Much ink has been spilled and many internet high fives have been given over the past week in pursuit of dismissing anyone who says anything in the direction of trying to build blockchain technology without doing so on top of Bitcoin specifically. While the points made in those posts are generally valid in a vacuum, they’re also non sequitur when applied to most reasonable (in 2015, maybe not in 2013) interpretations of what people are actually discussing, and they shut out legitimate criticisms and weaknesses that need to be addressed if cryptocurrencies are ever going to reach mainstream adoption.
The posts I’ve read have also conflated the stated disinterest a subset of people have with the Bitcoin token, with a desire to run blockchains without incentive structures.
"Blockchains Without Bitcoin"
To illustrate, let’s take a look at some interpretations of what “Blockchains without Bitcoin” might mean and analyze those specific claims. I’ve tried to keep it brief in each section, although each one could be a long-form post in itself.
“Through crypto-magic we’ll use a ‘blockchain’ that will do everything we want, for free, and we won’t have to pay those Bitcoin nerds a dime!”
This is the least charitable interpretation of any of these phrases. Unfortunately, it’s also seemingly the only interpretation given in most of the posts that have cropped up in the past week.
In 2012/2013 there were some commentators saying exactly this, but the conversation has since moved far past that. There will obviously still be people who believe this, but your goal should be to test the Bitcoin ecosystem and technology against the strongest competitor, not set up strawmen and score easy victories. That form of argument is good for gaining exposure and validation from the echo chamber but doesn’t meaningfully contribute to the conversation.
Lumping anyone who says anything that isn’t completely breathless and glowing about the Bitcoin ecosystem together and only addressing the weakest criticisms coming from any of them does nobody any favors.
Anyone doing anything interesting in the space completely understands that an incentive structure is necessary to come to a decentralized consensus under adversarial conditions, and there’s a lot of research being done to explore those incentive structures and exactly what’s provable under different trust structures.
“We don’t like Bitcoin the currency, but we think we can corner the market, so we’re going to keep the same basic PoW hashing and launch our own token.”
This is actually not as unreasonable a stance as most commenters believe. I’d say it’s still pretty unreasonable in the grand scheme of things for various reasons, but if a major bank did decide to go down this path, I wouldn’t brush it off as easily as most commentators seem to.
In a scenario where a major bank or government had a crystal ball that convinced them a PoW blockchain based currency was going to become the world-dominant payment rail in the future and decided to act on that belief, it’s utter hubris to think 6 years of mild usage, a $3.x billion market cap, and up to a few hundred million dollars in mining equipment is a sufficient moat to defeat such an organization.
In fact, this argument is very reminiscent of what Peter Thiel talks about when analyzing how entities talk about themselves:
“And so the basic lie you tell as a non-monopoly is that we're in a very small market. The basic lie you tell as a monopoly is the market you’re in is much bigger than it looks. So typically if you want to think of this in set theoretic terms, you could say that a monopoly tells a lie where you describe your business as the union of these vastly different markets and the non-monopolist describes it as the intersection. So in effect, if you're a non-monopolist you will rhetorically describe your market as super small, you're the only person in that market. If you have a monopoly you'll describe it as super big and there's lots of competition in it.”
In this discussion, Bitcoin is always treated as a monopoly. References to Bitcoin making up over 90% of the cryptocurrency market cap are stated as proof of this, nevermind that the relevant comparison is to USD, US banks as a whole, or many more options which are several orders of magnitude larger.
In this vein, a meaningful symbol that Bitcoin might actually be starting to look like a monopoly with market power would be people in the Bitcoin community adding up the market caps of many different markets and proclaiming Bitcoin isn’t a threat because it’s still small potatoes next to these established institutions.
There is a very real opportunity to establish a legitimate moat where it makes more sense to work atop of Bitcoin rather than trying to compete with it outright. However, my increasing fear over the past year and a half is that there isn’t sufficient awareness that we’re not there yet. How this plays out in the long run is sufficiently more complex than most people give it credit for, and the default position is simply to hope that complexity away and declare victory.
“We want to build a cryptocurrency for XYZ reasons, but have issues with ABC in the Bitcoin/Satoshi implementation”
This interpretation itself should be broken down even further as there are people saying similar things on every part of the spectrum, ranging all the way from scammers or idiots to those who have legitimate new constructs that make different tradeoffs or technical/social choices than the Satoshi clients.
