Travis Patron is a digital money researcher and author of the 2015 Bitcoin Investor’s Report. Here he explains why the blockchain represents a snapshot of the bitcoin digital economy at any given time.
Over the last several months, one of the most consistent debates in the circles of bitcoin enthusiasts has been whether a blockchain can function successfully without the “inconvenience” of its underlying cryptocurrency. With more significant, more traditional firms stepping into the space, they hunger to create a permissioned, proprietary blockchain that will allow them to harness the power of this new ledger technology. In this post, I will explain not only why separating the blockchain from bitcoin is a ludicrous endeavor ‘” but why the blockchain represents a snapshot image of the digital economy at any given time due to the nature of peer-to-peer timestamp verification.
20th Century Business Models Need Not Apply
Suppose we are to create an application with the blockchain, perhaps some groundbreaking innovation harnessing the invention of the bitcoin payment system. In that case, we must first understand the core solution that the technology brings and how that applies to our existing business model. Among other things, the solution blockchain technology brings to the fold of information security is solving the Byzantine Generals’ Problem ‘” a computing science problem requiring relying on trusted third parties to relay information accurately. Before bitcoin arrived on the scene, this computational problem was thought to be unsolvable.
The value of conjuring up an eloquent solution to this computing problem cannot be understated. Not only does this innovation open up our society to the prospect of digital scarcity, but it introduces a business framework where the operational capacity of any application, which would otherwise have inherent risks due to centralization, can be highly decentralized.
With centralization comes trust, and too much of it is often a liability. With reliable decentralization, we are opening the frontier of the 21st century on a promise of open-source, trustless, and non-exclusive commerce.
Shortsightedness Leads to Disruption
Why are businesses requiring a lot of trust interested in blockchain technology?
The shortcomings in a situation where companies desire to take blockchain technology and make it their own, make it closed, make it proprietary, does not represent an underlying inadequacy of cryptocurrency. Rather, the shortcoming lies in the rashness of perceiving a transition technology with a status-quo mindset.
If you wish to consolidate and centralize the operations of a business, why look to bitcoin (a technology for, as we discussed, removing trust through decentralization) to amplify that capacity? The companies and individuals who approach bitcoin technology with a 20th-century mindset will find no success. They will desperately reach to harness the innovation of Satoshi Nakamoto and in doing so, will slowly realize that the killer application of this technology is to render business models based on trust obsolete. Bitcoin is an evolution in our concept of the corporation, and a blueprint for decentralized, trustless, openly accessible commerce in the 21st century.
The Blockchain Is a Monetary Image
For illustration, let us assume two users on a blockchain ‘” User A and User B. User A controls 3.0 million bitcoin on the entire network. User B controls 3.6 million. There also exists 14.4 million unmined bitcoin.
User A has used their private key to authorize a transaction to User B worth 1.8 million bitcoin. User A sends this amount to User B’s public key. At this point, the transaction has been authorized by User A and is in the process of being confirmed by the network miners.
After the transaction has been confirmed, the bitcoin network reflects the change in hands (change in wallets) of the 1.8 million bitcoin User A sent User B.
No currency has moved from point A to point B, but an authorization on behalf of User A to alter the network to increase User B’s control of the blockchain by 1.8 million bitcoin at the expense of User A. In bitcoin, this ledgered payment system represents the money supply and it is radically different from any money we have previously seen.
When an individual makes a transaction on the bitcoin network, no actual currency has moved. That is, no file has moved. No commodity or asset has moved. No private or public key has moved. Rather, the only thing that changes is the percentage of the blockchain ledger that users A and B claim control over. When a transaction occurs in the realm of bitcoin, the image of the blockchain is altered. Nothing ever changes but the composition of the blockchain record.
Money is now an image, rather than something which can be separated from the system itself. This image of money is constructed, altered, and verified by the thousands of machines acting as miners across the globe, and it’s a composition on public display for all to see. The miners are the painters of this network composition. The users, the brush and strokes.
‘œTangible money, old-fashioned money ‘ is a phantom from the past, an anachronism. In its place is an entirely new form of money based not on metal or paper, but on technology, mathematics, and science. This new ‘˜megabyte’ money is creating a new and different world wherever it proceeds. Money now is an image.’
‘”Joel Kurtzman, The Death of Money
Put simply, separating the blockchain from bitcoin is ludicrous because there is nothing to separate! They are one in the same. Without the blockchain, you have no bitcoin ecosystem. Without an accompanying cryptocurrency, you have no measuring tool to determine the ownership of the blockchain.
A payment conducted with bitcoin represents a paradigm shift in our concept of money ‘” one where there is no division between currency and the system through which it flows.
With the intrinsically valuable property of decentralization (solving of the Byzantine Generals’ Problem), we have a monetary system that comprises a snapshot of purchasing power at any point of time in its existence. The time-stamping function of the blockchain allows anyone to go back and publicly determine the holdings of any address (and perhaps soon any individual ).
In the bitcoin digital economy, money is an image continuously being constructed, verified, and reattributed by way of cryptographic authorization.
