Will The Blockchain Outlive Bitcoin?

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,blockchain-01 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, blockchain_logoaccountants 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 Catch

The blockchain is still a new concept. It was introduced along with Bitcoin in a 2008 Whitepaper by an anonymous cryptographer Because it is so new, pundits, process designers and investors must be very astute in implementing or justifying the use of blockchain based architecture. If they don’t, early investors or system users will likely as if they were sucked into another tulip bulb mania.

In a recent article, 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:

  • Open-source
  • 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 are refusing 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 taaught that blockchain-02losing 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.

Related:

Is a Blockchain a Blockchain if it Isn’t?

Anyone who has heard of Bitcoin knows that it is built on a mechanism called The Blockchain. Most of us who follow the topic are also aware that Bitcoin and the blockchain were unveiled—together—in a whitepaper by a mysterious developer, under the pseudonym Satoshi Nakamoto.

That was eight years ago. Bitcoin is still the granddaddy of all blockchain-based networks, and most of the others deal with alternate payment coins of one type or another. Since Bitcoin is king, the others are collectively referred to as ‘Altcoins’.

But the blockchain can power so much more than coins and payments. And so—as you might expect—investors are paying lots of attention to blockchain startups or blockchain integration into existing services. Not just for payments, but for everything under the sun.

Think of Bitcoin as a product and the blockchain as a clever network architecture that enables Bitcoin and a great many future products and institutions to do more things—or to do these things better, cheaper, more robust and more blockchain-01secure than products and institutions built upon legacy architectures.

When blockchain developers talk about permissionless, peer-to-peer ledgers, or decentralized trust, or mining and “the halving event”, eyes glaze over. That’s not surprising. These things refer to advantages and minutiae in abstract ways, using a lexicon of the art. But—for many—they don’t sum up the benefits or provide a simple listing of products that can be improved, and how they will be better.

I am often asked “What can the Blockchain be used for—other than digital currency?” It may surprise some readers to learn that the blockchain is already redefining the way we do banking and accounting, voting, land deeds and property registration, health care proxies, genetic research, copyright & patents, ticket sales, and many proof-of-work platforms. All of these things existed in the past, but they are about to serve society better because of the blockchain. And this impromptu list barely scratches the surface.

I address the question of non-coin blockchain applications in other articles. But today, I will focus on a subtle but important tangent. I call it “A blockchain in name only”

Question: Can a blockchain be a blockchain if it is controlled by the issuing authority? That is, can we admire the purpose and utility, if it was released in a fashion that is not open-source, fully distributed—and permissionless to all users and data originators?

A Wild Duck Answer (Unmask Charlatans):
Many of the blockchains gaining attention from users and investors are “blockchains” in name only. So, what makes a blockchain a blockchain?

Everyone knows that it entails distributed storage of a transaction ledger. But this fact alone could be handled by a geographically redundant, cloud storage service. The really beneficial magic relies on other traits. Each one applies to Bitcoin, which is the original blockchain implementation:

blockchain_logo▪Open-source
▪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

A blockchain designed and used within Santander Bank, the US Post Office, or even MasterCard might be a nifty tool to increase internal redundancy or immunity from hackers. These potential benefits over the legacy mechanism are barely worth mentioning. But if a blockchain pretender lacks the golden facets listed above, then it lacks the critical and noteworthy benefits that make it a hot topic at the dinner table and in the boardroom of VCs that understand what they are investing in.

Some venture financiers realize this, of course. But, I wonder how many Wall Street pundits stay laser-focused on what makes a blockchain special, and know how to ascertain which ventures have a leg up in their implementations.

Perhaps more interesting and insipid is that even for users and investors who are versed in this radical and significant new methodology—and even for me—there is a subtle bias to assume a need for some overseer; a nexus; a trusted party. permissioned-vs-permissionlessAfter all, doesn’t there have to be someone who authenticates a transaction, guarantees redemption, or at least someone who enforces a level playing field?

That bias comes from our tendency to revert to a comfort zone. We are comfortable with certain trusted institutions and we feel assured when they validate or guarantee a process that involves value or financial risk, especially when dealing with strangers. A reputable intermediary is one solution to the problem of trust. It’s natural to look for one.

So, back to the question. True or False?…

In a complex value exchange with strangers and at a distance, there must be someone or some institution who authenticates a transaction, guarantees redemption, or at least enforces the rules of engagement (a contract arbiter).

Absolutely False!

No one sits at the middle of a blockchain transaction, nor does any institution guarantee the value exchange. Instead, trust is conveyed by math and by the number of eyeballs. Each transaction is personal and validation is crowd-sourced. More importantly, with a dispersed, permissionless and popular blockchain, transactions are more provably accurate, more robust, and more immune from hacking or government interference.

What about the protections that are commonly associated with a bank-brokered transaction? (For example: right of rescission, right to return a product and get a refund, a shipping guaranty, etc). These can be built into a blockchain transaction. That’s what the Cryptocurrency Standards Association is working on right now. Their standards and practices are completely voluntary. Any missing protection that might be expected by one party or the other is easily revealed during the exchange set up.

For complex or high value transactions, some of the added protections involve a trusted authority. blockchain-02But not the transaction itself. (Ah-hah!). These outside authorities only become involved (and only tax the system), when there is a dispute.

Sure! The architecture must be continuously tested and verified—and Yes: Mechanisms facilitating updates and scalability need organizational protocol—perhaps even a hierarchy. Bitcoin is a great example of this. With ongoing growing pains, we are still figuring out how to manage disputes among the small percentage of users who seek to guide network evolution.

But, 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.

Related:

Ellery Davies is co-chair of The Cryptocurrency Standards Association,
host & MC for The Bitcoin Event and editor at A Wild Duck.