Are Bitcoin and the Blockchain Joined At The Hip?

I saw this statement in the Economist piece on Blockchains:

Bitcoin itself may never be more than a curiosity. However blockchains have a host of other uses because they meet the need for a trustworthy record, something vital for transactions of every sort. Dozens of startups now hope to capitalise on the blockchain technology, either by doing clever things with the bitcoin blockchain or by creating new blockchains of their own.

Obviously Bitcoin could become “nothing more than a curiosity” if all the action moves to other blockchains. But right now the Bitcoin blockchain has an order of magnitude more hashing power and market cap, so we are certainly not seeing any other blockchains developing the kind of network effects that Bitcoin has. Of course, that could change. It is something I check on at least once a week and will continue to do so.

But if we see “a host of other uses” materialize “by doing clever things with the bitcoin blockchain”, I have always assumed that would be a catalyst for Bitcoin itself, both in terms of value, but also liquidity and importance of the currency.

Is that a flawed assumption?

#hacking finance

Comments (Archived):

    1. fredwilson

      I had not seen that. I mostly agree with him

      1. William Mougayar

        “mostly” is the word.

      2. TQabcd

        What part don’t you agree with?

        1. fredwilson

          I think private blockchains are potentially more interesting than just a distributed database. The world of banking and brokerage is full of consortiums and JVs and other cooperative co-owned platforms. Private blockchains do have potential to become the best way to architect such thingsBut I’m not very interested in that. I like wide open permissionless systems like the internet and that’s why I like bitcoin

          1. Pete Griffiths

            It is interesting in the case of private blockchain applications to reflect on the cost of participation by member organizations and (if this is material) whether a unit of account is necessary.

    2. Susan Rubinsky

      Thanks for sharing this!

    3. Pete Griffiths

      “…Without Bitcoin, a blockchain is just a distributed database…”Wrong.Ironically he goes on to contradict himself.:It remains to be seen how long it takes for the financial industry to realize that the true valuable innovation is not the distributed ledger of the blockchain (which has existed in other forms prior), but rather the open platform of financial inclusion with no trusted party or cartel (which has never existed).”It is indeed distributed algorithmically assured trust that is the key innovation of the blockchain.Blockchain can enable many non-financial transactions. Whether they prove to be killer or not remains to be seen. You can have a blockchain without bitcon. But if you do you have to provide an incentive for any equivalent of mining.The real question, it appears to me, is will the tail wag the dog. In other words, will other applications be so important that we are prepared to pay the bitcoin tax to enable them.

      1. Alex B.

        To be clear: “distributed algorithmically assured trust” is an innovation of *Bitcoin*, not “blockchain”.Proof-of-work is, so far, the lone proven solution to the Byzantines General Problem. It remains to be seen whether other efforts can provide the same trust-minimization but some in the field are persuaded that no such workaround exist.

        1. Pete Griffiths

          I can’t agree that it is literally an innovation of bitcoin. Bitcoin is just a token/reward of the effort expended in mining. Mining (or more accurately) the work entailed in mining, must assuredly be undertaken by the network and in the case of bitcoin the coins are the reward that successful miners earn for their work/expense. Proof of work is an economic measure designed to reward for solving an asymmetrically hard problem. (importantly – an ECONOMIC measure). In a public network it is natural to see the two as closely related but imho the form of reward is not the innovation. I can’t think of any reason why such a reward, or a reward of that form, is essential to the innovation that is blockchain. For example, if a government agency implemented a blockchain based application, and subsidized ‘miners’ then in such circumstances a coin would be irrelevant and one can even imagine their being no unit of account for such work undertaken. Now, one can (correctly) argue that such an application would not be truly ‘public’ but one can envisage other cases less restrictive but still composed of actors where their benefits from participating in the network outweigh the cost of participation such that a unit of account is irrelevant. Please don’t misunderstand me here. Bitcoin was/is a brilliant application that merges technical innovation with economic incentive in a masterful manner, but I think that to see bitcoin as the innovation is mistaken.

          1. Alex B.

            The coin is the incentive for a network of non-organized independent agents to secure the chain.Without this coin, as you have demonstrated in the last part of your comment, trust needs to be introduced to the system (government subsidy). To use your example, you have created a single point of attack (government agency) by which the network can be interfered with.A blockchain as you seemingly understand it is literally nothing but a replicated database secured by encryption. The true innovation is the creation of an incentive for every peer in the network to maintain this database on a large decentralized scale.That’s how you manage to get a 500,000,000 GH/s network to secure your wealth.

          2. Pete Griffiths

            You will observe that I pointed out in my comment that a ‘single payer’ network could be accused of not being distributed enough to constitute a network that truly distributed trust. But I went on to point out that one can certainly envisage networks where there is enough distributed interest for that not to be a valid criticism and as for attack surface it might be useful to reflect on quite how distributed bitcoin’s public network really is when you analyze the real world ownership concentration of bitcoin miners. The blockchain is literally ‘nothing’ but a replicated database secured by encryption but of course the point is that the encryption is secured by a network and that is the innovation. The fact that a coin is the incentive for miners does not mean that it is an incentive ‘for every peer in the network, far from it, and imho whilst the incentive for mining is clever it is simply an economic incentive scheme. I don’t see anything spectacularly innovative about offering people money to do work.

          3. Alex B.

            Well considering it is the very first time in our history that we are able to solve the “double-spend” problem without reliance on a central authority I’d say that’s pretty darn innovative!For more information and details on the intricacies and genius of the scheme I recommend this piece:

          4. Pete Griffiths

            The question is not whether there is innovation here. The question is what is the core of that innovation. You seem to be saying that remuneration of miners as an incentive to mine is the key innovation and I disagree.I’ll take a look at the article. Thanks 🙂

      2. ShanaC

        I can see how blockchain + finacial market order pairing coulg get super interesting fast.But can you get someone to mine not bitcoin

        1. Pete Griffiths

          I may have gone some way to answering your question in my replay to Alex below. If not…just say 🙂

  1. JimHirshfield

    I don’t think it’s flawed.

    1. fredwilson


  2. Eric Wiesen

    It’s not an obviously wrong assumption – not obviously right either, insofar as many of the central players around bitcoin have (or appear to have) objectives and beliefs that are both a odds with the large, commercial adoption of bitcoin and often with one another. As a result, it’s not obvious to me that, even in the face of major activity on other chains, the stakeholders around bitcoin are willing and capable of unifying around a catalytic set of events.

    1. fredwilson

      Are you referring to the chaotic nature of the core developer community?If so, its a bit of a riskBut i love the Ben Franklin line “we must hang together otherwise we will all hang separately”

      1. Eric Wiesen

        Yeah – unlike a lot of the originally open/academic layers of the internet, the Bitcoin dev community seems unusually rife with zealotry and ideology that, at least at this stage, seems at odds with the financial nature of the network being constructed. I think this is why there are so many efforts to decouple from bitcoin, despite some real disadvantages to doing so and starting from scratch.And yes, I love that line too.

        1. fredwilson

          The double entendre is so great

      2. William Mougayar

        The chaotic nature of the core developer community is a big issue today for Bitcoin and possibly an anchor to its future success.Believing that the market forces will take care of it leaves a lot of uncertainty on the table. Fundamental and foundational decisions are at stake.This situation is certainly contributing to pushing innovation outside of Bitcoin core.

      3. LE

        Many of those involved are irrational and radical. Even nutty. If they weren’t they wouldn’t have gone down this road to begin with. Do diverse groups (geographic and otherwise) of people with strongly held “nutty” beliefs ever unify and act rationally instead of “hanging separately”? Question, not a statement..

  3. michael

    spot on.

  4. Susan Rubinsky

    I don’t know enough about bitcoin or blockchains. However, I found it interesting that Microsoft announced last week it’s acquisition of a private startup in Brooklyn that creates solutions with blockchains to provide “Blockchains as a service.” In the past Microsoft leaders have stated that Bitcoin was not interesting to them but that blockchains are. Not sure about the details of why. Overall, it looks like a rising tide to me.

    1. William Mougayar

      Correction, Susan 🙂 …Microsoft didn’t acquire that company. It was a partnership announcement with Consensys, a company that develops Ethereum-based technologies.

      1. Susan Rubinsky

        Ahhhh. Thanks. I was going off memory.

  5. Michael Goldstein

    > But if we see “a host of other users” materialize “by doing clever things with the bitcoin blockchain”, I have always assumed that would be a catalyst for Bitcoin itself, both in terms of value, but also liquidity and importance of the currency.The problem with this assumption is it gets causality backwards. None of those “other uses” have any value unless Bitcoin has value as a currency, because that is what incentivizes the network to function in the first place.Bitcoin has a superior monetary policy, so we can expect it to win because of Thier’s Law (see the SNI Crash Course, especially articles by Pierre Rochard: http://nakamotoinstitute.or…. The money is what matters. After all, the whitepaper was subtitled “A Peer-to-Peer Electronic Cash System”. The question is how will it actually permeate through the market.Now what is special about a cash system? Arbitrary, permissionless, and final payments between any two voluntary participants. To immediately want to assume Bitcoin’s future relies on its OP_RETURN feature, rather than what this beautiful invention can holistically permit to happen in this universe of ours that could never happen before it existed shows a lack of imagination.This is what disruption is. The new participant has to profitably serve a niche that couldn’t be profitably be served before, and then be able to grow before incumbents can do anything about it. In Bitcoin’s case, what markets are these? Hedging against unsustainable monetary policies around the world, evading arbitrary and restrictive capital controls placed on other money systems, private online transactions, etc. The possibilities here are vast, and there are going to be surprises. One day there was not an ability to pay per minute of video streaming, then the next day Streamium existed. What other types of transactions can exist? This is the question you should be asking, and you should have your ears out for these ideas. Someone may come along with a way to solve fundamental problems using Bitcoin, ones that everyone has to deal with, and ones that would encourage everyone to use Bitcoin. Not because it’s libertarian or edgy, but because it simply makes things work better.Focus on OP_RETURN is to be stuck in the bargaining stage of grief. Banks know their business models are threatened by a rise in Bitcoin. For instance, they can’t make money off fractional reserve loans. On the other hand, they know “the block chain technology” is not going away. So what do we get? Bargaining. They try to describe enterprise database tech (something that really does deserve innovation!) in the lingo of block chains. Unfortunately for them, they do not understand the numerous and powerful feedback loops of adoption that will allow Bitcoin to take over (and at a very non-linear rate). Of course, many bitcoiners mistakenly think we need to please these incumbents in order for Bitcoin to succeed, so they’ll take on the buzzwords and feed them with what they want to hear about the ~future of finance~. But we clearly just said that is exactly how disruption does not occur. Everyone doing this is fooling themselves.To sum this up, bitcoiners have a three-part mission:1. Build infrastructure, to make more possibilities with Bitcoin technically possible2. Buy and hodl, to increase the value and make more possibilities economically possible3. Build payment services that could never be built before, to provide solutions to problems we thought were impossible

    1. Koen Swinkels

      “The problem with this assumption is it gets causality backwards. None of those “other uses” have any value unless Bitcoin has value as a currency, because that is what incentivizes the network to function in the first place.”Do you mean this in the following sense: If the price of a bitcoin is very low then miners are not very incentivized to secure the system and/or manipulating the system becomes cheaper, so that one would be unwise to use the bitcoin blockchain for ‘colored coins’ kinds of transactions wherein the good or service represented by the colored coin is anything of significant value? (E.g. if 1 bitcoin is worth $1 then one would be unwise to use colored coins for transactions involving e.g. a million dollar’s worth of gold or stocks, because the costs to manipulate the blockchain and hence the transaction are lower than the value of what is transacted.)If you don’t mean it in that sense, then instead do you mean that bitcoin qua currency, qua money is and of itself the most valuable service provided by the blockchain?Or do you mean it in some other sense?

