Bitcoin out, blockchain in?

Editor's Note: The author, Erik Voorhees, is the CEO of the digital asset exchange ShapeShift.io. He is an out-and-out Bitcoin enthusiast. Eric's previous project was the phenomenal Bitcoin game SatoshiDICE. The title used by the original author is "IT'S ALL ABOUT THE BLOCKCHAIN", which is consistent with the title of Bloomberg Markets' recent cover story.

Blockchain is currently too hot.

2015 was the year the narrative changed. Bitcoin out, blockchain in. Attend any financial conference and you’ll hear panels about the brilliance of private distributed ledgers. Initiatives like R3 CEV have attracted 25 of the world’s top banks. Airports are full of Bloomberg Markets’ recent cover story, with Wall Street’s elaborate masterpiece Blythe Masters gracefully standing behind a celebratory banner that reads, “It’s All About the Blockchain.” Even longtime bitcoin startup investors are now making sure to use “exciting blockchain companies” in their pitch decks. What’s your blockchain strategy? Are you even a blockchain, bro?

The rise of this term in the media and financial industries has been dizzying.

And “Bitcoin,” as something somewhat unique to “blockchain,” has been left by the wayside, like an awkward relative ignored at a family gathering.

Some of us are happy about this development, but many are confused. Why is everyone talking about blockchain and ignoring its core fuel, strictly speaking, the Bitcoin network (capitalized Bitcoin)?

First, let’s understand why the narrative has changed, and why it is necessary and, indeed, inevitable.

Bitcoin, to many people around the world, is an uncomfortable and mysterious concept that is viewed as a Ponzi scheme or "money for bad guys". Didn't Bitcoin go bankrupt in Japan? Didn't the Bitcoin CEO get arrested? To others, it's just weird and unnecessary. Visa is fine, thank you.

More importantly, Bitcoin is an awkward and unwelcome development for the professionals in the money world—bankers, investors, and financial regulators—almost all of whom think the technology is absurd and useless, and yes, growing. Bitcoin promises a dangerous world without strict top-down financial controls. Terrorism. Think of the children. Bitcoin makes the word "fiat" a thing, and once something has a name, it can be criticized. Every day that the Bitcoin network exists, it embodies the naive idea that money might work on its own without central planning.

So what do the venerable bankers want to do?

While the technology holds great promise for financial innovation, these cannot be discussed using the word “Bitcoin” because that word carries all of the above biases. Bitcoin cannot be discussed in polite company because the conversation may turn to monetary theory, human rights, massive sovereign theft, and bank fraud…

But how do you convince your bosses and shareholders that you’re keeping up with the pace of innovation? They’ve seen the news and know that disintermediation is a thing. On the fringe of their thinking, they may decide that charging $45 to send a remittance message is neither logical nor sustainable. As Jamie Dimon recently put it in his annual letter to shareholders, “Silicon Valley is here.”

Type “blockchain”

Ah, what a word! It encapsulates all the magic, all the technical brilliance, all the promise, the real spark of financial innovation. Achieve it, and we won’t have to talk about the Silk Road or the Treasure Thief anymore.

Blockchain, as a concept, is not controversial. Bitcoin is extremely controversial. That’s why the narrative changed. Because “Bitcoin” makes financial professionals uncomfortable. There’s no conspiracy to change it, it just happens naturally; it’s the path of least resistance.

But what exactly are they hoping to achieve by pushing forward with a private, non-Bitcoin blockchain? Without the Bitcoin network, a blockchain is just a distributed database, and it is not a new technology. What makes R3 CEV so special, and how is it better than MySQL? Why didn’t banks build such a distributed ledger a long time ago?

If they were arbitrators of transactions, there would be no need for mining, and of course no need for a blockchain.

Perhaps, such a distributed database has never happened before because banks do not feel real competitive pressure and have no motivation to innovate. The biggest innovation of banks in the past 20 years is the Geithner Swap. Banks do not have so many financial innovations, just as they are lobbying for the industry alliance. But can you blame them? When the government forces you to sleep with it in its way, can you imagine what the scene will be like when you wake up?

Wait until the financial industry realizes that what is truly innovative is not the distributed ledger of blockchain (which already existed in other forms before), but an open platform for financial inclusion without trusted parties or corporate associations (which has never existed before).

It’s the openness of Bitcoin that has revolutionized how people interact, just as the Internet did before it. Most bank delays aren’t due to technology (after all, they’re just sending digital messages representing virtual currency). They’re due to regulation, bureaucracy, and habit.

Proponents of the “it’s all about the blockchain” argument might counter that the blockchain demonstrates truth, demonstrates finality, and therefore banks will adopt the technology and they will be more efficient because settlement uncertainty will be resolved. Of course, the blockchain solves this problem, and banks can be more efficient about it. It seems clear that a blockchain-based banking network can settle payments in minutes, rather than days.

But this is missing the point. Marginal gains in efficiency are not what we are really excited about, and from a technical perspective, it is true that centralized systems like PayPal can be faster than blockchains.

This technology is not designed to make things faster, but that is certainly one of its strengths. Its real purpose is to remove censorship and central control from the currency itself, which will be hailed as the real innovation in hindsight.

Is the Internet remembered only because it allowed Time Warner to deliver its content to readers more quickly? Is the printing press remembered only because it allowed the church to more accurately communicate its prophecies to the faithful?

It is the openness of these technologies that allows anyone, in any country, to access them, experiment and build something.

Blockchain technology, in its correct understanding, is decentralized. It is an open platform. It does not need to be judged by human actions, it just makes more actions easier.

How many billions of dollars will banks waste seeking their own private distributed ledgers before they realize that the service of "ledger" is just one branch of a broader tree of interpersonal communication, and such communication tends to open up rather than close down over time.

So, industry, if you continue to use the word "blockchain" and feel comfortable using it to discuss the renaissance, that's fine. But for intellectual honesty, don't mention the fiduciary responsibility to your shareholders and don't fall into the illusion that isolated financial networks are innovative and will last. If your blockchain strategy is just to form another bank, you are doing it wrong.

Humanity has not made much progress from a licensed and managed between- between banks financial network to a licensed and managed among banks financial network.

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Original article: http://moneyandstate.com/its-all-about-the-blockchain/
By Erik Voorhees
Compiled by: Satuoxi
Editor: Satuoxi
Source (translation): Babbitt Information