Bitcoin is dead. Bitcoin is just a silly idea. It clearly can't possibly work. It won't scale. It will fail. It has failed. It is dead. The true innovation at the heart of this technology, the Blockchain is the technology that matters and this technology will create new opportunities in Fintech, for banking and financial services companies across the world even while Bitcoin won't be able to succeed further. Blockchain is a joke. Blockchain doesn't actually work.
Bitcoin is the only thing that matters. Bitcoin will completely change banking. It will make banking obsolete, all central banks will be destroyed in the path of Bitcoin and within just a decade every currency in the world will be dominated by Bitcoin. Both of these positions are ridiculous, simple-minded and fundamentally wrong. For every complex question, there is one very simple solution and it is wrong.
This is a very nuanced space. It is a place that is brand new. It is a place that has only existed for only 7 years, and yes it does represent something revolutionary. A fundamental change in our understanding of trust. A change in the way we organize authority on trust on hierarchical systems to network-centric flat systems, a reimagining to what it means to have currency and how currency derives its value.
A new system for disintermediating intermediaries. A rebalancing of world affairs. All of these things are true, but we don't really know how this is going to play out which is the most exciting part of my job.
Bitcoin is one of the few spaces and one of the few experiences I've had in my life where I feel that I am sitting on the front rows of history, observing history in the making. History is not the past, history is how we change the present to affect the future and we do this right now worldwide, and by we I don't just mean Bitcoin. I mean the much broader space. What is Bitcoin? What is the Blockchain? What do these things have at their very core that gives them the characteristics they have? How do you tell them apart?
What are the differences between the systems and what applications do they have? So my goal today is to really try to answer these questions. So what is Bitcoin? Bitcoin is the first Blockchain, Bitcoin is the largest open global Blockchain that exists today. Bitcoin is the first borderless, transnational open system of access for financial systems and trust that enables innovation without permission with high resistance to censorship, coercion and geopolitical manipulation. Bitcoin is a mathematical proof system that is fundamentally neutral to participants, it exhibits a principle that on the internet we call net-neutrality and brings that to finance, which of course terrifies people.
Finance without concern for source-destination or amount, neutral routing of transactions, equal for everyone, the idea is terrifying. Where does the horrify come from? Where does trust come from? It's almost as suddenly we no longer pay attention to the New York Times and instead anyone can publish their opinion without an editor.
What will the world come to? What the internet did for communication, Bitcoin is doing for finance. It is introducing a fundamentally different network centric and flat system that allows us to do transactions without recourse to authority or intermediaries and that derives trust from the collaboration and computation from thousands of nodes. It uses a Blockchain.
Blockchain is one of the several components that make Bitcoin work and if you focus too much on Blockchain you might miss the point. What is the most important technology of the internet? What is the really important invention that makes the internet work? TCP/IP? Packet switching? TLS? To take the internet and only consider it as a packet switching network means that the internet and an internet, the internet and your local area network are equivalent. Are they? Really?
Was the real opportunity to be able to do packet switch networks or is the real power of the internet the fact that it is open, global, transnational, borderless, censorship-resistant, open access and anyone can innovate without permission. This is the crucial issue. Where does the value of Bitcoin derive from? Yes, it is a Blockchain. But it is a very special Blockchain. It is a Blockchain that uses as it's fundamental consensus mechanism proof of work, and proof of work gives it certain characteristics that are unattainable so far as we know with other consensus mechanisms.
Bitcoin is fundamentally open, global, transnational, censorship-resistant, etc, etc etc. They are both what it is and what makes it powerful, and ironically they are also the things that most critics point to as it's greatest weaknesses. It cannot be allowed to exist if it is borderless and open to access. If it has no ability to be controlled, it cannot be allowed to exist, and yet it exists. Bitcoin forgot to ask for permission.
So out of this experiment, this grand experiment that lasted 7 years we now have this really disruptive force that is forcing us to reimagine what it means to do a payment network and out of that, we come up with the most brilliant marketing campaign in the history of disruptive technologies.
Imagine if you invented the new disruptive technology and you manage within 4-5 years to completely distract the incumbent by persuading them by following your footsteps and adopt the central premise of your own technology in order to disrupt their own businesses' from the inside out. If the Bitcoin community had presented banks with the idea of Blockchain as we did and said here, put a billion dollars in training people in how to do things our way, and work in our space, I mean someone should have gotten the Nobel prize in marketing. The Oscar in disruptive marketing.