      1. Michael Goldstein

        I mean it in both senses. I mused a little about Bitcoin’s primary value being currency here:

        1. Koen Swinkels

          OK, so in your view bitcoin’s (potential) role as a successful, widely used currency is both a necessary condition for the services made possible by blockchain technology *and* provides greater value than said services. (in addition, you also think that, given its head start, of all the current and future cryptocurrencies bitcoin is the only one that could possibly succeed (become widely used money) AND that bitcoin will in fact so succeed)

          1. Koen Swinkels

            At the very least your view save you a lot of time and energy otherwise spent on pondering and evaluating different investment strategies.

          2. Michael Goldstein

            Yes, although to be clear, most of the services rallying under the “blockchain technology” banner would be better served by more advanced centralized databases.

          3. Koen Swinkels

            yes, initially I actually considered adding ‘[at least in their decentralized and public form]’ at the end of ‘OK, so in your view bitcoin’s (potential) role as a successful, widely used currency is both a necessary condition for the services made possible by blockchain technology’

  6. William Mougayar

    Yes and No.Was Fortran the only software language that remained after it was wildly successful and popularized by IBM in 1957? No. Newer software languages were developed later, because the field of computer software engineering had just started.What we have today is a slew of innovations that are centered around the combined intersections in the fields of 1) software engineering, 2) cryptography science and 3) game theory.Bitcoin has been the biggest blockchain laboratory in the world, and by being ahead and being bigger, it has generated an enormous amount of innovation around it. Some of this is going to benefit Bitcoin’s ecosystem, and some if is already spilling over outside of Bitcoin proper. It’s a normal evolution.The use cases, applications, deployments and opportunities will be varied. Some implementations will be public, others private, and some semi-public/semi-private. Some will use Bitcoin, and others won’t.In a nutshell, we are seeing a diversification in the ecosystem, especially because we shouldn’t be limited by the vision of Satoshi Nakamoto. Nakamoto may have started this revolution, but it is now out of his/her hands.

    1. Mark Essel

      Great comment William. Is there any hope for interop between different distributed computation systems?

      1. William Mougayar

        There is, but it is more difficult for private blockchains to inter-operate with each other. Works-in-progress.

        1. elizabeth stark

          Lightning can power cross-chain atomic swaps that are trustless, and that can interface between private (and public) blockchains.But that tech, as you know, is still a work in progress. 🙂

          1. William Mougayar

            Hi Elizabeth! yes…bring it 🙂

    2. fredwilson

      Bitcoin is a network not a programming language. As we’ve discussed here before in networks, winner takes most. I’m not a believer in a highly fragmented wold of blockchains

      1. ZekeV

        Bitcoin clone world is already highly fragmented. Yes bitcoin has the vast majority of market cap based on exchange value. But there are many clones that are already sustainable networks. I think you are wrong, an equilibrium will emerge with altcoins constantly dropping in and out. The reasons are, 1) there will always be a strong financial incentive to use a new altcoin for certain types of projects; and 2) nakamoto consensus networks are relatively robust to stress. Compare to social networks like FB where there is a cost to enter the market, which one company has to bear. A loser like friendster just runs out of money and has to shut down as a going concern. An alt like namecoin for example has not lived up to the vision of replacing icann-run domain name system. But it is still a functional network. Failure as a product in one sense does not have to kill the network. I’m probably in the minority with this view, but I don’t think I have been proven wrong yet.

        1. Tom Vaughan

          In the same way as I know people who still have an AOL email address.

          1. ZekeV

            Anytime someone mentions AOL I assume there is a little chuckle behind their laptop screen. But I think there’s a non-facetious analogy that could be made, that some sort of comparative advantage may function between networks. Even networks that are crappier in every respect than the dominant player can still survive, and might present a threat in the future.At the peak of web 2.0, it looked like networks with critical mass would completely destroy the competition. FB kills Myspace and salts the ground for any future competitors, even G+ with all its $. The iphone / android kills blackberry, and makes nokia / symbian obsolete overnight. Yet, many losers in the game of engaging networks of users have survived as businesses, perhaps serving a niche. Thus we have “winner takes most” (but not all, as you could have been forgiven for thinking would be the case in ~2009).I don’t feel as strongly about this as the bitcoin maximalism debate. But I think there’s a nontrivial chance that some supposedly vanquished networks will reemerge, and other supposedly dominant networks will be threatened.

      2. elizabeth stark

        One of the major points that the Economist misses here is that bitcoin the token is the incentive structure for its blockchain. We are already seeing a myriad of use cases using bitcoin’s blockchain, and since it is by far the most secure public blockchain to date, these applications will only increase.So it is not clear to me how bitcoin the token could remain a mere “curiosity” when it is the incentive that powers an entire global network of authenticity.

        1. fredwilson


          1. Kay Noyen

            100% agreed, but there is another interesting reason why bitcoin is important for the blockchain.Many promising applications of blockchain technology involve colored coin concepts, i.e. the registration of all types of assets on the blockchain (stocks, land titles, fiat currencies etc.). These concepts are great, because they (beside other things) make transfer of assets cheap and fast.It is probably fair to say that assets on the blockchain will not just be bartered, e.g something like: one Apple inc. stock for one Alphabet stock, a horse and two and a half bags of rice. It seems pretty obvious that there will be a very real demand for something like money in those trades.Now, what do you think will be the best money on the blockchain? Hint: Beside the traditional properties of good money (divisibility, fungibility, durability etc.), it will probably be programmable (enforceable by smart contracts) and trustless (no counter-party risk).

          2. bshanks

            The same argument could be made for Ethereum.

        2. Ryan Shea

          Well, I agree to this to an extent.The Bitcoin blockchain is indeed the most secure and the Bitcoin blockchain does rely on a high cost of attack to maintain high security, and that high cost of attack is tied to high demand for bitcoins, and thus a high bitcoin price.(Although this security disparity is not as obvious as some think:… )However… this simply means that a high bitcoin price is required for a high security Bitcoin blockchain over time.And just because the blockchain is used heavily, does not mean that demand for the currency (and thus the price) will increase linearly. It will probably be sublinear (look at how applications like Tierion scale).This means that there may end up being a tragedy of the commons, where by everyone utilizes the security of the bitcoin blockchain without providing much security back in the form of mining fees and currency demand to fund transactions. And if currency demand doesn’t rise on its own, then the network may be in trouble.I really don’t think this will happen and I hope it doesn’t, as I have faith in the Bitcoin currency to gain adoption, but I don’t think blockchain notarization usage and bitcoin currency usage are as linked as many people assume.That said, I think you understand that and I agree with your point that we need Bitcoin to be more than a curiosity in order for the Bitcoin blockchain to remain secure over time.

          1. sull

            especially as the next halving approaches.

        3. Chris DeRose

          If you’re looking for a clever use of the Bitcoin blockchain, and it’s intrinsic value. Here’s (IMO) the most disruptive project in the space right now:

      3. JamesHRH

        And you are highly fragmented by nature, no?I agree FWIW.

      4. William Mougayar

        Here’s a longer response, with what I’m seeing, Is the Blockchain an Alphabet Soup, or a Full-Stack?http://startupmanagement.or

      5. Muneeb Ali

        I believe that winner takes most will apply to Bitcoin and it has already crossed a threshold where it’s hard for other networks to compete with Bitcoin for being the global blockchain (like the Internet).There will, however, be federated networks (like VPNs) and that’s where other blockchains come in. The thesis of 1 network takes most doesn’t preclude existence of other (federated) blockchains.

        1. sull

          True statement.

      6. Twain Twain

        “Bitcoin is a network not a programming language. I like wide open permissionless systems like the internet and that’s why I like bitcoin.” — Fred WilsonMeanwhile, William analogizes it as “Alphabet Soup vs Full-Stack.”The interesting thing in how Nakamoto created Bitcoin-Blockchain is that he argues for a distributed “wisdom of the crowds” approach to verification and trust rather than centralized self-interest (banks, which have always formed coalition exchanges so R3Cev is not surprising). Hence there are miners, aka the drone workers of the Bitcoin Hive with Nakamoto being the Queen Bee whose protocol pollinates the entire system and who likely owns the most Bitcoin honey.There are a few big paradoxes for Bitcoin+Blockchain:(1.) It is not as wide, open and permission less as it claims. The “wisdom of the crowds” is limited to developers and those who can afford the servers to do the mining.(2.) It’s neither Alphabet Soup nor full-stack. Alphabet Soup contains Google and ordinary people can earn $ through Adsense and SEO. There isn’t the same UX with Bitcoin+Blockchain.That’s also the reason it’s not full-stack. Full-stack would factor in UX and HCI to make ease of use for non-developers a vital given. From Bitcoin+Blockchain’s Comms problem with Joe and Jane Main Street, Sakamoto didn’t think through these node wrappers of the network at all.(3.) Bitcoin+Blockchain only hold technical validity IF probability continues to underpin (i.) software engineering; (ii.) cryptographic sciences; (iii.) game theory; and (iv.) chip processors.That is a big IF because… there is at least one development in Materials Science and one development in Quantum Physics which will put probability to the test in these 4 cornerstones of Bitcoin+Blockchain.This is not to say that 21 million Bitcoins aren’t worth anything or that Blockchain has no utility. The analogy of it being akin to a public MongoDB is quite useful, I think.It’s just a comment that in Nakamoto’s system design, he thought of the self-interests and clique of developers and people who’d understand the mathematics behind collaborative filters (because that is exactly what happens during the strengthening of each node on the Blockchain).Nakamoto wasn’t thinking about true democratic “wisdom of the crowds”. In his system, only developers have the vote.This fundamental paradox of Bitcoin+Blockchain will need to be improved on.Lastly, if Bitcoin is a token and Blockchain is the set of roads that have tollbooths en route, then the banks will indeed lay their own tolled roads with their own tokens.Now, if Bitcoin was like oxygen and Blockchain was like our lungs / respiratory systems …THEN it would be wide, open and permission less.So the next Nakamoto will need to bear this in mind when he/she designs the next data value system.

