Bitcoin reminds me both of the personal computer revolution and the mid-1990s Digital Revolution.  Both were moments in history that resulted in entirely new industries that changed how people do business and created new wealth in the process.  Bitcoin has recently shown signs of being a similarly disruptive innovation.

I did not plan on writing two consecutive posts about Bitcoin.  However, just this morning my Twitter feed had links to Bitcoin-related articles from several mainstream news sites.  They include CNN (How Bitcoin Works), Business Insider (Bitcoin Prices Are Surging Again), MarketWatch (Paying your bar tab with Bitcoins), and TechCrunch (Bitcoin And The End Of Money).  The ongoing volatility of European currency markets, most recently in Cyprus, is the catalyst for this sudden surge of attention.  Bitcoin solves the problems of political instability and economic uncertainty, which make Bitcoin worth studying.

Bitcoin is great for developers because it has its own set of problems.  New technology brings healthy competition and creative solutions.  Bitcoin’s core components are the wallet, transaction processing, exchanges, and mining.  The Bitcoin wallet is the biggest aspect of Bitcoin, which every Bitcoin users must have to save, spend, and receive Bitcoins.  There are opportunities for wallet providers, like YC-funded Coinbase, to establish themselves as reputable.  Transaction processing creates opportunities for merchant services and solutions that speed up payment confirmation and prevent double spend.  Bitcoin exchanges, like Mt.Gox, enable people to trade Bitcoins for other currencies.  Right now, there doesn’t seem to be many Bitcoin exchanges.  Nor does there seem to be any standard protocols for communication between exchanges.

Mining is a unique part of Bitcoin worth its own paragraph.  What makes Bitcoin work, in very simple terms, are extremely complex computer-generated numbers called a hash.  A finite number of specific hashes (“random oracles“) exist that are used by the Bitcoin network.  As new hashes are discovered, hashes become increasingly complex to generate.  Generating (mining) a Bitcoin hash requires a lot of computer processing power.  As such, mining is the one component of Bitcoin that creates real opportunities for new hardware designed specifically for the purpose of mining Bitcoins.  Mining started with ordinary computer CPU processing and has already advanced to using graphics cards, field programmable gate arrays (FPGA), and now Application Specific Integrated Circuits (ASIC).  Selling mining hardware is exactly like, well, selling pickaxes during a gold rush.  However, there’s financial opportunities if you have the math and hardware skills necessary to create such money-making machines.  Distributed Bitcoin mining, termed pooled mining, also creates opportunities for designing efficient software solutions.  Over thirty known Bitcoin mining pools already exist.

So what does all this have to do with Y Combinator?  At the moment, Venture Capitalists Love The Bitcoin Market.  And Y Combinator is a seed money venture capital firm.  So if you’re a would-be founder, raising money for a Bitcoin-related startup is easy right now.  And if you already run a start-up, finding new ways to add Bitcoin functionality is a good way to get some press.   Accepting Bitcoin is also a way to get more business simply by making your company more innovative.

I have no doubt I will be writing more about Bitcoin and Bitcoin-related startups.

FULL DISCLOSURE: I myself am trying to raise some money.  And yes, this website accepts Bitcoin.

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