We need bitcoin money not blockchain apps!
Imagine Earth is plagued with a deadly epidemic that will eventually kill everyone. Meanwhile scientists just succeeded in getting a couple of people to Mars. They could keep transporting people with the rate of 10 per day. All of a sudden society gets excited about the various benefits of life on Mars. We could possibly grow crops there much faster, transport will take less energy, gravity is lower so we can jump and climb easily allowing for interesting playgrounds and fun activities. As a result, developers start creating transportation companies, VCs invest in rollercoaster startups and farming ventures, governments say Mars is very interesting and start exploring how to regulate and tax life there, banks create consortiums to explore money transfers to Mars.
What is wrong with this picture? People on earth get sick and die with a faster pace, spaceships reached their full capacity and can transport only 10 people per day. There is a long and heated debate should we increase the capacity of the spaceships and how much. If we don’t increase the capacity the ticket price will skyrocket and the technology could never become scalable enough to save the human race. Some alternative spaceship projects launch but no one goes on board because they are not universally accepted by the community. Why all the hype and fights when the path to success is clear? Humanity is better off creating a space highway with big and fast spaceships to colonize Mars before exploiting the endless opportunities of life there. Without a secure, fast and scalable way to get there all the apps and benefits will remain a dream. Hopefully we all realize that sooner rather than later.
Like in the analogy above, the concept of blockchain technology and its various apps is currently overhyped while bitcoin’s role of money is underestimated. If we focus on developing blockchain security and the money application for bitcoin then all other apps will come easily afterwards. Instead many developers are distracted with second stage apps like smart contracts and verifiable data which have limited practical value until a secure and decentralized blockchain with a high valued tokens is established. In addition, banks and tech giants are competing to create private blockchains and VCs impatiently finance lots of promising projects blockchain projects without any sign that they will really work.
It seems like we are designing the fruit of a tree which still has a tiny stem. We should rather focus on growing a robust trunk with deep roots and only then discuss the beautiful apps that can be built on top of it. It may sound boring but we need more people devoted to the plain old problem of bitcoin used as money. Blockchain apps are important game changers but they will remain a mirage unless we have the foundation of blockchain based widespread digital currency. Going back to basics is especially important in the context of the block size problem which currently slows bitcoin’s adoption.
Let’s take a closer look at what makes a blockchain work.
The blockchain could be used mainly for two things — transferring value and timestamping information. For these to work properly we need the highest level of trust and security possible.
Security is the main requirement for any blockchain which claims to be useful. It comes from fierce competition for the role of a temporary third party for a valuable prize. Actually when people say that there is no third party in blockchain transactions they are wrong. The third party is the miner publishing the block with our transaction. The revolutionary thing is that this third party is paid well for the service and is constantly changing because of the mining competition which is open to everyone. Therefore blockchain security equals fierce competition and fierce competition equals freedom for everyone to compete for a high valued prize.
blockchain value = security
security = competition = freedom to compete * prize for the winner
Consequently, private blockchains which are not open for everyone to compete are inferior to those who are open. At the same time, the high value of the prize is also crucial for the competition. If the prize has zero value in an open competition there will be no participants and no security. In the bitcoin model the prize is currently 25 bitcoins + transaction fees for every block. So valuable bitcoins bring more security and additional security feeds more value in an ever growing spiral. Widespread adoption also yields more transaction fees which add up to the prize.
Prize for the winner = block reward + transaction fees = bitcoin price + number of paid transactions per block = demand - supply of bitcoins + widespread usage = widespread usage - supply + widespread usage = 2x widespread usage - supply (fixed schedule we cannot change)
Prize for the winner = 2x widespread usage
=> blockchain value = security = freedom to compete + 2x widespread usage
where 2x widespread usage = world’s most frequently used blockchain app = money
=> the ultimate blockchain winner = freedom to compete + money
So the prerequisite for all the promising blockchain apps is the first and main app - money. Consequently, bitcoin must become the most secure and user friendly money in the world. Then, progressively more people will be willing to give away government currency for these digital tokens and use them as a payment now or store their value for future payments.
In conclusion, money is the most crucial app for the blockchain technology. In fact, it is so important that it dwarfs all the others. Most efforts of the blockchain community should go towards helping the bitcoin system achieve maximum durability, highly fungible units and user friendly experience.