        1. Twain Twain

          It’s also worthwhile posting Rada Perlman’s Spanning Tree Protocol here because if we’re comparing Blockchain-Bitcoin to the TCP/IP of the Internet, it’s important to have this structural context…And its reference points to Bayesian probability trees.Nick Grossman of USV posted a diagram of the Blockchain stack last year which is about the same as @wmoug:disqus stack in his ‘Alphabet Soup or Full Stack’ post.I posted an alternative structure to that stack; mine looks like a neural network of fractals.To be sure, we’re only scratching the glass of the Information Revolution at the moment. Some of the crystals formed will be valuable. Some, less so.Nakamoto is a technical genius but his creation may not stand the tests of time if the protocol (the language) is not as universally adoptable as English — even if it holds up as a mathematical language for cryptography.

      7. bshanks

        > Bitcoin is a network not a programming language.The analogy to programming languages is a good one — like human languages, programming languages have huge network effects. The more popular a language is, the more the language has/is: libraries, jobs posted, people available who know the language, people who use and hence expose bugs to be fixed in the language and library implementations (–> less bugs), people who work on the language implementation, seen as acceptably stable for everyday corporate use, taught in universities.

      8. sull

        I think it is logical to “touch” the Bitcoin Blockchain where appropriate (immutability/audibility) without requiring a deeper integration/use of it and balancing any given financial crypto platform/system with the proper level of best-practices in cryptographic-based security in tandem with more traditional non-blockchain databases or private permission-controlled blockchains.In the dozen or so most common scenarios, we should expect to see different recipes that are deemed the correct combination of technologies to attain the goals of the business systems. In most cases, relying too heavily on the Bitcoin Blockchain can be a hinderance. Banks know this.

    3. jason wright


    4. Ryan Shea

      I’d de-couple the blockchain network from the languages / interfaces used to build apps on top of the network.When a network is dumb and the interfaces on top are smart (like the layers of the Internet protocol suite and Blockstore on Bitcoin), the underlying network doesn’t need to be the most competitive in terms of features.Thus, blockchain networks should have adoption distributions that match those of the Internet (winner takes most), while the interfaces for building apps on specific blockchains will have adoption distributions similar to those of programming languages.And as @fredwilson:disqus said in his response, the Bitcoin blockchain is a network. Meanwhile, Blockstore, Counterparty, Chainpoint, Rootstock, etc. are interfaces for building apps on the bitcoin blockchain network.We’re seeing Ethereum clones develop on top of the Bitcoin blockchain (see Rootstock and Virtualchain), so this means that all of the tools used to build applications on Ethereum will be able to be used to build apps on the Bitcoin network.We still have quite a bit of work to do to build the same toolset around Blockstore that Ethereum provides, but we’re moving in that direction.As long as the blockchain network remains dumb and we build apps on virtual layers on top, I say winner takes most. I’m with Fred on this one.

      1. William Mougayar

        Ryan, as an App developer, do you really care what the underlying network is? Or you care more about the tools you’re using and the users that will use your App?

        1. Ryan Shea

          The primary feature of a blockchain for building applications is the ability to provide universal global, immutable truth. And the guarantees on that are only valid if the security is there. Thus the security and resilience to mutability is absolutely vital. As in, the security properties of the network are everything. And once you have that established, the sky is the limit with the tools that can be built on top.

          1. William Mougayar

            Right, but if security is a given, then in of itself it’s a level playing field, no? I doubt any blockchain worth its salt won’t have a solid security to start with.

          2. Ryan Shea

            Ah I should have been more specific. When I say security, I mean cost of attack. The Bitcoin blockchain currently has a cost of attack on the order of $300 million dollars. The cost of attacks of all blockchains follow a power law distribution. As in, all blockchains have less than a cost of attack of 1/10th of that of the bitcoin blockchain, including Litecoin and Ethereum. So no, you definitely can’t take cost of attack as a given. Guarantees on continued synchronized global state are dependent on the network’s cost of attack, so it definitely isn’t a level playing field.

          3. William Mougayar

            Yeah, I knew that’s what you meant. I wasn’t considering Litecoin. But in the case of Ethereum, since you brought it up, the ethereum proof of work has had no security vulnerabilities since launch; it’s even been analyzed by an independent researcher who found flaws in previous versions of dagger hashimoto, and he found that the ethash that is used on the live network resolved all of his concerns. The level of mining pool centralization is in fact slightly better than bitcoin (top 3 pools combined control 50% in ethereum vs 51% in bitcoin).As for private blockchains, in theory they are secure too. So, Bitcoin is solid for sure. There is no doubt about that. But a few others too, potentially.

          4. Ryan Shea

            I’m not worried about security vulnerabilities in Ethereum’s proof of work. I’m just saying that the amount of money a corporate-level or state-level attacker would need to spend to have 51% power is much less than what would be required to execute the same attack on Bitcoin. And this is important. Would two banks move digital assets on a chain if they knew a foreign bank could disrupt them even for a few hours?

          5. William Mougayar

            Ah, but I thought these private scenarios are set-up only with trusted and permissioned nodes, so there is no likelihood of Cybil attacks, no?

          6. sull

            More worrisome than a 51% attack is the notion of unprofitable miners. If the balance tilts to the negative with no reliable manner to improve the incentivisation without human intervention (miner bailouts?) then the network security starts to drop, along with the price further and further. It could be like a jet falling out of the sky.Thankfully, their are many things in development (just in time) to help avoid these worse-case scenarios.

          7. Ed B

            Ryan, how is the $300M calculated? I presume you are referring to a Sybil attack and assume other security risks as common/equal among other blockchains?

          8. Ryan Shea

            I’m referring to a 51% attack, as that is what would be necessary to rollback the ledger. A Sybil attack would only be able to disrupt transaction propagation, which does not have the ability to change the global state of the system. And yes, blockchains in general are more or less just as vulnerable to Sybil attacks.

  7. jason wright

    when splitting the atom stand well back.

  8. Tom Hughes

    That may be a flawed assumption, at least in the institutional investment-management space, which is where I work and, historically, where change happens in global money-transfer patterns. I see stakeholders who want the record-integrity, anonymity and permissionlessness (!) of blockchain services, but either won’t care about the exchangeability into Bitcoin as a currency, or actively resist that exchangeability as a kind of distraction (or a source of unwelcome comparisons e.g., in a multi-currency portfolio). The question I see being asked about blockchain-based architectures is whether they can replace or at least simplify industry utilities in the securities business: clearing houses, depository trust corporations and maybe custodian banks. All of those organizations exist either to smooth out wrinkles in the business of securities exchange, or to limit principal-agent risk in the money-management ecosystem. None of them require the creation of a new currency.

  9. Jason T

    As far as I can tell, blockchain (and Bitcoin for that matter) are all about decentralization and anonymity. And the vast majority of consumers don’t really care about either of those things. Therein lies the problem.

    1. Tom Hughes

      Consumers don’t care about decentralization and anonymity because they get them for free by carrying around paper money. Over time, it seems likely to me that paper money and coins will seem more and more inconvenient — why can’t we just do this through our phones? The credit- and debit-card ecosystem charges a whopping 2-3% for the convenience they deliver, and also “charge” us our lost anonymity. I don’t know how it will play out but in a world where banks advertise interest rates in basis points (hundredths of a percent), the drag on the economy from traditional consumer financial services will loom larger and larger.

      1. Jason T

        Paper money is certainly anonymous, but not decentralized.But people prioritize convenience, simplicity, speed, fraud protection, loyalty rewards and countless other things above anonymity. That’s why they use plastic, not cash.My original point was that if all a transaction platform has to offer is anonymity and decentralization, not too many people will care. And that applies to Bitcoin or other uses of the blockchain. It risks being relegated to a niche.Unless there are broad markets and/or use-cases where anonymity and decentralization matter. I’m not aware of any but they may very well exist.

        1. Tom Hughes

          I think you’re on to something though I disagree about decentralization — cash is decentralized in use, though centralized in creation. Anyway, I agree that anonymity and decentralization by themselves are probably not enough to move adoption. Those are the sorts of features that appeal to early adopters but not mainstream users. There is a third benefit of virtual currencies, though — auditability, that is, proof that payment was made and accepted — is non-trivial, and actually better than cash (the $5 in your pocket isn’t proof that I paid it to you).In any event I think we’re drifting a bit from Fred’s original question, which is whether Bitcoin and the blockchain are inseparable.

      2. LE

        Over time, it seems likely to me that paper money and coins will seem more and more inconvenient — why can’t we just do this through our phones?There are transactions where people don’t want to track what they are giving and the person receiving doesn’t want to track what they are receiving. [1] Plus giving cash (as a single example) as a tip is much better than an electronic payment. Cash is physical – you can’t palm a payment by phone. I gave a cash tip to one set of people who delivered some office items but gave 2 checks to 2 others who assembled some office items. I don’t think to this day the checks have been cash and it’s now maybe 2 months later. (Not sure why that is.)The credit- and debit-card ecosystem charges a whopping 2-3%From a merchants point of view, and if you have ever dealt with accounts receivable, (I have) that 2% to 3% is a no brainer. It’s a great value for what you get and for the extra business that it brings. No question about that. Perhaps at scale, and with certain businesses, they can do collections for less than the cc systems vig but it’s clear that this has been not only a win for merchants (so everybody can stop whining) but also has spurred on much of the economy by providing credit and resulting in more total spending (same way home mortgages increased home ownership). Not to mention that by using cc a consumer (or a business) levels the field because they get some bargaining power with a vendor or merchant. What is that worth?[1] But to your point this small slice could be like saying “there will always be a need for buggy whips as a niche use..”

        1. Tom Mornini

          Paper money is no anonymous, it’s pseudonymous, similar to Bitcoin.Before you disagree, consided that each bill has a serial number on it…Bitcoin is currently more easily traceable through multiple transactions than physical cash — but that will change: better crypto and RFID physical cash will be working in Bitcoin’s favor and against physical cash.

      3. JLM

        .Bitcoin/blockchain does NOT extend credit.The big thing about CREDIT cards is the credit aspect.This is really what drives the fees. The ability for a vendor to attain a sale that would otherwise not occur while a buyer is able to obtain instant gratification.The fees are not just for admin, they are for greasing a credit based transaction.JLMwww.themusingsofthebigredca…

      4. jason wright

        Money is “electrons on a wire”. Who said that?

    2. TQabcd

      The vast majority of people did not care about TCP/IP too…back then. Tbh they still don’t, though it’s now just because they don’t realize it underlies some of our most powerful tools these days.

      1. Jason T

        This is a great point.

      2. Jason T

        If you could go back in time and invest in TCP/IP related themes, how would you do it? I struggle with blockchain as an enabling platform vs a monetizable construct in and of itself.

    3. jason wright

      for trust from consensus due to decentralisation. not so much for anonymity.

  10. Daniel Vogel

    The blockchain invention has obviously value by itself, but it wouldn’t work without the value of Bitcoin. It is the value of bitcoins that keep the Bitcoin blockchain secure and trustworthy. If the price of Bitcoin would fall to zero, the Bitcoin blockchain will no longer have security and it will be worthless.Sure there’s a possibility that a new blockchain emerges, but bootstrapping a new blockchain is hard. This is the cycle of bootstrapping a new blockchain:More value -> more hashing power -> more security -> more trust -> more valueIt is not obvious how you would make this happen again/get it started.So I agree with yoir argument in that people who will want to capitalize on blockchain will likeley use Bitcoin’s (it’s already been primed to have the properties – trustless, security, etc.. – that these innovations rely upon), which should only make Bitcoin’s blockchain even more relevant than what it is today.