Yes, having a meaningful conversation about these topics requires tons of research, lots of nuance, and a good understanding of the problem space. That does mean there’s a certain barrier to entry to participate in those conversations, but that’s just the nature of this topic.
I will admit it’s an understandable immune defense against the useless alt-coin proliferation of 2013 for most of those in the community to dismiss anything that isn’t Bitcoin for the time being, but those who are writing in an authoritative manner on these subjects should understand the nuance of these subjects if they’re to be taken seriously.
“We don’t care about Bitcoin the currency but might use the Bitcoin blockchain as a transport mechanism for other assets if it removes friction for our use case”
This is something that’s more on the reasonable side of things; however, given this means interactions with the outside world and existing legal structures, this use case is going to be fraught with regulatory issues, depending on the jurisdictions involved. There are people working on addressing those issues, but it’s still very early to know how that will play out.
Additionally, if this became a mainstream use case before other parts of the ecosystem mature, incentives surrounding such use cases can be problematic (i.e., if a trillion dollars of real estate is running on a network “secured” by 3.5 billion dollars worth of Bitcoin).
“We want to dip our toes in the water, but completely decentralizing all our products/services and running them on the Bitcoin blockchain isn’t something we can or want to do today”
Congratulations, mainstream financial institutions and the fintech industry have woken up and are starting to take digital currencies built on a blockchain seriously.
That’s a good first step, but many of these institutions are unable to fully plunge into building fully decentralized services today, even though they would like to start exploring the space and keep their options open as things mature.
As we’re all aware, the easiest and least friction way to utilize Bitcoin is as an additional payment method, but there is very little consumer demand to pay for things in Bitcoin; the main reason to accept Bitcoin today is for the press release.
There is also no time pressure to do so. If Bitcoin is just pitched as an alternative payment method, then if I don’t accept Bitcoin today and it happens to become huge a year from now, I can simply accept it then with little-to-no downside for having not done so sooner.
The real way to start companies fighting to enter the space is to find low-hanging fruit that is legitimately painful for an existing business. If you can solve that problem for them using a cryptocurrency-adjacent solution, then provide a roadmap of how things could look a little further down the rabbit hole. This roadmap should probably convincingly point to a future where they are driving consumer or business demand for what they are building based on the merits of that product, rather than relying on an ecosystem to build itself up around them, with them simply enjoying the rising tide.
“All these banksters are just trying to spread FUD to keep the price of Bitcoin low so they can secretly buy it up at these cheap, cheap prices now that they’ve realized Bitcoin is going to take over the world.”
My personal favorite. Poe’s law applies.
Social vs Technological Change
The missing piece of the puzzle in all this is that cryptocurrencies are mostly a social change posing as a technological change.
This isn’t a negative by the way; most of the problems that Bitcoin is championed as solving are social (political) in nature.
A very realistic outcome of the Bitcoin experiment may well prove to be financial regulations, restrictions, costs, and access becoming more reasonable for the currently disenfranchised, while Bitcoin keeps plugging away in relative obscurity, used for very niche purposes, much like GPG encrypted email does to this day.
We’re already seeing some movement towards this explicitly increased financial freedom in various jurisdictions as relate to cryptocurrency tokens (whatever their shape may be), allowing for an effective increase in access and decrease in restrictions either today or in the near future.
That isn’t a bad outcome, per se, but it’s wildly different than assuming victory for Bitcoin in the form of being the future worldwide currency, store of value, and payment method.
If you’re fine with that, terrific. If not, then it’s time to figure out how to generate actual consumer or business demand to transact using cryptocurrency and build up those systems.
The number of Bitcoin transactions per day has only roughly doubled in the past two years. That is a ~40% annual growth rate. This is absolutely abysmal for a technology with a user base of this size, given the amount of press it has garnered as well as the tens (hundreds, more recent) of millions of VC dollars have been pumped into consumer-facing services during this time.
While these companies generally only share vanity metrics (number of wallets, number of merchants, etc), there doesn’t seem to be evidence of overwhelming growth in consumer demand to purchase and then use Bitcoin today.
