Trust Machine: Global & Federated Blockchains

The Economist has a cover story on how Bitcoin itself may or may not survive but blockchain, the underlying trust technology, is the real innovation.

Unlike The Economist article, I believe that Bitcoin is extremely important and it’s not just about the blockchain.

In this post, I first explain the difference between Bitcoin and blockchain and then describe how both are going to be extremely important.

Why it’s hard to separate blockchain & Bitcoin:

Separating blockchain from Bitcoin is not easy. They are tied to each other in multiple, confusing ways. Let’s try to peel them apart.

Name for the technology: People have been using both Bitcoin and blockchain to refer to roughly the same technology.

Recently, the term blockchain is gaining more attention. If a term is working for a new technology, let’s simply embrace it. I was initially uncomfortable using the term “cloud” for data centers, but it was the right term for the technology to take off. Similarly, blockchain is a better name.

Technical dependency on each other: The blockchain vs. Bitcoin debate gets more confusing because many people believe that they are technically dependent on each other.

“But bitcoin and blockchain are joined at the hip. You don’t get one without the other.” — Fred Wilson, July 2015

Blockchain and Bitcoin need each other in the specific case of global, decentralized consensus — the largest use case, but blockchains are useful otherwise as well. Blockchain is a more generic concept than Bitcoin.

How Bitcoin & blockchain fit in the bigger picture:

The difference between Bitcoin and generic blockchains becomes more clear if we separate global blockchains from federated ones.

1. Global Blockchains:

Global, open blockchains are like the Internet. You basically need one large network that is reliable. The Internet was the first network that got enough users and infrastructure support that it passed a tipping point after which other networks couldn’t compete with it.

Similarly, the Bitcoin blockchain has enough users and infrastructure support that it’s close to passing the tipping point after which it’ll be hard for any other global blockchain to compete with it.

2. Federated Blockchains:

Having a global, open network doesn’t preclude the need for smaller, federated networks and vice versa. In fact, large enterprises didn’t fully embrace the Internet until Virtual Private Networks (VPNs) came along. Similarly, there is a need for federated blockchains, also called private or permission blockchains, where only a few parties participate in the network.

Both global and federated blockchains are going to have a profound impact on the Internet and economy: the Bitcoin blockchain is likely going be the global network with lots of federated blockchains connected to it.

Comments? Tweet them @muneeb

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