    1. William Mougayar

      “there’s a possibility that a new blockchain emerges”- There is another vibrant one already working: Ethereum. It’s not the same as Bitcoin, but it is a viable blockchain for decentralized applications development.

  11. John Frankel

    Bitcoin cannot be mainstreamed. If it does not fail under its own weight it will be taxed and regulated out of the mainstream. Governments are not willing to give up the power of controlling the movement of money in their jurisdictions. Private cryptocurrencies that carry information in their blockchains and so have advantages over and above other money transfer mechanisms can flourish. Bitcoin is a story of good tech, bad implementation.

    1. pointsnfigures

      I think that is why blockchain is catching on. Blockchains are extraordinarily useful when they are used in the right context. For example, an exchange clearing operation is extremely similar to a blockchain. It’s not open technology etc, but it is a transparent record of what happens at an exchange. Facilitates pays and collects, margining and transfer of risk. There are going to be companies that utilize open blockchains as a networked way to efficiently coordinate supply chains in the future.

      1. John Frankel

        Yes. Just small, vertical, niche markets. Not supportive of $2bn in VC $.

        1. Tom Hughes

          I disagree — the potential markets are vast: the blockchain (with or without Bitcoin) could radically simplify corporate supply chains by allowing large corporations to coordinate with distributed suppliers in many jurisdictions with neither side having to take on currency risk at each step; currency risk (settling up in host currencies of the various supply-chain participants) can instead be painlessly deferred to later in the workflow and then fairly distributed amongst all the participants. This is not a technicality: many potential participants in complex global supply chains are constrained or outright barred from access because they can’t take all the currency risk. They’re not worried that Pfizer, or Ford or whomever, won’t pay up: they’re worried that they’ll pay up in a currency that’s depreciated or outright unusable.

          1. pointsnfigures

            I am not ready to say it’s a niche market yet. Supply chains are incredibly complex and further reaching than we think. I can wrap my head pretty easily around a discrete supply chain inside a company. Suppose Bitcoin/Blockchain offers a better transfer price using an internal market based price rather than one imputed by the Managerial accounting cost control department? Company gets more efficient and allocates resources better. What’s that look like in a supply chain that sources raw materials from all over the globe, uses distributed labor, etc? It’s too early to know and it’s almost impossible to bet on a winner-hence a lot of money going to a lot of different companies in Bitcoin. Certainly, some are bubblicious. I have not made a Bitcoin investment….yet!

          2. Boris Wertz

            Fundamentally new technologies didn’t break through b/c they were a bit more efficient but b/c they mostly enabled something that wasn’t possible before. A lot of the examples that are being cited for Blockchain / Bitcoin use cases are situations in which you can manage an existing process that works generally fine a bit more efficiently.

          3. JLM

            .I agree more with you than you do with yourself.That is exactly the problem.JLMwww.themusingsofthebigredca…

          4. Girish Mehta

            Good point, thanks.

          5. John Frankel

            Vast potential in supply chain markets. I do not disagree.

          6. JLM

            .This is a solution for a problem that is not a problem.Companies like Dell have been building tech gear to suit — with payment up front — while buying components “net 90” for years and years.They get paid for their product before it is built. They pay for the components which build the product three months later.This is not an accident.It is not not only a problem, it is an essential element of many company’s financial supply chain logic.JLMwww.themusingsofthebigredca…

          7. LE

            And even when something is a problem it doesn’t mean that there is enough pain and consequentially momentum to change (especially in a large slow moving corporation) the way it’s being handled now especially when that change involves risk of some sort.

    2. William Mougayar

      Despite its flaws, the Bitcoin train is un-stoppable, and will continue sliding over, or around regulations. It is like a slippery slope to regulate Bitcoin to the full extent that traditional monetary or securities regulations work today.Bitcoin is becoming the cryptocurrency of record. It is almost too big too fail at this point. It is an “alternative”. It is not a replacement.

      1. John Frankel

        Bitcoin can fail and can be stopped.

        1. Girish Mehta

          Yes, it can.

        2. William Mougayar

          But why? It would be disastrous for the tech ecosystem if it did.

          1. John Frankel

            Not really. Only $2bn+ invested by VC’s. Not sure the rest of the tech ecosystem would notice if it dissipated over time.

          2. William Mougayar

            Not directly as an ROI, but as what it engendered overall, across the cryptocurrency ecosystem.Anyways, we don’t agree there.

        3. Ray Youssef

          Bitcoin will not fail, it solves far too many problems. On the bottom it helps those who are exiled by PayPal, Visa and Mastercard. They can now collect payment without risk. The only obstacles are onboarding their userbases. This will get smoother as startups go down the same path we have.On the very top end, cash is the enemy and bitcoin can help eliminate cash as it can be traced. This leaves only the middle managers, banks, left complaining. With the bottom and top of the pyramid against them their time is limited.Bitcoin has already won.

          1. John Frankel

            Feels like a religion to me.

          2. ShanaC

            many things in life are religion…

          3. Alex B.

            That’s a rather cynical way to look at it but in a certain way it is right: much like religion, all money is based on trust/faith.

        4. Matt A. Myers

          I agree. I really need to make a blog post on this topic, so I can stop repeating myself. :)There are many factors with Bitcoin that are bad for society, including allowing individuals to amass large amounts of value (in a potential future currency) for having done nothing – merely because of supply and demand impacting the value of Bitcoin; as a transaction layer it shouldn’t increase the value of anyone else’s currency.Like email, if more people are using it then it has a increased utility value – and that is primarily where digital currency should gain its value. The main reason Bitcoin has gained traction and adoption is purely from its ability to be a gamble through speculation.How many Bitcoin companies that were started have owned millions or $10s of millions of value of Bitcoin before they began, and so are incentivized to help increase the value of Bitcoin? Their business models help stabilize and perpetuate adoption and likely amass even more Bitcoin for themselves to gamble even more – what’s their worth look like when Bitcoin is worth 100x or 1000x?Coinbase, where they immediately will convert Bitcoin to dollar is an easy way to realize the illusion that Bitcoin is being more widely accepted. They alone or a very few could perpetuate this, however it still isn’t fair or reasonable.If you look at the end of the cycle as well, say where 70% of people have adopted Bitcoin, what does the scenario look like for the last 30%? If you look at all of the pressures and friction and unfairness that is created by that point there is then a very big problem that is illuminated.The development of Bitcoin is interesting because it mimics the past, where there was a previous control and power grab. I wish I had more time to study it.

          1. Alex B.

            Please do consider studying it more and you will likely realize how myopic your comments that early adopters “have done nothing” are.One more time: Bitcoin is not a mere “transaction layer”. It is a commodity not unlike gold. Do you also consider gold to be “bad for society” because certain people amassed large fortunes simply by picking nuggets out of river beds back in the days?

          2. Matt A. Myers

            They have done relatively nothing. Plugging computers and running programs to do work for them isn’t the same as someone actually doing work. The payout doesn’t match – even if you want to bring in the cost of those machines (investment in speculation) or the cost of energy for powering them.Why couldn’t something other than the gold standard have been just as good or better?The actual benefit to all of that was:a) it got people being productive, andb) it got everyone aligned.Do you think we can’t do that without unfairly incentivizing people to have a bias and push for a certain method?

          3. Paco Ahlgren

            Matt, you are a victim of Marx’s Labor Theory of Value. Value is always subjective. You’re spinning your wheels. “Fairness” is not arbitrary — no matter how much you wish it were.

          4. Matt A. Myers

            First question, do you own any Bitcoin?Please break down what I am saying is contradicting Marx’s Labor Theory of Value. I think you may be merging the two values into one – one value which has real value and is tied into anything that will try to be a global digital currency, and another which is speculative and illogical.

          5. Paco Ahlgren

            My ownership of Bitcoin (or lack thereof) has nothing to do with the veracity (or lack thereof?) of my statement.You’re not contradicting Marx’s Labor Theory of Value. You’re trapped by it. You’ve determined what’s “fair” or “unfair” for (and to) other market participants. Unfortunately, you haven’t been endowed with the luxurious omnipotence that affords you that super power. You’re at the end of a long line of demonstrable failures.Read Mises, Hayek, Popper, Kuhn, Chomsky, Proudhon, and Bakunin. You can’t arbitrarily assign “value” or “fairness.” It just doesn’t hold up, mathematically. Especially poignant: Mises Economic Calculation Argument. It’s irrefutable. It’s the reason why Bitcoin has (and will continue to) succeed.Thanks for the response.

          6. Matt A. Myers

            If you can’t even acknowledge the fact that bias exists, then there’s really no point in thinking anything further you say is reasonable.

          7. Paco Ahlgren

            Non sequitur. But okay.Thanks again.

          8. Matt A. Myers

            Not really. Knowing someone’s biases is important to understand why they may be arguing what they are arguing. It was a simple question you avoided. But okay.

          9. jason wright

            compare bitcoin to the Federal Reserve. there’s always a vested private interest somewhere.

        5. Paco Ahlgren

          Maybe Bitcoin can be stopped, but probably not. It certainly won’t be stopped just because pessimists perpetually condemn it. I don’t know why so many people take the time to try to convince people like you (and yet, here I am writing)… Bitcoin is and has always been self-actualizing. Time will tell if you’re right or wrong. So far, it’s done a pretty good job of surviving — despite the fact that every central bank on earth would love to see it go away.

          1. Matt A. Myers

            It’s self-actualizing because investors put money into to perpetuate it. They are speculating on the increased real currency value of Bitcoin – it’s inherent to the ecosystem. Unfortunately in it’s current structure you can’t remove that from the other value that a global digital currency would have. I’m not sure why you’re taking what myself or others are saying as pessimism either — condemning something doesn’t inherently mean it is a pessimistic view, however it’s an easy way to put someone down and seemingly strengthen your argument. Perhaps you’re confusing the value of what a global digital currency would bring and the negative values that the current Bitcoin structure brings by allowing speculation?

      2. JLM

        .Wow, that’s a bold statement. I remember when there was going to an alternative “reserve” currency specifically designed to free the energy industry from the shackles of the USD.Everyone was on board until the ship left port.It sunk.The USD is still the reserve currency for oil and all oil contracts settle in dollars.There is nothing with a disruptive idea but it is not the same thing as implementation. The ship needs to run some sea trials before carrying passengers.JLMwww.themusingsofthebigredca…,

        1. William Mougayar

          Everything starts small….and then it grows and grows…and suddenly it’s significant. Isn’t that how the Internet started? I remember when there were 50 million users on it, and we said Wow.

      1. John Frankel

        Money is a commodity and subject to commodity regulation regarding trading.

