Cash, fear, uncertainty: the trinity of Bitcoin and blockchain

Writing an article about Bitcoin or blockchain is a challenge. The technology is not easy to understand, not because it is particularly complex, but because it is mixed with various different technologies and applications. Compared with most of the technologies we usually use, blockchain technology also "looks" strange.

Additionally, blockchain has become quite emotional, and even though it is open source and open standards, it is always associated with “money”, which makes everyone excited.

dilemma

Blockchain looks like “disintermediation investment trusts.” While “disintermediation” is a term you might expect to see in the art of bingo, we’ve fallen hopelessly in love with disintermediation since the Internet became a big thing, because at its core, that’s what the Internet is designed to do.

Disintermediation is about removing intermediaries. We generally don’t like the presence of middlemen because, while they provide value, they profit from us. By removing intermediaries from the system, others can also make more profit.

The Internet is the most powerful disintermediation tool we have ever seen, and we often refer to this process as “disruption.” But what is really happening is that some previously successful companies are realizing that someone has destroyed their business model by eliminating the intermediaries in their value chain.

Most companies don’t realize this because most are pretty incompetent at modeling and understanding risk. But there is one type of company that is very good at managing risk: banks.

risk

Bitcoin is a very scary thing for banks. What most banks do is put themselves in the middle, add some value, and take a cut to provide value. Most of the value they provide comes from helping people store and transfer money. For the "end user", it is much more convenient to use a digital form of currency to transact than cash, so why should we reward banks for the value they configure.

Bitcoin is digital cash. It can be stored and traded without the involvement of an intermediary because at its core it is a decentralized system. You can hire a miner to refine electricity into Bitcoins, which can then be transferred to anyone in the world - without a bank account or a bank to facilitate the transfer. This disruptive model scares banks.

This is why we see banks talking so much about blockchain and Bitcoin, although they are mostly talking about blockchain rather than Bitcoin.

We are seeing banks making huge investments in blockchain because rather than burying their heads in the sand, they realise that being an intermediary carries huge risks and they are managing their risk by investing – knowing your side, knowing your side, etc. Hence the formation of “R3 CEV” – a commercial entity that manages 42 banks, all of which are big players, a bit like the Bilderberg Group.

Authenticity

If you are not a banking institution, blockchain is unlikely to pose such a clear and definite threat to you.

Blockchain is a very special kind of database. However, at present, most people are very excited about blockchain and think that everything they see is blockchain. However, in reality, it is difficult to find good use cases.

Blockchain allows application developers to create a distributed database that can be read by anyone.

This consensus does not require voting, and writing to the blockchain requires considerable processing time, which is a deliberate design requirement. Running a computer costs money because you need to pay for electricity. Therefore, if you want to write data to the blockchain, you must be willing to pay for the electricity, and this approach is based on real economics. This is what makes Bitcoin a meaningful system.

However, once data is written to the blockchain, it can be read by anyone. For example, anyone can download the entire Bitcoin blockchain and read all past transactions.

In terms of use cases, we now have a database system with use cases for various entities. None of them trust each other, want to update the system, and don't mind transaction times. In addition, we have also talked about entities that cannot trust each other in other ways - for example, contract terms. Generally speaking, in our society, we are good at establishing contractual agreements on how to cooperate with each other.

From a non-commercial perspective, some new versions of Twitter that use a blockchain to record information fit this model, because all messages ("transactions") are public and it would be impossible for everyone to trust each other.

The business use case is well suited for entities involved with regulatory agencies or government bodies. Imagine an aircraft maintenance company putting all work orders and schedules into a blockchain, which the FAA, CAA, and other such agencies can review after an aircraft accident. These records cannot be lost or tampered with.

The reason I include regulators in this example is because it serves to highlight the advantages of these types of systems - being able to publicly disclose data is key. In this case we have an element of public interest, but it may simply make the advantages more apparent to your customers. If you don't need to open up the data setting, it may well be satisfactory to just keep the traditional system.

The hype around blockchain stems from the fact that it disintermediates banks. Fundamentally, it's like cash without fiat currency - whether it's Bitcoin or something else, and that's a threat to banks. So they're investing to understand the risks, and when we hear about banks investing, it immediately grabs our attention because it appeals to our fear and greed.

While the hype is driven by “money”, the question is “will the hype continue?” In a post-Edward Snowden world, “trust” is a complex concept. If we focus on trust, there will likely be some who try and exploit the centralized nature of the system. Think of the CIA in the Snowden incident, and think of the FBI asking “please give me a specific version of IOS so we can hack the system.”

Blockchain is our first real example of a technology that allows us to build a kind of disintermediated trust. That aspect itself is beyond the hype - from a social perspective, we are likely to tend to develop systems that fail to leverage trust, and blockchain is a good way to build those types of systems.

Original text: http://www.theregister.co.uk/2016/04/12/bitcoin_blockchain/
By Matt Reynolds
Translator: Slieta5
Editor: Kyle
Source (translation): 8btc Information (http://www.8btc.com/european-parliament-cryptocurrency-blockchain-on-fast-track)