By Dow Jones Business News, December 21, 2014, 11:47:00 PM EDT

By Michael J. Casey

Bitcoin prices have dropped almost 60% since January, outpacing the Russian ruble. Critics say that's proof digital currency has failed.

Ignore them. Bitcoin's price is irrelevant to the key question of whether the underlying technology will disrupt finance. There are many signs it will.

Bitcoin is much more than just a currency. Investors from Silicon Valley to Wall Street are now pouring money and expertise into what they view as an adaptable technology platform. Software developers anywhere can use bitcoin's open- source code to create specialized applications that let businesses undertake commercial exchanges without using middlemen. These applications threaten to make redundant many services provided by banks, foreign-exchange houses, escrow agents, clearing houses, notaries public and even lawyers.

Of course, none of that guarantees that bitcoin will succeed. Detractors will rightly argue that householders won't save or transact in a unit of exchange whose value fluctuates wildly. Indeed, while bitcoin transactions continue to rise, and even though a growing list of merchants accepting bitcoin now includes Microsoft, Expedia and Dish Network, digital currency's portion of global commerce remains minuscule.

But it doesn't matter that mom and pop aren't comfortable with bitcoin. What matters is whether the exploding software innovation around cryptocurrency leads to solutions that allow corporations and governments to derive benefits while protecting themselves from risks, including the volatility. The vision that many in Silicon Valley have is that bitcoin, or perhaps some clone of it, will work in the background of the global economy. Mom and pop won't even know it's there.

Balaji Srinivasan, a partner at venture-capital firm Andreessen Horowitz in Menlo Park, Calif., likens bitcoin's current status to the early days of Linux, whose open-source operating system initially sought to compete with Microsoft's Windows on personal computers but eventually became the leading operating system for enterprise servers. Much like some bitcoin evangelists' views of fiat currencies, early Linux supporters "were overconfidently saying, 'We are going to kill Microsoft,' and yet while it never got a much of a presence on desktops, it did gain a presence on the server side," Mr. Srinivasan said. "Now, 15 years later, the Internet as we know it wouldn't exist without Linux."

Mr. Srinivasan talks of how a "dual boot" of Linux and Windows became popular as techies simultaneously tapped the best functions of both. It's analogous, he says, to how cryptocurrency developers are making their applications " interoperable" with traditional monetary systems. Bitcoin, with its more efficient, direct and cheaper system of exchange, would support payments and transfers over the Internet and then connect seamlessly with the offline economy, where the dollar and other traditional currencies continued to reign.

Mr. Srinivasan's firm, which was co-founded by Netscape pioneer Marc Andreessen, is one of dozens that have invested a total $311 million in bitcoin startups this year, according to a tally by news site Coindesk. That's up from $93 million in 2013. The names behind these deals read like a who's who of Internet history: Tim Draper of the Valley's legendary Draper family, Reid Hoffman of LinkedIn fame, Yahoo founder Jerry Yang and many others.

Go here to see the original:

Why Bitcoin's Volatile Price Doesn't Matter