    3. fredwilson

      Sounds like a lot of what I heard about the internet in 93-96 and why I think you dead wrong on that

      1. John Frankel

        I wonder if everyone on this page that has bought/sold/transacted with bitcoin has completed their tax returns in accordance with the following?:…IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions ApplyIR-2014-36, March. 25, 2014WASHINGTON — The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.In some environments, virtual currency operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

        1. JLM

          .This is exactly what happened to the “barter economy” years ago.JLMwww.themusingsofthebigredca…

        2. Tom Mornini

          That’s like asking whether everyone who has purchased products in states with no sales tax, then brought them home to states with sales tax, have reported it and paid “use tax.”

          1. JLM

            .When you buy a airplane, you better know the law cause they will hunt you down.JLMwww.themusingsofthebigredca…

          2. LE

            Agree. NJ is particularly aggressive.And Philly even goes after (or did) ball players for wage tax for when they played in Philly.True story from years ago when I had a business located in PA. I didn’t have time calculate correctly sales les tax due (which we collected) from customers even though we were computerized. We had both exempt and non exempt customers. So each month I just guesstimated the amount due and paid that. When I sold the business I went through and reconciled everything and found that over the years I had overpaid roughly 25k in today’s dollars. So I put everything in a spreadsheet (what I paid, what I was actually due) along with a letter to the state sales tax department. Perhaps 6 to 9 months later I got a check in the mail for exactly what I had put on the spreadsheet. It was that easy.

          3. John Frankel

            The Federal government is setup up tax and reporting and regulation traps around Bitcoin, so that if it gets big they can impose burdensome friction on the use of it. Be warned.

          4. Tom Mornini

            I don’t need to be warned, I pay all taxes voluntarily.But that doesn’t blind me to the fact that tons of taxes go unpaid the world over.

          5. John Frankel

            It was not a personal warning at all. There is tons of tax avoidance and tons of tax evasion. By clarifying the tax status of cryptocurrencies the IRS has demarked the line between avoidance and evasion.

        3. Twain Twain

          It’s not just about govt controlling movement of money in their jurisdictions, it’s also about govt controlling movement of…IDENTITY inside of jurisdiction and internationally across it.At the moment, what’s Joe+Jane Main Street’s personal Bitcoin? Our driving licenses, our passports, anything which confers an IDENTITY to us and enables us to transact on a cross-border, cross-business basis.Who controls the issuance of such “stores of identity value”? The governments.This is why I do hear your arguments in a different way from @fredwilson:disqus.Nonetheless, Blockchain+Bitcoin can be mainstreamed — it simply wasn’t the best use case to take on the banks and the governments simultaneously on the software side as a first action point from Nakamoto’s manifesto.Blockchain+Bitcoin advocates could have taken a leaf out of Bloomberg’s playbook first. Build the hardware (per what 21 is now doing), apply it in Oil&Gas sector (as Ethereum is now doing) and by the time the banks realized what was happening…They’re already locked into Blockchain+Bitcoin because their biggest value clients are already locked in — just as the banks got locked into Bberg terminals and its stream of data with no alternative but to use it.Instead, Blockchain+Bitcoin community dropped the ball on that.In any case, not that it will matter now since we’ll likely see a new Information Revolution based on quantum computing theory in 3…2…1…Which will make probability and its approach to cryptography a bit (pun intended) obsolete.@wmoug:disqus – Identity, Interoperability and an Integrated Information Algorithm are the “Holy Grail” everyone in Machine Intelligence is chasing, by the way.The flaw of Bitcoin protocol is that it is NOT that Integrated Information Algorithm. It may link machine-to-machine transactions data better but not machine-to-human translation of utility value.The next Nakamotos will need to figure that out, LOL.

      2. John Frankel…Aitan Goelman, the CFTC’s Director of Enforcement, commented: “While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets.”

      3. kidmercury


    4. Ted Rogers

      John — one of the reasons you are wrong is that — like many people commenting on bitcoin — your argument comes at the issue from a developed economy perspective.There is not a sufficient pain point (yet) in North America and Western Europe to think bitcoin will be used as a currency. It will be a speculative investment and, soon, used as a currency in areas that current payment methods can’t address, like micro-transactions.But 1/3 of the world lives in areas of extreme financial (currency) volatility. In those places, the pain point is very high — and bitcoin is a very attractive alternative for a store of value and a means of transaction.Ease of use still needs to be addressed but if you hang your argument on the belief that the current UX frictions will remain, that is a very thin reed indeed. if you hang your argument on the ability of the governments of those 2B people keeping bitcoin out, you are lost. makes about $100K per day in profit and growing — one might consider why that’s the case and how they could get shut down (they can’t and won’t).Respectfully,Ted

      1. John Frankel

        They can and they might. Governments like to hold onto power and control.

      2. Matt A. Myers

        They earn $100k of real currency per day in profit – or worth of Bitcoin and how much of that do they turn into real currency per day?It is clear why the ecosystem for Bitcoin is thriving, there is a lot of money going into building and selling shovels – and speculation, I’m glad you mentioned investment, on that the price of a Bitcoin will continue to rise.It only rises based on demand, but that is inherently the problem with Bitcoin as well — redistributing and value to people simply because they owned Bitcoin before you just doesn’t make any sense, it isn’t fair, and it shouldn’t be inherent to a financial transactional layer.

        1. Alex B.

          First, Bitcoin is very much a “real money” and certainly not a mere “financial transactional layer”.Moreover your judgment or what is fair or not is irrelevant. Early adopters who made early bets and took entrepreneurial risk into growing this ecosystem as well as the value of the monetary base certainly deserve credit and fair return on their investment.Your comment that “it only rises based on demand” is rather curious. Maybe you’d like to expand your thoughts on that? You do realize that *everything* rises in value based on supply and demand?

          1. Matt A. Myers

            Sure, they deserve credit and a fair return — that return is currently unlimited though, so you’re saying that’s fair?And how can you say what I think is fair or not is irrelevant but then go on to say someone else needs to be treated fairly? That makes me laugh.Apple and oranges for your “everything rises in value based on supply and demand” — Bitcoin isn’t a thing. Lumber is a thing, a person and their time is a thing.And increase in value based on supply and demand isn’t inherently the issue – it’s the unfairness of how much the people making “early bets” that are thenIf you simply mined X number of Bitcoins very early on and did nothing else, you now potentially have $10,000,000s (or $100,000,000s) of value already – and that amount will increase. And how does that equate to reality?Do you really think that is fair? If so I don’t think you’re a reasonable person.Question for you: Do you have any bias or vested interest in Bitcoin? Do you own any or a platform or service? If someone a year ago did work for $100, and now that $100 is worth $200 just because time passed – is that logical?

    5. Ray Youssef

      Bitcoin is helping the mainstream right now. It has already begin with the BackPage effect. More uses cases will emerge and bitcoin will be there. As the startups figure out how to more easily onboard bitcoin to the mainstream this process will only get smoother. We began three months ago and already our wallet makes up about 5% of all the bitcoin blockchain transactions from a purely mainstream userbase. This will only grow as others see just how useful bitcoin is.

    6. Gregory Magarshak

      I’ve seen you speak on “Both sides of the table” and other places where you come out strongly against libertarian and cypherpunk stuff. But consider this: Paypal was mainstreamed. Peter Thiel had some libertarian-tinged visions when he cofounded PayPal, and it was mainstreamed because it made paying money online convenient. For anything to go mainstream, convenience and network effects are all you need. Governments do come to accept things that the suppressed before … consider all the civil rights movements of the past.If PayPal, Western Union, etc. has a huge market cap, why can’t Bitcoin?Personally I’m not a big fan of Bitcoin using proof-of-work as the core of the distributed consensus scheme. It’s too wasteful. So I think ultimately it will be replaced with something else that’s not based on proof-of-work.

  12. pointsnfigures

    There may come a time when we also embrace Thoreau’s civil disobedience theme. When governments become entirely tyrannical, people don’t necessarily follow them. There are teeny private markets opening up around the US where businesses are creating their own currency instead of utilizing the fiat one. In places like Argentina, where government abuses their rights, and abuses their currency, Bitcoin has a better chance of catching on.

  13. Wyatt Brown

    I wonder how the blockchain can potentially smooth out/simplify complex, multi-party transactions; Real estate and securities being the two areas where transactional structures and payment mode inefficiencies run rampant.Could blockchain technology help spur tertiary innovation in overly complex business transactions?

    1. JLM

      .What inefficiencies, in particular, do you speak of?The inefficiency of my being able to, while lying on a chaise at my pool, obtain real time quotes, type in an order, execute a trade, and have Schwab account for everything while I perfect my tan?We are going to abandon a system that is working pretty damn efficiently for exactly what “new and improved” efficiency?Take it a step further and consider that lots of folks — myself being the I one I am most concerned about — love the idea of Schwab being there to handle my stuff.Lots of kool aide gargling going on here.JLMwww.themusingsofthebigredca…

      1. LE

        Exactly. Mom thinks the Acura gets her around just fine when she needs to pickup something from the supermarket.

        1. JLM

          .Hell, not only does the Acura get her around fine, she freakin’ loves it. Mom is not going to buy a Tesla.I have literally not heard of a single speculative capability of the blockchain — ever — which is going to improve my life in any way.I am perfectly happy with Schwab, USAA, Wells Fargo.We are wandering deep into Segway headfake territory and it is getting very late in the game.JLMwww.themusingsofthebigredca…

          1. LE

            Yeah but there is always the risk of the newly hatched. And what they are brainwashed into doing and believing “the halo”.Let’s take Tesla as an example. Who should be worried? The legacy luxury brands that we grew up with. Porsche for example. Something that I wanted as a kid (or Mercedes when I saw my neighbor growing up got one). So when I had the money that’s what I bought. Porsche. Not because it’s practical (ever see the rear seats?) but because my brain is happy with the party going on when I own one.So now there are young people who have the seeds of desire planted for Tesla. They aren’t lusting for the cars that I lusted for as a kid. Porsche is still special of course but BMW, Mercedes and so on are sold through volume dealers (so they are just “good cars” now not aspirational items). Plus they get to think they are better than me or greener than I am and that, to them, is a party in itself. And the thing really is fast. Instead of small rear seats though you have to worry about where the next charge from.My point: Newly hatched are going down a different path. As older people die off trends take place (pingpong tables or dogs at offices, who would have thought that was a good idea?) The only question with bitcoin is will the old people die off quickly enough for it to take hold.

          2. Girish Mehta

            “Science advances one funeral at a time” – Max Planck.You have an interesting perspective at the end. Its a broader dynamic that has played out in history. Reminds me of what Max Planck said.Longer version -“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it”. – Max PlanckPlanck’s Principle -…

          3. LE

            Cool didn’t know about Planck’s Principle interesting how an organic thought that I had is actually based (as I am sure many things are) in something someone said in the past that is notable. (I wonder if there is a principle and name for that actually..)

          4. Ted Rogers

            We are not late in the game, we are at the very beginning of it. Bitcoin has infinite patience.