On the other hand, we are seeing a lot of corporate and institutional interest in starting to use these mechanics on a B2B basis, and by misunderstanding their needs, understanding of the technology, and constraints, you’re passing up a real chance to innovate and provide real, immediate value. That’s a heavy price to pay in order to dismiss a demographic that’s looking to meet you halfway as a way of introducing themselves to what you’re involved in.
MySQL vs Private Blockchains
The throwaway line most commonly heard when discussing more esoteric examples like private blockchains is that “MySQL is a million times more efficient at transactions than a blockchain.”
This is technically correct, which everyone knows is the best kind of correct. However, it’s comparing apples to oranges.
A database is just a dumb store of data that allows you to store anything you wish. There is no application-level authentication, business logic, or auditing capability built in. If an account has permission to update a table, they can do so at will.
A blockchain, on the other hand, needs that dumb store of data somewhere, but also includes a very well-defined set of rules as to who can update that database in which ways, a method of authenticating users, the method of recording current and past state, and specifies the trust model used for timestamping.
Well, what about the fact that you’ll need to convince miners to point their hashing power at your blockchain to secure it? You don’t need to. You port your existing business arrangement over to the control of the validators of the blockchain. For such an arrangement, your agreement becomes the incentive to maintain distributed consensus, for others it could be represented by an ownership share in a business. For something more global and public, various solutions are being built and theorized about, and the feasibility is turning out to be much more promising than most in the Bitcoin world realize.
It’s a matter of choosing an appropriate trust model for your use case, according to the tradeoffs you can accept.
Accepting only Proof of Work hashing as the only viable method of securing a blockchain is another red herring in these conversations. You need Proof of Work hashing specifically for a system that is all of: completely open to participation in transaction validation worldwide, wants an external security mechanism, and has (wants) no method of recourse against bad actors.
Much of the value comes from the fact that blockchains add the ability to automatically audit and make impossible transactions that are out of scope of these agreements as well as providing incontrovertible evidence of what was change when, and by whom. The fact that you are introducing public/private key signatures for authentication is especially attractive after all the high profile corporate hacking incidents we have been witnessing lately. A hugely beneficial side effect of some of these areas of exploration is proving to be identity management, especially when combined with trusted hardware solutions for signing and key storage.
Redundantly storing and validating this data needs to be done anyway, so you’re not losing anything in that area as you need to keep your data available and reliable regardless of your infrastructure.
You could argue that since public/private key signatures take significantly more processing power than validating a session key, it’s still inefficient, but even commodity hardware can handle tens of thousands of validations a second with the more efficient curves, which is more than sufficient for most use cases. Alternative methods of verifying identity that require less computing are potentially feasible as well, but are less explored at this time.
Any prevention of costly mistakes or savings on auditors/development that you no longer have to employ should more than make up for the extra cost of CPU power in validating signatures by a significant margin.
You could of course build this from scratch, but then you’re basically recreating the blockchain as described above, whereas you get it for free when repurposing existing (or currently in progress) technology that was built to provide those feature out of the box.
This then provides the benefit of significantly increasing comfort with the idea of blockchains, removing much of the knee-jerk reaction more conservative businesses would generally have to the concept.
Conclusion
At the crux of the issue, between the stronger arguments, is a pretty fundamental (and perfectly valid) difference of opinion as to how digital currencies and blockchains might find mainstream usage and what barriers need to be overcome before that happens.
There is no question Bitcoin was absolutely needed to get us to the position we are in today. Proof of Work and the removal of all counterparty risk was needed to bootstrap the entire ecosystem surrounding cryptocurrency and avoid many of the weaknesses that befell projects with similar goals, if not similar approaches, in the 90s and early 00s.
However, this could play out in many different ways going forward, and the current ecosystem is much more fragile than many in the community like to think. Acting like the game is already won and the conclusion foregone is a questionable strategy to be taking at this point in time.
The main problem with reducing the conversation to a black and white dismissal of projects that superficially appear at odds with what you’d like to see is that there’s a very real danger of arriving at a local maximum while the rest of the world passes you by. Take the phrase “Blockchain, not Bitcoin” as an opportunity and real statement of interest, and don’t alienate those who are making an attempt to come on board.