But the truth is that the financial services environment seized on Blockchain because they saw within it, the possibility of using some elements of Bitcoin without being disrupted. But Blockchain is not the only thing that makes Bitcoin tick and so in this effort, we see many similarities to the early internet. In the early days, when companies saw the internet and saw that it had no editorial control, no centralized security mechanism, no barriers to access, this represented a terrifying departure of the model of IT, and as a result, most companies resisted. They build INTRA-nets using TCP/IP and they built heavy firewalls all around the INTRA-nets, to keep them controlled, to give them editorial access and control and tame the system. They ended up with these islands of stagnant innovation that gradually became less and less secure. Then we had the second wave of the internet when many of the most disruptive companies in the space take their internet IT infrastructure, turned it inside out, faced the world, put everything on the internet and fully harnessed the collaborative potential of keeping an openly accessible system.
We no longer live in a world of Oracle and IBM. We no longer live in dominance through enterprise computing and enterprise software. Apple is driving your IT faster than Oracle. Your systems are inside out or they are stagnant. Collaboration is the name of the game.
The most robust and secure systems are the ones on the internet, subject to attack every attack, subject to competitive disruption every single day and through that process, they've become robust. Ironic that 15-20 years later we're repeating this conversation with the Blockchain. So the question is if TCP/IP isn't the magic sauce but the really interesting thing is the open access collaborative global network does that mean the internet is useless? Does that mean TCP/IP on your LAN or data center has no value? Of course not.
These are still very powerful technologies. These are still very useful models of adopting. However, the best thing you can do with an intranet is interconnected to other intranets and for that, you need the internet. Bitcoin is the internet of money. Bitcoin is the defacto money off the internet, does that mean Bitcoin will always be the internet of money? No. What is special about Bitcoin is that it represents that open Blockchain. The Blockchain that offers anonymity, censorship resistance, open access and innovation without permission. That engine that creating an explosion of innovative potential. It connects the vast number of underbanked, unbanked people, some 4 billion people that could become connected through a simple android phone or a simple Nokia text messaging phone to the global financial network.
The open Blockchain will change this world, and today there is one open Blockchain that matters and that is Bitcoin. I cant predict it will always be the open Blockchain that matters or the dominant one, why? Because it's not the best. But in technology very often best is not what wins, TCP/IP wasn’t the best. In fact, we now realize it had fundamental problems, in scaling, in addressing, in routing technology and many other things and yet TCP/IP was good enough at scale, with network effect so fast, that it became irreplaceable. In fact, it has now become upgrading. TCP/IP is so embedded in global networking that it resists it upgrades to IPV6 and has resisted its own upgrade for almost 20 years. IPV6 is coming. IPV6 has been coming since 1995.
Any day now. But clearly. IPv4 is dead and the internet can't possibly scale beyond news net, can't possibly scale beyond email, can't possibly scale beyond attachments, can't possibly scale beyond voice, can’t possibly scale beyond video, can't possibly scale beyond HD video, can't possibly scale to Oculus 3D 4K capabilities. Of course, it can. It doesn't for a while until It does until we shift the goal of scaling means and Bitcoin can't scale to Visa until it does.
Bitcoin can't scale to global transactional network until it does. But I can tell you what Bitcoin can scale to. Bitcoin can scale to a 100-200 billion dollar secure transnational network that remains up and running 24/7/365 for 7 years without a single successful attack against the core protocol. Not because there have been no attempts. But because Bitcoin has been under attack from day one, 24 hours a day from some of the most sophisticated adversaries the world has seen. Why? Because Bitcoin has a 100 – 200 billion dollar security bounty for breaking it. It is a system that is on the internet and lives right there in the dirt, in the warzone of internet security and it survives and as it survives it gets stronger every day.
So now if that's what Bitcoin is, maybe this will be the one that becomes the internet of money. I cannot predict that. What I can tell you without any uncertainty is that the world of finance will be forever dominated within less than 2 decades by open, global, transnational, censorship-resistant, largely anonymous, fully encrypted and privacy protected payments networks based on the exact model of Bitcoin. With optimizations, and maybe that thing maybe Bitcoin with optimizations. Maybe it will be something unrecognizable we still call Bitcoin because hey, the brand works.
August 12, 2018
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