          5. JLM

            .The market, however, does not.It moves on to the next thing.Myspace?JLMwww.themusingsofthebigredca…

      2. Wyatt Brown

        That is true, and the formation of TD AmeriTrade and E Trade Group in 1994 changed the world in exactly the way that you are suggesting. I’m reaching beyond blockchain providing convenience in front-end, consumer-facing surface transactions.On the back-end/inside, there are many stages of structural process, and transactional hand-offs involving technology and people that have lead to abuse and malfunction. E-Trade, Schwab, and of course consumers suffered greatly because of this during the sub-prime fiasco. These issues have not been resolved, and may arise again in new, unknown ways.More specifically:1. Can the blockchain provide some kind of transparent, standardized architecture that removes unneeded transactional touch-points where “fees” are unnecessarily created, and risk is inappropriately allocated?2. Can the use of blockchain help remove, illuminate and regulate the relationships between different classes/types of securities and “dealers/brokers”, throughout the transaction foodchain, so that risk and value are more accurately presented to all parties, simultaneously?I’m reaching really hard here, but it seem worth an investigation….? Don’t kick me out, Fred 🙂

        1. JLM

          .You are really stretching and trying hard but there is no there there.What fees?I have a Schwab acc’t and I wire money from time to time — I pay nothing.The consumer — from whom most of the revenue is derived — cares not a whit about the relationships with broker/dealers who do not impact the vast, vast multitude of trades they initiate.Most consumers couldn’t tell you what a market maker is nor do they care.The relationships amongst different securities are fully reflected in the pricing created by an auction market. Nobody is being compelled to trade.The market may be wrong. But, markets are often wrong.By “illuminating” and “regulating” — the world will get better, exactly how?You are really trying hard.JLMwww.themusingsofthebigredca…

        2. JLM

          .Just a historical note –Schwab was founded in 1971 while TD Ameritrade was founded in 1974.Check me on this as I am operating from memory here.The reason I note this is that this — decoupling trading commissions from trade size — has been a long time coming and has become the norm for a longer time.It was revolutionary at the time and is now quite ordinary.Blockchain is not yet even revolutionary. It is all mired in neck deep “potential.”JLMwww.themusingsofthebigredca…

  14. Adrian Macneil

    I think the bitcoin blockchain will be the most successful, at least in financial/property contexts, simply because of the network effects behind it. In this sense, it is similar to other open network protocols (IPv4, SMTP) which were pretty obviously flawed from the early on, but had so much momentum behind them that it was impossible to change.It’s likely that other blockchains may spring up to fill other niches (e.g. Ethereum for more general decentralized computing), but highly unlikely that we will see another digital currency blockchain disrupt bitcoin. What I think the Economist and other journalists miss is that you cannot have a blockchain without some sort of financial reward to incentivize mining. Sidechains will allow that incentive to be bitcoin currency (in a sense allowing multiple bitcoin blockchains), but someone still must pay for this (the current bitcoin blockchain is heavily subsidized by the block reward/inflation, but sidechains would need to be funded entirely by transaction fees).An example of this would be a future decentralized property blockchain, which uses native bitcoin currency for (relatively high) fees, and these go directly to miners to incentivize securing the network. However, it would cost a lot in fees to guarantee anywhere near the level of security afforded by the current bitcoin blockchain, so at this point one must ask why not simply use the bitcoin blockchain, and take advantage of the existing mining incentives. Therefore, for anything which involves financial applications or property, the network effects of the current bitcoin blockchain far outweigh any downsides to using it.

  15. JLM

    .’Bitcoin is dead and, apparently, despite all the great things it promised — the world has proven it can live without it. One can only be the FNG (fucking new guy) for so long before the novelty wears off.Bitcoin is dead. Long live the blockchain.The blockchain is in the “if an erection lasts for more than four hours, call your doctor” phase of its life.It needs to produce a unique, new, killer app — not a great, innovative use for candy corn (this being a day which approximates “peak candy corn”).All of the touted advantages of the blockchain — of which there are a handful that, clearly, are potentially significant — are essentially “replacements” for something we are told is not as good.This is like “new and improved” toothpaste and not much more.We are all still looking for the killer app and, clearly, it is not bitcoin itself.The doctor is not going to be able to help the Viagra/blockchain 4-hour+ lance of romance, if there are no results. World War II lasted (for the Americans) 3 1/2 years. The blockchain is already looking a bit long in the tooth.If it were so damn revolutionary, wouldn’t a revolution have already started by now?JLMwww.themusingsofthebigredca…

    1. LE

      Upvoted strictly for mention a drug commercial which are so well done utilizing distracting visuals to mask side effects using magical tricks (really). I dissect pharmaceutical commercials. [1][1] Btw it’s “get medical help right away” or “seek medical help” not “call your Doctor”.

    2. fredwilson

      well all those buyers who have driven the price of bitcoin from $220 to $320 in the past month must not have gotten that memo

      1. JLM

        .They are certainly as right as the folk who drove it to $1500+++ the last time around.No more, no less.You, of all bubble savvy people, should avoid the temptation to conflate price, value, and utility.JLMwww.themusingsofthebigredca…

        1. ZekeV

          Price certainly does not reflect utility, at least not day to day. But if there is no utility, you would expect that eventually price will go to zero. Not only that, but people who spend money to process bitcoin transactions (nodes) and to mine bitcoins (validate PoW) will realize they are wasting money and will stop doing that. You have noticed that,strangely, people are not giving up yet. I guess they must all be deluded? But, when will they all be forced to notice their mass delusion?

          1. JLM

            .Bit of skepticism does not mean anyone is delusional.JLMwww.themusingsofthebigredca…

          2. ZekeV

            Let’s say that bitcoin is useless for anything other than allowing computer-savvy folks to gamble on the price of bitcoin. I would say that is a killer app, and one that has created multiple billions in market value already. Though perhaps it is not a socially beneficial enterprise, if that’s all it’s good for.In any case, it is healthy to be a bitcoin skeptic. The proprietor of this blog must be a skeptic as well, at least relatively so, based on his actual (publicly announced, as far as I know) investments in bitcoin and bitcoin companies.

      2. Girish Mehta

        Hmmm….a little surprised to see this from you Fred…considering you said a few times during the phase when Bitcoin crashed from $1100 to $200 that you did not view market price moves as representative of the potential or value of Bitcoin.Why does that same argument not apply in the opposite direction :-)….

        1. jason wright

          that was two years ago. things have moved forward. Carlota Perez and all that.

        2. fredwilson

          i don’t think price is representative of the potential. except if it has no potential, it should have no price.

          1. Girish Mehta

            Yup, I understand Fred. Certainly everybody in the market does not believe that Bitcoin is dead, or it would not have a market or a price. That is true.To the broader point I was commenting on- I think there are two ways to look at this -1. The Market is Always Right – Never Ever Argue with the Market.Certainly several successful trading strategies and careers have stood the test of time based on this principle.OR2. Markets CAN be wrong. Several investing strategies have stood the test of time based on this idea. And if Markets can be wrong – they can price something that is not worth its price.If short term market price changes are irrelevant, then they are irrelevant both ways…going down and going up.Thanks.p.s. I also think such a move up over a relatively short period is not good for Bitcoin – that’s a 50% upswing in a very brief period. A bad signal if Bitcoin wants to play a material role in the monetary system. I love it when people point to “volatility” of emerging market currencies and Bitcoin as a alternative solution to that problem ! It would be instructive to stack rank the volatility of Bitcoin over the past 2 years.

          2. bshanks

            But not literally zero —… lists market caps for 590 cryptocoins, down to $18 for one of them, and some of these have recent price increases. So do all of these have ‘potential’? If not, where do you draw the line? The BTC market cap of around $4 billion and trade volume of ~$40 million isn’t very big for a currency. Some might say that for a currency, these numbers are practically zero. I imagine that there have been larger bubbles in currency-like things in the past. (Actually, I personally think that BTC does have potential; I just don’t think that its current price provides, by itself, much evidence towards that point)

    3. William Mougayar

      JLM- I wouldn’t hold my breath for a single blockchain killer app, but for possibly several of them. That said, arguably, its first killer App is Bitcoin which is a marvel in of itself. But you’d only understand this if you are an active user.

      1. JLM

        .One, one real one, would be a start, no?JLMwww.themusingsofthebigredca…

        1. William Mougayar

          For the business/financial segment, the blockchain collapses the clearing-settlement phases into a single one. Billions of dollars at stake there, and it’s a big cost reduction equation for banks. Real-time settlement is a huge back-office conundrum.For consumers, I can send you money which you can receive in 10 mins without going through any other intermediary like your bank or mine, and without incurring fees or other hoops to jump to. Let’s make a stupid sports bet now, and part of the bet is that whoever wins needs to settle with the other within 15 mins. And after each 15 minutes of delay, the amount owed doubles. Good luck sending me that money and ensuring I receive it in 15 mins….unless you have Bitcoin.And if I was an UBER driver, I would prefer BItcoin because the money clears right away. Instead, I have to wait 24-48hrs and sometimes 3-4 days to see a deposit clear, and with fees, AND if I want a faster service, I need to pay $2 per day or more.For your daughter’s business, they can pay their supplier in China via OpenBazaar by having a seamless escrow in the middle of the transaction. That way, she knows that her money will not be deposited by them until the goods are received with full satisfaction, and she can do that from her computer without going to a bank. The alternative is to go to a bank and Good luck entering a Chinese address on the wire transfer document (1 mistake, and it will not go, and good luck in tracing a wire); and good luck if she asks the bank to kind-of-send the wire transfer, but don’t let them deposit it until she is full satisfied and the materials have been received as promised.If you want more….you’ll need to read my book. Stay tuned for that story 🙂

          1. JLM

            .Aren’t all your examples artificially constrained temporal differences?There is no real pain associated with being paid after the fact. Most folks get paid every two weeks.JLMwww.themusingsofthebigredca…

          2. William Mougayar

            What???? Time is money.The banks want to collapse the time from 3 days to hours if not minutes. UBER drivers are being asked to pay more if they want faster settlements. I doubt a Chinese supplier will accept being paid 2-3 weeks especially if they are dealing with a new customer. And I’m not making any bets if we can’t settle in 15 mins.Real-time is the new standard time.

          3. JLM

            .The banks actually want what they have always wanted — free float.Chinese suppliers want up front payment (just like Amazon) or a letter of crefit. That is ancient legacy payment protocol, no?You can’t get much faster than pre-payment can you?So what is bitcoin going to improve again?JLM (skeptic, not doubter, just skeptic)www.themusingsofthebigredca…

          4. William Mougayar

            You are a hard sell. I guess, you’ll have to move your seat to the back of the stadium where you can just watch!

          5. Chimpwithcans

            Hello JLM, curious whether you have ever bought any bitcoin? (As a skeptical experiment of course). I have just setup an account to see what the fuss is about. So far the price has rocketed, but to be honest I expect it to rocket back down at any moment. I have access to banks and none of my friends or shops i use have offered to take any bitcoin. One online shop i use takes it, but I haven’t had to use it for a while. Suffice to say – other tech innovations have had a bigger impact on my life, such as M-Pesa and PayPal to name 2.

