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As an emerging technology, Bitcoin has great potential. There is a view that through blockchain we can reduce the power and profits of trusted intermediaries. If you are afraid of or very disgusted with monopolies, especially monopolies that have become more and more annoying as the digital age progresses, blockchain is indeed a more attractive future.
Of course, this could also be an illusion. Not only has Bitcoin’s actual application been quite limited so far, but more and more projects have essentially deviated from the definition of a blockchain and become controlled shared databases.
Even if the terminology and rhetoric have changed, the reality looks much the same for activities like organizing supply chains or clearing financial transactions as it did before Bitcoin was invented. Bitcoin’s potential seems to be prompting industries to explore old-school distributed database technology, but it’s hardly a revolution.
The terminology and wording for activities such as organizing supply chains or clearing financial transactions may have changed, but the application status is similar to that before the invention of Bitcoin, with no obvious progress. The emergence of Bitcoin, and the potential disruption it represents, seems to have prompted various industries to explore a distributed database technology. But it is not a revolution.
So can Bitcoin have a more meaningful impact on society in the future?
Before we go any deeper into this, let’s stop and think about the fact that Bitcoin has proven to be a very powerful payment method and a store of value, albeit an unstable one. Of course, there are Bitcoin forks of varying quality. Of course, Bitcoin has also spawned a variety of other cryptocurrencies .
Before speculating whether Bitcoin and its imitators can go further, we can draw a very apt historical analogy: the development of British railways. Some railways were built to be extremely profitable (e.g., the Liverpool-Manchester line), others were engineering marvels (e.g., the Great Western Line) but inferior in every way, and the vast majority of projects were just tedious. This was later called the "norm wars," the first great capitalist boom, setting the tone for almost everything else that followed.
Some of the early railways were hugely profitable (like the Liverpool-Manchester line), while others were engineering marvels (the Great Western), and these were less successful in different ways. Many were drab. In the later “spec wars” there was excessive competition, some wildly speculative projects, and a lot of outright fraud. But this was the first big capitalist boom, and it set the tone for pretty much everything that followed.
A case study in “disruption” A case study in disruption
What did the invention and popularization of railways really achieve? It brought three major impacts, the impacts of which were not anticipated at the beginning.
First, the railroads broke the canal's monopoly on heavy freight. Turnpikes were fine for small-scale passenger traffic, but any heavy freight had to be moved by barge. Of course, the canal owners were generally opposed to the railroads, which led to a battle that lasted for many years. If you understand the importance of transportation costs in the pricing of coal and other traded commodities, this fierce battle was obviously bound to happen. If you understand the importance of transportation costs in the pricing of coal and other traded commodities, this fierce battle was obviously bound to happen.
Second, railways encouraged people to travel. The number of people traveling by train, for example between Liverpool and Manchester, soon exceeded the number of people who dared to take a stagecoach.
Third, railroads created new jobs, but they also destroyed some. Those who operated turnpikes or otherwise benefited from them were greatly affected. For decades, railroads were a net positive in terms of employment, providing many relatively high-paying careers. The scale and scope of the impact of railroads on the economy and society is impressive and may come as a surprise to most people.
Eventually most canals failed, but surprisingly some waterways remained profitable until the late 19th century, about 60 years after the railroad proof of concept was fully established, even though canal owners made no changes to ensure their survival.
The canal didn’t offer much investment opportunity or upgradeable infrastructure. But on land, it was a completely different story: Improved roads made transportation easier, and the internal combustion engine led to the rise of the car.
If we apply all of the above examples to Bitcoin and assume that only payment systems remain, Bitcoin will still be a competitive threat to all forms of financial gatekeepers. But for customers, customers just need to be able to get from A to B at the lowest cost and fastest speed. The opportunity for Bitcoin lies in how it can provide people with more seamless, low-cost digital transactions.
We only choose the methods that are truly feasible
What will the future of Bitcoin look like? As we can see from the railway example above, impressive engineering is good, but interconnectivity is more important.
Brunel’s railway was wider than most other British railways, but was eventually forced to change to standard gauge to be able to connect with other lines. In fact, Bitcoin currently looks more like the Great Western Line mentioned above, which is well completed, but relatively more expensive, has a smaller user base, and has some quirks.
For example, the strangest part of the Great Western Line operation was that the contract was a century long! And all trains from London to Bristol were required to stop in Swindon, where there was a monopoly on refreshments. For crypto developers, this is a lesson worth learning: long confirmation times and erratic spikes in transaction fees may seem attractive to some engineers, but it is very frustrating to the average customer.
Bitcoin still has a chance to win the competition as long as it provides better, cheaper, and more reliable payment methods. For example, Bakkt is recently working on bringing Bitcoin closer to mainstream commerce (e.g., Starbucks). Whenever I hear about the Lightning Network from a colleague at MIT, I also feel that we are moving towards low-cost peer-to-peer payments.
However, remember that users do not care whether the “railway” will be strengthened, or whether it will infringe on landowners or change power structures. Similarly, users are generally indifferent to specific intermediaries.
The only thing that matters is whether the train runs on time and how much the ticket costs. (CoinDesk)
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