I was asked to answer this question by an editor who—like Mike Hearn—presumes that Bitcoin will die because of the current forking crisis. I believe that the future for both Bitcoin and the Blockchain is bright, despite current issues related to mining, block size, a transaction bottleneck and code evolution. My thoughts on Bitcoin are sprinkled all throughout this Blog, and especially at Quora. And so, I shall direct an answer at the other half of the question. Let’s rephrase it:
“The Blockchain is gaining popular recognition and related investment is booming. Why is this happening now—eight years after it hit the scene inside Bitcoin?”
First, a brief refresher in the Blockchain-Bitcoin parentage…
Bitcoin is the original Blockchain implementation. But, significant controversy has arisen around Bitcoin.
- Some proponents believe that it is money—and that it may even have the potential to replace national currencies and disrupt state controlled monetary institutions
- Others feel that it is simply a mechanism to transmit money (like a debit card or a Western Union cash transfer)
- Some armchair pundits see Bitcoin as brief economic fad, like the tulip bulb mania that swept over Holland in the 17th century
- Still others see it as a criminal tool, with little potential to transform businesses or consumer habits
But there is far less controversy about the underlying technology. The Blockchain is a method of distributing a ledger across all users (or as many who care to participate) in a manner that validates historical transactions, but requires no central nexus and is permissionless.
With sufficient user participation, the blockchain offers advantages to complex transaction systems:
- high user confidence (i.e. among customers, voters, taxpayers,
land owners, patients, scientists, etc)
- low cost
- increased trust
- robust data retention (i.e. distributed, fault tolerant storage)
- security from hacking
- resistance against human error or natural disaster
- quick data extraction and ongoing auditing
These are compelling advantages for almost any transaction system designer. And so, all manner of financial institutions, genetic researchers, voting system designers, and, of course, bookkeepers, accountants or data aggregators, are rushing to exploit the potential for improving their business model by incorporating a blockchain into their design methodology.
This answers the question—But, allow me to add a caveat, because there is a catch—at least until a more universal understanding spreads across the community…
The blockchain is still a new concept. It was introduced along with Bitcoin in aby an anonymous cryptographer. Because it is so new, pundits, process designers and investors must be very astute in implementing or justifying the use of a blockchain based architecture. If they aren’t, early investors or system users will likely feel that they are being sucked into another tulip bulb mania.
In, I explain that to qualify as a Blockchain (and, thereby, to convey the benefits listed above), a database design must embody 5 key concepts. It must be:
- Fully distributed among all users.
- Any user can also be a node to the ledger
- Permissionless to all users and data originators
- Access from anywhere data is generated or analyzed
The article is brief, but the punchline should be gospel for anyone thinking of implementing a blockchain-based system. Here is the spoiler:
A blockchain is practically worthless if it is not both open source and permissionless.
Yet, it is these two design elements that many rushing to stake a claim refuse to embrace. That’s because the desire to retain a proprietary interest or to ‘own the books’ is very alluring. It is built into our business DNA. For the past 40 years, business schools teach that controlling data is the key to profits. We have been taught that losing control over data leads to lapses in security or losing the edge over competitors.
For commercial ventures, it seems reasonable that releasing control or outright ownership of critical business data would undermine the value of a service or system. For complex government systems, transparency and loss of control would seem to weaken public security.
On the contrary! Although the Blockchain is not appropriate for every data storage system or transaction processing mechanism, partial blockchains are charlatans (i.e. systems that embody distributed storage, but are not both open source and permissionless). They do not achieve the benefits that designers are chasing.
Without a network that is fully distributed among its users as well as permissionless, open-source and readily accessible, a blockchain becomes a blockchain in name only. It bestows few benefits to its creator, none to its users—certainly none of the dramatic perks that have generated media buzz from the day Satoshi hit the headlines.