Blockchains and steam trains

Satoshi Nakamoto's Bitcoin whitepaper was genius. It described a system that effectively turned electricity into truthful records. That may sound strange, but Bitcoin's ability to produce absolute trust between disconnected groups of people is groundbreaking.

We’re only beginning to glimpse the effects this technology will have on our world.

So how does Bitcoin manage this?

Four distinct technologies were brought together by Nakamoto: cryptography, proof-of-work, timestamped blocks (blockchain) and peer-to-peer communication.

Bitcoin cannot work without all of these elements acting together.

Without cryptography, your bitcoins aren’t securely in your possession.

Without proof-of-work, anybody could tamper with the ledger of transactions, ruining the group consensus.

Without a blockchain, you could spend the same coin multiple times without restriction.

And without a P2P network, Bitcoin gets controlled by a single entity, meaning you must trust them with your money.

So it’s clear that without any of these technologies, Bitcoin stops being Bitcoin.

Because, as Andreas Antonopoulos would say, it’s no longer open, neutral, borderless, censorship-resistant and public.

But something that is often missed is that Bitcoin is an emergent phenomenon.

That means the system that arises from these technologies is greater than the sum of its parts.

No single one of the technologies listed above gives Bitcoin its qualities.

We should be focusing on the system, not the parts.

Why blockchain?

Out of all these technologies, why is it then that ‘blockchain’ is all the rage?

After all, a blockchain is basically just a Google Sheet with timestamps.

In and of itself, it’s not exactly a groundbreaking and paradigm-shifting technology.

It’s like seeing the industrial revolution taking place in the 1800s because of the invention of the railway, and claiming that steam engines were the only cause.

Sure, the steam engine was a critical technology that went into these trains, and the industrial revolution wouldn’t have gone far without coal-powered steam engines.

But if, at the height of the railway mania in the 1840s, you walked the streets exclaiming “steam engine all the things!”, you would have completely missed the point.

Blockchain decision tree (source)

This isn’t necessarily a criticism of people drawn toward the allure of ‘blockchain technology’. Applying a new technology to everything and anything is a pattern we’ve seen time and time again throughout history.

And it was no different with the steam engine.

This technology was experimentally applied to all forms of transport, and actually found some level of success on ships and road vehicles.

But only when steam engines were put on tracks and used to haul huge amounts of goods over vast distances did this technology become truly revolutionary.

This is why saying ‘blockchain not Bitcoin’ is like saying ‘steam engines not railways’ in the 1800s.

‘Blockchain technology’ and steam engines can be seen to have quite a similar impact, but it’s Bitcoin that is the railway of the 21st century.

It is the whole package, the complete technology.

Steam engines didn’t bring about the industrial revolution, railways did.

And ‘blockchain’ isn’t bringing about the coming revolution in finance, Bitcoin will.

Bitcoin not blockchain

‘But’ you might say. ‘Bitcoin is outdated tech. Another blockchain can come along and usurp it.’

While there is some truth to this statement, those who dismiss Bitcoin are missing a key element.

There’s an aspect of money that can’t be instantly fixed with technology.

And that element is trust.

At the end of the day, money is just the physical (or digital) embodiment of trust.

Trust that the item you were just given will hold its value long enough for you to exchange it again for another good.

Bitcoin has only existed for just over 10 years, but every 10 minutes that go by, another block is mined, and more trust is being added to the system.

Governments, meanwhile, erode the trust in their currencies by allowing inflation to happen, stealing the wealth of their citizens.

Even the most trusted money in history, gold, can be confiscated or faked, reducing its trust.

And your favourite shitcoin cryptocurrency’s founders can easily act in self-interest (if they haven’t already) by changing the rules of the token at any time.

This has already happened plenty of times, with Ethereum’s DAO hack being a prime example.

Without going into too much detail, Ethereum released a new technology called a DAO, only for it to have a fatal flaw, losing its investors $60 million.

In a decentralised system, there would be nothing to do but move on.

But instead, Ethereum was (and still is) heavily centralised, so the controlling parties decided to fork the chain, and rewrite history to pretend this hack never happened.

And if they manipulated Ethereum’s history once, they can do it again.

Hardly a system that allows its users to trust it.

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Every cryptocurrency, by design, needs a monetary token to incentivise its users.

And if that token isn’t trusted, the network won’t be used.

It’s as simple as that.

As I’ve said previously, Bitcoin is the best money humans have ever invented, in short, because it:

– Is secured by the most powerful group of computers in the world

– Will be the most scarce thing in existence

– Is truly decentralised, so it’s effectively impossible to change the above

This is why people trust Bitcoin.

Citizens of Argentina, Venezuela and Turkey turned to the US dollar when their currencies started dropping in value, because they could no longer be trusted.

And so it will be with every ‘blockchain’ project that has a centralised founding team and few to no resources being used to secure the network.

Promises and goodwill alone aren’t enough to create trusted money.

You need a combination of technologies that, when made to work together, create a system with hard rules that can’t be broken.

You don’t get that with just a glorified Google Sheet.