It’s always puzzling to me when I hear someone smugly state that they’re not interested in Bitcoin as a currency but they think “blockchain technology” has potential. Let’s take the internet analogy. It’s similar to saying that open access and publishing of information for the world isn’t that interesting…but the TCP/IP protocol has potential. For Bitcoin, the equally insane statement would be: a universal currency that democratizes access to financial services for the world is not interesting, but the underlying database that stores transactions is revolutionary.
“Blockchain technology” is a supporting piece of technology infrastructure, similar to TCP/IP, that was custom designed to enable the ascent of Bitcoin, the currency. Technology is only revolutionary if it creates powerful use cases for the average person. In the case of the internet, democratizing access to information in a nearly free and open manner is its killer use case. People tout its ability to inspire revolutions, give voices to anonymous bloggers and whistleblowers, and allow coordination between friends and causes. Technologies such as packet switching, TCP/IP, ethernet, etc. are there only as supporting actors for the real killer application of open access and publishing of information.
For Bitcoin, the real revolution is a new currency that can be received, saved, and sent by anyone with access to the internet. Bitcoin has no account minimums, no monthly maintenance fees, and is never closed for business. If you only have $5 to your name, JP Morgan Chase Bank will not take you as a customer, but Bitcoin happily will.
From a technology point of view, “blockchain technology” is an unwieldy data structure that is over replicated, slow to memorialize transactions (yes, slow, despite what is often reported in the press), and extremely expensive to maintain from an energy and cost perspective. Fault tolerant and intelligently replicated SQL databases have been around for decades in mission critical financial applications and absolutely trounce Bitcoin in all these respects. The singular reason we are willing to accept the considerable drawbacks to the blockchain’s design is that it enables one never before seen invention: a mathematically secure, universal currency that anyone can use and that no central institution controls.
So why the pervasive discomfort around Bitcoin as a currency? In some sense it’s completely understandable. One reliable test to see if a technology is truly revolutionary is how uncomfortable it makes certain people. With the internet, many governments and media organizations feared losing their monopoly on the creation, control and distribution of information. That fear was well founded in retrospect, as the ascendancy of the internet caused the subsequent implosion of many governments and newspapers that were fatally late in adapting to an unstoppable new technology. Therefore it’s not surprising that many financial institutions will eschew Bitcoin, the currency, while claiming to be “with the times“ by naively championing its inefficient, underlying data structure. This will prove to be a fatal mistake in the long term.
There are a lot of initiatives attempting to use the blockchain architecture in a closed environment among trusted counterparties. This is misguided. Transaction blocks were designed to allow competitive, distributed mining among strangers. If the participants are known and trusted (a “federation”, as many are fashionably calling it), there is no need for a blockchain data structure. These organizations should just use a modern database that is co-managed and co-owned among the members of their federation. This isn’t sexy, as “blockchain technology” seems to be these days, but it is far superior for this use case. People should not be trying to take a purpose built technology designed for an open access ledger and force it into a closed access environment. That is not what the blockchain was designed for.