          6. LE

            they can pay their supplier in China via OpenBazaar by having a seamless escrow in the middle of the transaction. That way, she knows that her money will not be deposited by them until the goods are received with full satisfactionMore about this part? How exactly is the escrow handled and what are the rights of the various parties in the event of any disputes?From my memory when my Dad was in the import business he typically got “letters of credit” from the bank and the bank handled releasing the money when the goods were actually received. This was for people who traded and had reputations afaik in other words they were known entities on both sides.I am not seeing anything about this on the site btw

          7. William Mougayar

            Ah, it’s coming. Not out yet. You can specify the terms of agreement into the transaction via what’s called a “Ricardian contract”. Of course you can do this via a letter of credit, but that’s not easily granted and your bank needs a counterparty bank, and there’s a cost to all this, plus delays to set it up.

          8. JLM

            .You don’t have to have a counterparty bank to exercise a letter of credit though it is often done that way. You can always present a letter of credit, with the appropriate documention, to the originating bank.JLMwww.themusingsofthebigredca…

          9. William Mougayar

            But you still would encounter delays in getting it cleared, no?

  16. Dan McArdle

    I think it breaks down as follows:1) Private BlockchainsWill have applications in the distributed database space, possibly pretty valuable ones. This area may see strong short-term growth.2) Public BlockchainsIn General:This is where the long-term action is. Even from just a raw tech perspective (ignoring the monetary freedom aspects), developer interest and effort should center around an open protocol vs a closed one.Bitcoin Specifically:Bitcoin’s network effect keeps getting stronger. Other public chains may carve out niches, but have a huge uphill battle in order to supplant Bitcoin. And I agree that if a host of other services continue to develop on top of bitcoin, it’ll further drive this network effect and value overall.

  17. Ray Youssef

    I suppose TCP/IP can also be useful without the internet but I cannot imagine it.Bitcoin is the main problem solver and value add for our business. When the second biggestclassifieds ads site on the internet lost their VISA, Mastercard access it was bitcoin that came to the rescue and ONLY bitcoin could have done that. Thanks to bitcoin an army of single moms can provide for their children. No startup is going to invent their own blockchain and magically create a liquid market around it overnight. What startups can do is listen to their customers and solve problems that actually need solving instead of constructing balloons around hotair.It’s only just begun as we are now testing how Bitcoin can help the legal cannabis system. Bitcoin as a currency is about much more than crypto it is the glue between various types of other currencies and financial transport methods including gift cards, debit cards and any payment method that can be imagined. Imagine the already massive and growing legal cannabis industry being able to accept debit and other payment methods while getting bitcoin (via a p2p marketplace), and effectively using the bitcoin blockchain as their bank account. Then imagine them being able to use bitcoin to fund their other fiat wallets, via the same p2p marketplace or other exchanges. All of a sudden SWIFT is not the only game in town anymore and when Cannabis goes legal on a Federal level and the big banks come crawling, the cannabis industry won’t need them because there bitcoin eco system will be developed enough to give them everything they need.Bitcoin solves real problems and will continue to do so. Peer to peer markets like Paxful offer essential plumbing for this emergent reality. Banks want to divert the thunder away from Bitcoin, understandably but the truth is that unless banks return to their roots as a customer service based industry then they will continue to lose market share and all the diversionary tactics in the world will not help them. Business is business, to quote my mom. Banks better face this reality.

    1. JLM

      .The cannabis industry application may be the “killer app” for bitcoin?You may want to read up on “The Marijuana Business Access to Banking” bills in both the Senate and the House.The House bill is stalled while the Senate bill is moving forward and has been reported out of committee. The bill can be initiated from either side.While it is not the most urgent legislative consideration of the Congress right now, the simple fact that companion bills have been introduced speaks volumes.This is a non-problem.Point being that even the marijuana industry is going the “traditional” route.For the record, the Feds are long on record as not being interested in enforcing any bank charter violations related to the marijuana industry. The big banks have known this for more than a year.Not one Federally chartered bank in the US has ever had its charter challenged on the basis of their banking the pot industry.They don’t bank the pot industry because it isn’t currently very big.JLMwww.themusingsofthebigredca…

      1. LE

        They don’t bank the pot industry because it isn’t currently very big.What do you think? I say when someone draws first blood the rest will quickly follow that path. Same way the airlines do things. “Hmm, charge for baggage sounds like a good idea … stop providing meals sounds like a good idea”.

      2. Ted Rogers

        JLM — I agree with so many of your posts but, as someone who has lived in bitcoin world daily for the last two years, I can say you are wrong and, in the next two years, will be proven spectacularly so. “Bitcoin is dead” is a throwaway: with every day that passes 20,000 more people adopt it. The chances of it dying now are orders of magnitude smaller than a year ago and will be orders of magnitude smaller one year from now. In less than five years — without no increase in the rate of growth — it will be bigger than PayPal, which has 10x the market cap.Please see the reply I made to John Frankel, above — you are speaking from a very American perspective and that distorts your understanding greatly.

        1. JLM

          .Like everything else about bitcoin, your comment is firmly rooted in the future.Bitcoin and the blockchain are drowning in potential.In the “now” — there is not so much.JLMwww.themusingsofthebigredca…

          1. LE

            More chance that Jeb will win, eh?

          2. JLM

            .Apt analogy actually.Jeb Bush was the real deal until the reality of things set in and some old white legacy guy with a really bad combover and a few billion dollars showed up.Has any “lock” ever performed more poorly?JLMwww.themusingsofthebigredca…

          3. LE

            Add twitter to this discussion. Want another thing they all have in common? Tons of media attention (Jeb has more actually; Twitter always had it and still does). And even with all of that Jeb still can’t pull out of single digits.The mention he gets is unbelievable.He is the “presumptive media candidate”. Media keeps talking about him. It’s hilarious. They still think he will pull the rabbit out of the hat eventually. Just give him some time.So much for Trump being ahead because of media attention, eh? If that were (strictly the case) Jeb would be at least near the top.The media mention is what allowed the Internet to take hold. But in order to take hold there had to be something there otherwise it would be the 50% of advertising that Wanamaker didn’t know worked or not. [1][1] “”Half my advertising is wasted, I just don’t know which half.”.”

      3. Ray Youssef

        The cannabis industry is not the killer app for bitcoin because bitcoin doesn’t need a killer app. Bitcoin isn’t a gaming console, bitcoin is the lubricant of the instant economy.We need to wrap our heads around this, the mode of thinking about bitcoin now is completely wrong. We feel into this too as our first venture was a bitcoin retail merchant processor, that was exactly the wrong place to be, now were pivoted 180 and we are in the exact right place and only because we listened to the problems of the normal folks.We have also been talking to people in the legal cannabis industry and they paint a very different picture from yours. I’ll take their version as they are the ones hiring blackwater mercs $10,000 a week to move their cash and still trying to find creative ways to pay their growing utility bills. The real world is very different from the tech world. Startups that succeed go out into the real world, shut up and listen.bitcoin is the main arrow in our quiver.

        1. JLM

          .I think you are mixing your metaphors.Growers, like anyone else, are able to pay their utility bills with simple moneygrams and Western Union wires. Both instruments can be obtained with “no questions asked” cash funds. There is nothing new here.Utilities will even take cash in payment.Retailers are the ones receiving the cash and that cash can be picked up by armed courier services and banks who then issue cashier’s checks. The cashier’s checks can be made for payment to a trustee.There is nothing required to buy a cashier’s check other than cash and positive identification. I did this on Thursday.Same cashier’s checks could be used to pay utilities.A trustee can obtain any of a number of accounts. I have done this many times personally.JLMwww.themusingsofthebigredca…

          1. LE

            Both instruments can be obtained with “no questions asked” cash funds.Question here. Isn’t that still subject to the 10k limit or it gets reported to the feds? And if they go under that limit isn’t that a version of structuring?I guess it doesn’t matter. Although in theory and even though the federal government knows they are operating the fact that the money comes from drugs does present a unique set of issues. That could prove problematic at some point in the future.And what happens when a new administration takes over? The justice department could be directed to actually prosecute. I wonder if anyone taking that “illegal” cash could be roped in. Landlords in particular since they have actual knowledge of what is going on. I wonder how property insurance industry even views the risk here given the federal laws. Not a business that I would want to be in.

  18. Steven Kane

    Yes, flawed. I think bitcoin is to currencies what esperanto is to languages. But blockchains seems more like a really exciting, foundation-level technology like tcp/ip.My $0.02 (and yes, only offered in USD)

    1. Charles

      I think bitcoin is to currencies what esperanto is to languages.What are you trying to say with this analogy?

      1. Steven Kane

        esperanto was a utopian dream for a universal language, an attempt to use engineering to clean up a messy human system that, on the face of it, seems inefficient, outrageous, anachronistic — but, as it turns out, suits the human race perfectly ok. similar dreams of a one-size-fits-all monetary platform informs the rhetoric of bitcoin proponents, and i suspect perhaps bitcoin will, like esperanto, dwindle to be the domain of a very small but very happy cadre of enthusiasts…?

        1. James Ferguson @kWIQly

          Techning Esparanto would never scale – Not true of a software technology

          1. Steven Kane

            not sure i follow. human languages by definition “scale”. every single human being communicates using one, or, often, more than one. plus, computer languages obviously “scale.” music languages “scale” – pretty sure billions of people around the globe all share a common musical notation. mathematical and scientific languages “scale.” etc……..

          2. James Ferguson @kWIQly

            A network effect – The first Esparanto speaker gains nothing – the second can speak to one person etc.To scale langage rapid adoption that outpaces corruption (of the language) is necessary. The use case and way humans learn languages make this impossible – there are no native Esparanto speakers to prime the pump.The sames is not true of bitcoin or the blockchain. – because of the mining process – If I were paid to learn esparatno and teach others I might ! And people might pay me if they saw the same opportunity.Never going to happen – because it is just another language and does not solve any fundamental problems (which an agreed public ledger timeline does)

    2. Dan McArdle

      Blockchains are only really exciting in that they allow parties who do not *already* trust each other to interact. This is what a *public* blockchain, like Bitcoin, does.This abstract concept of “blockchains”, often means a *private* blockchain, which solves an already solved problem (distributed databases) in a new way. Though cool and valuable for certain applications, it’s not fundamentally new the way Bitcoin itself is fundamentally new.And on the technical level, to get a *public* blockchain to actually work, you need mining and an on-ledger asset (eg, the “coin”). This is why Bitcoin specifically, as the public chain with vastly dominant network effect, is likely to remain strong and grow.

  19. cyanbane

    I look at the Bitcoin blockchain as an analogy to the United States. It was a big experiment in the world of ledgers (countries), and although it may have its ups and downs, it will continue to persist (if not just for sheer size and adoption). Other ledgers (countries) will learn from it and adjust according to its pitfalls and or areas where things don’t seem as secure – or where their accountant (leader) feels that there shouldn’t be as much leeway (power ceded).

  20. Ted Rogers

    No, that is not a flawed assumption. The fact that many smart people make comments — many of them on this forum — that are detached from the reality of what bitcoin is and how it works, is proof of the size of the disruption it enables.The larger the technological leap, the more difficult it is for people to understand — and to believe.

