Why Bitcoin and Blockchain Tech are Tied at the Hip
In yesterday’s post on AVC, Fred Wilson said it’s silly for investors to assert they’d invest in blockchain startups but not Bitcoin startups because Bitcoin and blockchain tech are tied at the hip.
In the comments, I presented a few points with regards to Bitcoin and blockchain tech being tied at the hip. Here they are:
- Bitcoin and blockchains are not necessarily tied together. You can in fact have a blockchain without a unit of account, so long as you have a defined set of permission-ed parties running the chain that trust each other in certain ways.
- Permission-less blockchains and units of account ARE tied at the hip. This is because (a) you need a way to incentivize miners and (b) if you don’t have a unit of account, then you can’t have transaction fees, and so you can’t have a free market based spam control system.
- Permission-ed blockchains are useful for certain things but they are limited in what they can do. Fully decentralized, permission-less, censorship-resistant applications CANNOT be built on them, which for many is a deal-breaker.
- It is extremely valuable to be building on the blockchain with the highest amount of security, aka the one with the highest cost of attack (COA). The Bitcoin blockchain is by far the most secure, with a cost of attack on the order of magnitude of $200M. No blockchain comes even close. In fact, I’d be surprised if there was another blockchain with a COA at even 1/10th of the COA of Bitcoin.
- If you agree with all of the above points, then it follows that for secure, decentralized, permission-less applications, blockchain use and Bitcoin are tied at the hip (at least for now).