Blockchain without Bitcoin

It’s a common stance to hear that Bitcoin the technology (Blockchain!) is smart and useful but Bitcoin the currency is a scam or a fraud and should be stopped. This is a fallacy that needs to be debunked.

In 2009, when Bitcoin was introduced, it included a fairly novel idea: a network of nodes would share a state (distributed ledger) securely. These nodes are independent, heterogenous and no one approves them when they join the network. As such, each of them is a threat and cannot be trusted. This implied that Bitcoin, if it was to scale beyond a “friendly” network needed some kind of security model. This is what proof of work concept provides: in order to “decide” what node will decide what the new state of the data would be, each node has to compete in solving a complicated puzzle. Solving should be hard, so that a solution happens only every couple minutes across the whole network, but verifying should be easy so that every node should be able to verify the validity of that solution. In cryptography this is a fairly common pattern (hashing) and Bitcoin uses it. What’s interesting is that, as the number of nodes grows, the problem needs to become more complicated, because more nodes are competing to solve that problem and the network wants to only “set” the new state every couple minutes in order for everyone else to check its validity.

As the network grows in size, it can be expected that the value of the stored “state” also grows: if not, why would people be part of that network if there was no value in the stored data? Since people running the node value the data, they have an incentive to make the network more secure. In order to make the network more secure, they run nodes which validate transactions… using the complicated hashing puzzle.

It turns out, that, with our current knowledge of computing, solving this complicated problem requires a lot of energy which somebody has to pay for. This is where Bitcoin the currency becomes a necessity: it provides a payment mechanism for securing the network.

Bitcoin, the currency, provides a payment mechanism for securing the Bitcoin blockchain.

In other words, Bitcoin the currency is used to pay for the labor to secure the network. Asking for the network without the currency is asking for something without actually paying for it. It turns out that humankind has tried this over and over, from slavery, to, more recently, web advertising.

This week is particularly intense on the front of privacy, influence and data breaches, but recent years have all proven that the web is a single point of failure for humanity. It’s our shared record of knowledge our main means of communication, and yet, it is incredibly fragile.

Most of the web applications are provided “for free” to their users. This implies that users are not customers… and, as money as an incentive seems to trump everything else, eventually, customers’s interests end up “above” the user’s interests. More specifically, whoever pays Facebook is served by Facebook, not their users. Re-aligning incentives between producers (of software and content) and consumers will not solve all the problems, but it will reshuffle the cards by giving an opportunity to compete to smaller players who cannot afford to deploy massive advertising networks.

In that regard, Bitcoin and crypto-assets in general are a real breakthrough as the provide both the technology and the business model for the technology. Splitting the two would only result in more of the same problems that the web faces: centralisation, monopolies, and disproportionate influence of capital over labor.

Thanks to Arianna Simpson for inspiring this post after seeing her passionately making these points recently!