Mercator Advisory Group, “VC Investments Could Cripple Bitcoin”

Mercator Advisory Group is an established advisory and consultancy firm in the financial industry. The specialised payment and banking analysis group began studying blockchain technology in early 2014, releasing it’s first research note shortly after,’Global Digital Currency Regulations: Divergent Paths’.

In the latest note Tim Sloane, Mercator Advisory Group VP of Payments Innovation, provides an overview of what Mercator terms “the Bitcoin economy,” which links the attributes of value, transactions, fees, and Bitcoin miners in a balanced choreography.

“The global payments industry has been taken aback by the rise of the new payment technology represented by bitcoin and other digital currencies, which at its core has the potential to radically change the paradigm in which electronic payments are handled."
— – Global Digital Currency Regulations: Divergent Paths

The 12 page note include 3 exhibits, and provides the group’s definition of sidechains, the identification of technological mechanisms for their implementation, and new approaches to sidechains that have been documented, "with identification of where they will likely add significant value and where they continue to risk breaking the Bitcoin economic model."

“While there have been misguided statements suggesting that Bitcoin is the next Internet, this would be true only if the analogy were limited to a growth metric and not a technological comparison.”
— – Mercator Advisory Group

It appears that Mercator believe VC investment has the potential to cripple Bitcoin, with high volumes of low value transactions. “The Internet is simply a network enabling interoperability between cooperating entities. This is totally unlike Bitcoin. This Note evaluates the potential impact if new solutions with significant volume embed proof of ownership into the Bitcoin blockchain for long-term assets, such as stock holdings, property, or car titles,” states the company.

In the note, Sloane evaluates the reported "brittleness" of Bitcoin’s current choreography, and documents examples of situations that tested its brittle nature. The report takes past events into consideration, and gives an overview of sidechains, identifying where they could add value and where they could risk breaking the Bitcoin economic model. Mercator Advisory Group intend to make educated recommendations to new businesses for managing these potential risks.

“Marc Andreessen is correct that the Bitcoin trust algorithm is a fundamental breakthrough in computer science, but the construct of Bitcoin operations that incent Bitcoin ‘miners’ was not part of that mathematical proof,”
— – Tim Sloane, VP, Payments Innovation

Sloan focuses on the business impacts of new technologies and their potential for issuers, merchants, card networks, acquirers, and the vendors competing on this tech driven landscape.