand building need not be extravagant or embedded into company operations. Many ideas have emerged for experimentation. Companies like Fold and Joltz have showcased bitcoin rewards as a compelling user experience. Microstrategy also built and tested “Lightning Rewards.” a program focused on employee experience. Swan, a US-based Bitcoin exchange, has also rolled out a Bitcoin IRA which is sure to be a growing and compelling use case. Retirement products are a natural fit for bitcoin exposure, since customers are holding for long time periods and therefore will be less sensitive to short-term price volatility.
The base of consumers who hold Bitcoin continues to grow. In November 2023, before the Bitcoin ETFs opened up bitcoin to anybody with an investment account, Unchained Capital estimated that 1 in 4 Americans own Bitcoin. As time passes, this group is likely to balloon in both number and purchasing power. Enterprises that start now may be able to attract and hold these buyers' loyalty with a smart and consistent bitcoin strategy.
Use case 5: Education
Bitcoin has been referred to as the “digital transformation of money.” It represents a global technological shift on par with the internet, or potentially even the printing press. As enterprises approach the various use cases for Bitcoin, it’s important not to overlook the simple power of education. Every employee of your enterprise is surely wondering what to do about this new “digital money” that is showing up in the news more frequently than ever.
There are many paths to support education, each with its own benefits and applicability. Companies starting out on their journey might partner with an established education program, like Mi Primer Bitcoin which has developed an open source global education curriculum for learning about Bitcoin. MPB is targeted towards taking beginners from 0 to 1. For deeper education around enterprise use cases and adoption, engaging a strategy consulting firm may be appropriate. The likes of KPMG, Deloitte and others have been building Digital Asset expertise for a number of years, and may provide the executive-level direction needed to educate management towards a smart Bitcoin roadmap. For internal information sharing and upskilling, building a Bitcoin Center of Excellence, or encouraging employee-led Bitcoin meetups and education sessions may provide momentum towards developing the organizational competence needed to integrate and adapt to Bitcoin in the medium term. In fact, there may already be a budding bitcoin community in your company's ranks; business networks like Value of Bitcoin are emerging as sounding boards where bitcoin enthusiasts working within traditional enterprises can connect and share ideas.
Adopting Bitcoin for enterprises: Where to start?
When enterprises began using the internet, the capabilities were narrow and disjointed. Reconciling pricing across websites and brick and mortar was clunky at best. Multi-channel customer experience excellence journeys like “Buy online, pick up in store” and the “endless aisle” were a CMO’s pipe dream that took a long time to materialize. Only now, after decades of digital transformation and integration are organizations taking full advantage of what the internet has to offer.
Bitcoin may follow a similar path. Adopting Bitcoin, like adopting disruptive tech before it, will happen over years, not quarters. It may start in innovation labs, pilot projects and lunch-n-learns instead of core business unit roadmaps. But nevertheless, organizations – just like individuals – will be drawn to finding new ideas, powerful utility and meaningful value with each new initiative.
So, what will your organization’s first bitcoin use case be?
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This article is the first in a content series that digs into how, when and why enterprises will adopt Bitcoin. Feedback, input and discussion is always welcome – find me at @agbegin. Special thanks to Eric Yakes, John Mongeau and Mark Maraia for the inspiring discussions and inputs on the topic.
Article updates:
– July 24, 2024: Added Value of Bitcoin to Use Case 5
Disclaimer: The ideas and opinions expressed in this article are solely those of the author and should not be construed as financial or investment advice. Investing in cryptocurrencies, including Bitcoin, carries risk and may not be suitable for all investors. It is recommended to conduct thorough research and consult with a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses or gains incurred based on the information provided in this article.