  21. billbarhydt

    The underlying point of the quote may ultimately prove correct but speaking for Abra I can tell you that Bitcoin will remain the only game in town for quite a long time. To make Abra work we need:1. An asset (like gold) that can be held directly by anyone in digital form with no financial intermediary2. A means of moving those assets without a central trust authority3. An asset whose market capitalization in fiat is high enough so that it may be shorted to protect its value using markets (exchanges) that are liquid4. A built in scripting language enabling multi sig contracts for difference that are self settling with no central clearing5. An open source community hacking away at the underlying protocol (with lots of public debate) to create extreme trust in the networkWhile ethereum comes close (see point#3.) There is only one solution that meets all of these requirements for Abra. Bitcoin.

  22. Benji Rogers

    Opps sorry I see it was already posted…

  23. Matthieu Riou

    It is a flawed assumption if Bitcoin, as a technology, fails to evolve to enable those “clever things”. But if you replace Bitcoin with public blockchain, then I agree. In public blockchains, There Can Only Be One.

  24. Ryan Shea

    I’d say it’s a correct assumption but to an extent. Increased usage of the blockchain as a data notary does indeed mean increased demand for bitcoins. However, over time it will likely increase demand in a fashion that is sublinear to usage, rather than linear.There is another component, though, which is increased attention to the currency from increased usage of the Bitcoin blockchain, which could prove to be non-insignificant.As far as usage of private vs public blockchains goes, my view is that for many corporations, private blockchains will prove to be a gateway drug for public blockchains, and they will eventually come to the conclusion that for many things they do, it just makes the most sense to build on the strongest public blockchain (which is currently Bitcoin). Of course, there will always be uses for private blockchains, but there may end up being fewer than corporations currently think.Below is a justification for my thinking that the Bitcoin blockchain makes the most sense to build on top of, given certain properties about private and public blockchains. I could be wrong here, as these are early thoughts, but this is my current line of thinking.

  25. Pete Griffiths

    I think it is a flawed assumption.

  26. Terry J Leach

    I’m not sure about “a host of other uses” for doing clever things with the bitcoin blockchain. Fundamentally blockchains are architectures of trustworthy computing. I’ve been thinking alot about rebuilding architectures, which I think of as technology, people and processes, by replacing current trusted intermediaries. Any other uses would require a deeply social change to human behavior.I don’t think the Bitcoin blockchain is any chance of being “nothing more than a curiosity”, but the Bitcoin blockchain can not be the one blockchain. Other blockchain will be faster to innovate than bitcoin simply because of bitcoin’s lack of a governance model. I envision maybe two additional blockchains, each with it’s own use cases, for example Ethereum for smart contracts using side chain to connect to bitcoin. Private blockchains will not be secure. There has never been one technology that could be a complete platform.

  27. Koen Swinkels

    Twoimportant reasons for a blockchain to have an innate scarce token that functions as a currency or commodity are:1. to incentivize those who do the work that secures the network2. as killer app of the blockchain: with an innate scarce token you can have an innate currency / commodity and hence you can send value directly from one person to another in a trustless way. The token does not need to represent anything (and be redeemable for something) *external* to itself to be regarded as valuable. It is valued for what it is itself (similar to e.g. gold).Two important reasons why a blockchain doesn’t *need* said innate scarce token:1. There are other ways of rewarding those who do the work that secures the network, such as giving them privileged or free access to services of or built on top of the network2. There are tons of other useful and valuable functions / services that a blockchain can provide other than sending value directly from one person to another in a trustless way: by using tokens that *represent* things or services other than itself (such as commodities or access to services external to the blockchain) people can e.g. trade in stocks or commodities via the blockchain (but people are still dependent on other people or institutions to redeem tokens for those goods or services).

  28. Wayne Vaughan

    All of us who are using the Blockchain for non-financial purposes are piggybacking on the infrastructure created by the financial incentive to mine bitcoin. The cost of writing data to the Blockchain is bound to change as mining rewards diminish and transaction fees increase.With Tierion, we’re spending about $1,600 annually to anchor data to the Bitcoin blockchain. I can see a world where thousands of databases and enterprise systems incur similar expenses. I don’t know how that will increase liquidity and/or the value of Bitcoin.I do think that the Economist got one thing right – the blockchain is a trust machine. As the world learns to trust the blockchain as means to verify data, businesses and government will invest in bitcoin infrastructure. I’ve heard that Bitfury is offering mining contracts to companies that need reliable access to the blockchain.

  29. joelatone

    It’s not a flawed assumption, Fred, it’s just not a complete picture. The “host of other uses” of the blockchain are & will be a catalyst for Bitcoin for a host of reasons (bitcoins, “decentralization”). But there are other quite sensible (well-discussed/-documented) business uses of blockchain technology that don’t need/want the Bitcoin blockchain. And, similar uses that do/don’t use the Bitcoin blockchain will likely even compete against each other. –joe

  30. Sriram Yadavalli

    Not sure if “creating own blockchain” works. Dont u need miners to verify transactions? And bitcoin blockchain offers the biggest scale of miners out there. The key issue is how can the verification time for transactions to reduced so that it can work for applications?Is there going to be some tech like side chains who act as aggregators of transactions?

    1. ShanaC

      can you create mine you “x” where x is the thing of value in your market in contract form

  31. ShanaC

    I don’t know.It seems they might be – only because to create new block chains, you need bit coins (or at least one) (for now)If you can seperate out the idea of coins from the chains, I suspect a whole new vista will open up, because suddenly you get pure protocol.

  32. Hingle McCringleberry

    nice and great article

  33. kidmercury

    IMHO there will be a multitude of coins/chains, each one optimized for its specific use case. i think the requirements of a coin/chain for identity verification are different than those for transaction confirmation, and so there will be different coin/chains for different applications. i think the primary obstacle at this point is that most companies don’t really take an integrated approach to their endeavors in this space, though private coin/chains certainly will and that may be a catalyst for an integrated approach becoming more commonplace in coin/chain thinking.

  34. David Anderson

    I believe in the Bitcoin ecosystem and the processing horsepower behind it. How can I invest in the network? As I don’t participate in the accredited investor world, are there any publicly traded companies that are focused on blockchain technology (processors, miners, mining)? Instead of buying bitcoin, mining rigs or mining contracts, I’d rather buy shares of a company building and operating mining servers. Any suggestions?

  35. Gregory Magarshak

    Fred, I can only tell you what my thoughts about it were, but:The bitcoin blockchain is based on proof-of-work, and thus has spawned an arms race in computing rigs. Any other proof-of-work-based blockchain that starts out now will be vulnerable to a 51% attack that can be done at any time, by one of the bitcoin rigs. Also, the network effects preclude any proof-of-work-based currencies other than Bitcoin or Litecoin from rising to the top.However, you don’t *need* proof of work for distributed applications. Actually, you don’t always need a blockchain! It’s just the fad of the day, and there is always demand to integrate it into wall street transactions and other stuff because it “looks cool”. Yeah, the blockchain is basically an awesome distributed timestamping server, and that’s it. You can definitely build complex contracts / etherium etc. on top of it but at the end of the day, it’s just a distributed consensus ledger. You don’t always need that.You don’t need it for distributed hash tables – storing files (freenet, perfectdark, etc.)You don’t need it for forums (append-only trees of comments)You don’t need it for voting (who cares about distributed consensus, it’s enough for me to know what my friends and friends-of-friends think)But most of all, it is still *far* too early (like, a decade or more) for any peer-to-peer technology to do social well. Except maybe distributed forums. The reason is that it’s very hard to solve the byzantine generals problem for an *arbitrary* social app. (Google “Mental Poker”.) Take a video game, for example… it’s much easier to just choose a central server and have everyone log into it for that game. This is how games work today on the internet. You can use different topologies with vector clocks to reconstruct who did what first, but it stops being linear. It becomes a tree. For a forum, that’s fine. For collaborative document, editing, that’s fine also. Peer-to-peer apps that record things as a tree can truly take off. That’s the category of things that can take off. But, due to network effects, they will only reach critical mass a decade away.Personally I’m not exactly in *this* space, our company Qbix is in the space of *decentralizing social networking*. Like what you said at Le Web, not trusting our identities to just Google, Facebook etc. The web, wordpress, git, bitcoin are decenralized and look at how much wealth was created in the ecosystem vs centralized stuff. Decentralized social network is like wordpress — I can install my own themes and plugins, customize my own data. What’s missing is a layer that will let me “surf” seamlessly between sites and have my identity and my friends (who I allow, and no one else) to follow me from site to site. That’s what we built.But it’s still distributed, not totally peer-to-peer. So, in short: truly peer to peer tech will be based on tree data structures and vector clocks, and then we can ditch the blockchain and distributed consensus. The only real point for the proof-of-work really is to prevent Sybil Attacks. That can be done in other ways, and not just proof-of-stake.

  36. jason wright…”Although proprietary systems (such as Microsoft Exchange and IBM Notes) and webmail systems (such as, Gmail and Yahoo! Mail) use their own non-standard protocols to access mail box accounts on their own mail servers, all use SMTP when sending or receiving email from outside their own systems.”

  37. DJL

    I think the two MUST be separate for both to survive. (Greg put in all the details below.) In my opinion, a series of different blockchains will evolve to address each vertical market. The “coins” will be privately managed so their “prices” remain fixed for end user applications. The applications are endless – especially for the “internet of things.” Anyone who owns the seed of the blockchain for that vertical will have platform dominance.

  38. JaredMermey

    Pretty random question but could the block chain be used for an app to facilitate elections?

  39. jason wright

    “It is something I check on at least once a week and will continue to do so.”what’s your process for this?

  40. JAK TRAN

    “If we see a host of other uses materialize by doing clever things with the bitcoin blockchain”The question is why innovators should want to build a service on the bitcoin blockchain rather than on a brand new blockchain? What is the incentive ? The hardest thing seems not to find miners for a blockchain but to build a compelling experience and useful service to users. If users come and use a service based on a new blockchain, they certainly won’t care to know if it is based on the bitcoin blockchain or not at first. And if there are users (aka transactions), miners will flock on this blockchain.My bet is people will start understanding and using the blockchain technology through other chains (euthereum?) rather than Bitcoin.When a disruptive mobile dApp will hit the market and find its viral loop, people will have at last the blockchain-aha-moment and miners will flock on this one. Maybe LaZooz (which coin is mined with the GPS) can be this one when real-time ridesharing will be the largely used.

  41. jason wright

    what powers a blockchain sans bitcoin?

  42. Wyatt Brown

    yes. other way round. right?

  43. Tom Mornini

    Investment in anticipation of lower costs and efficient operations in the future?

  44. jason wright

    the (or a) blockchain is driven by the raw computational (hash) power provided by the miners of bitcoin, the token that is their economic incentive to provide the power. no bitcoin, no incentive, no power, no blockchain. the market price of bitcoin is important. if it falls below the cost price of mining (hardware, electricity, et.c.) the miners pull the’s a complicated subject, and it takes a while to get a fix on it. i sense that most mainstream journalists either don’t understand it or are briefed to put it in the toilet by established vested interest, which is a good signal for entrepreneurs and investors.