aantonop “I’m not a Bitcoin maximalist” [Crypto indexing part 8]
Some people have called me a “Bitcoin maximalist”. I am not a Bitcoin maximalist. I am interested in the possibility of open, public, borderless, decentralized, permission-less blockchains, disrupting everything. In that space, I think there is plenty of room for many different approaches to many different problems.
/ A. Antonopoulos, author of The Internet of Money.
Bitcoin is not the only blockchain, although it is the first famous one. Bitcoin uses a set of technologies (blockchain, cryptographic signatures, proof-of-work, etc) to achieve a specific goal (creating peer-to-peer digital cash). Other blockchain projects use different sets of technologies to achieve other goals:
- Ethereum was created with the intention of becoming a distributed computing platform.
- The XRP ledger was created to solve the issue with slow and expensive global payments, and their software is written to be integrated with the current financial infrastructure.
- Storj is a peer-to-peer cloud storage application enabling users to rent out their excess disk space, and those users who need extra disk space can purchase cloud storage with cryptocurrency.
- Augur utilizes blockchain technology to build a decentralized prediction market protocol and can be used to forecast events such as the weather, natural disasters, elections or tax reforms.
- Salt is a lending platform.
- Maker is a cryptocurrency that aims to always be priced at 1 USD. Other “stablecoins” exists, with different solutions for how to maintain price stability.
All of the projects mentioned above have different use cases and visions for the future. This attracts a certain set of individuals who find the vision compelling or believe the use case to be of importance. People following a project’s progress and actively discussing it is often called “the community”. Every project’s community have some distinct characteristics. Bitcoin’s community is conservative, as changes to the protocol are done with caution. Without consensus, the protocol remains unchanged. By contrast, many software projects led by companies experience rapid changes as a few selected individuals possess all decision power. Furthermore, the monetary design of Bitcoin has roots in Austrian economics, hence people in the Bitcoin community have somewhat homogenous views about the world in general and economics in particular. Ethereum’s community consists of many web developers, partly because the goal of creating a world computer is attractive to web developers, and partly because Ethereum’s scripting language Solidity resembles the popular web programming language Javascript.
The vision and current use case can of course shape a project’s community, but it goes the other way around too. The community can have an impact on the vision and the technical progress, either directly (by changing the code since most of it is open source) or indirectly (by gaining political power and forming an opinion). It is worth pointing out that cryptocurrencies are evolving —they are not static because developers are changing the code which affects the current functionality, and advocates might change the opinions of others as well as affect people’s vision of the future.
We have established that blockchain projects can differ in their visions of the future and their use cases as they try to solve different problems. Can two projects co-exist even though they have similar visions and use cases? Yes. They are simply competitors. Among competing blockchain projects there need not emerge a single winner (although network effects exist) since two cryptocurrencies can serve different customer segments.
To understand why there is an equilibrium in which several blockchain projects with the same vision and use cases co-exist, consider that blockchains have a set of parameters. Examples of such parameters are level of decentralization, transaction cost, consensus algorithm, confirmation time, throughput, inflation rate, permissions etc. It is impossible to optimize for all parameters. Trade-offs must be made. When functionality is increased, security might suffer. When the level of decentralization is decreased, it might be possible to increase throughput. For example, both Ethereum and EOS are virtual computers that developers can build games on but they differ in speed and level of decentralization, so depending on what game is built one might be more suitable than the other. Ethereum uses proof of work as their consensus algorithm, whereas EOS uses delegated proof of stake. Arguably EOS is less decentralized than Ethereum but can enjoy a faster network. It was a strategic choice from EOS to do so. Thus there is an equilibrium where there are several blockchains trying to serve the same customers in different ways.
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Jacob Lindberg, the author of this post, is the founder & CEO of Vinter — an index provider and data analysis firm specialized in cryptocurrencies.
This blog post is a part of our intro blog series on crypto indexing.
