Nick Szabo: Trying to turn Bitcoin into another Visa is foolish

Legendary cryptographer Nick Szabo believes the only way to achieve seamless, automated, global financial integrity is if banks accept permissionless blockchains, like the one behind Bitcoin.

Saab said in an interview with IBTIMES:

“But banks are so entrenched in their bureaucracy, their expertise and local regulations and standards that it’s very hard for them to cut the Gordian knot to achieve a seamless global system.

So they’ve been trying to reinject control points and then inject this weakness into the blockchain through “permissioning”, which negates the main benefit they want.
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Szabo reiterated a point: removing the downside means banks also have to remove individual control and root access. Banks don't want to lose their power, but if they want the benefits of independent computers rigorously, constantly and securely checking each other, they have no choice.

Strict financial controls are already partially decentralized, Szabo noted, thanks to the work of accountants and auditors on the “human blockchain.”

He said:

“When you do a stock trade on Wall Street, there are about six different entities involved, each of which has to check what the others are doing. The kind of completely vulnerable, unaccountable third parties you typically see are the same entities that put money on centralized networks, as happened with Mt. Gox.

But traditional 'human blockchains' are very labor-intensive and have limitations (each one must comply with local laws and customs), which has split the world into mutually distrustful national regulatory systems. Permissionless blockchains are like Alexander cutting the Gordian knot.

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Smart Contracts

Szabo has a very deep understanding of legal contracts and audit systems. As early as the 1990s, he proposed the famous computer logic - "smart contract".

IBTimes asked Szabo whether he expected smart contracts and other decentralized applications to be possible on platforms such as Ethereum.

Sabo replied:

“Well, because Ethereum is more flexible, its universal language can facilitate a wider range of commercial and other formal relationships.

However, the Ethereum community needs to learn to reverse-engineer legal and other traditional models rather than trying to fundamentally reinvent society. It will take some time to figure out how to do this well, and the Ethereum platform will need time to perfect its technology, just as Bitcoin did.
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Block size debate

Assuming Bitcoin transaction volume grows in the future, the debate over how and when to increase the block size (currently capped at 1MB) has recently made headlines in the Bitcoin community.

Szabo is more inclined to the proposal of Blockstream co-founder Pieter Wuille, which advocates that the block size increase at a rate of about 20％ per year.

Saab also brought up the metaphor of an armored money transporter. One side of the debate says we should put as much money as possible on the vehicle so that it can handle small denomination transactions. They want to transform the armored vehicle into a large van.

The other side argues that cars should be small and heavily armored. You can carry more dollars in a large van, just like Visa can handle more transactions per second than Bitcoin. But to do that, you have to remove some of the armor and reduce security.

He said:

“You have to hire more security guards and money counters, and you have to rely more on local laws to protect you. The issue of block size in Bitcoin is like the issue of the ‘carriage’ size of a money truck, it’s a trade-off between security and performance.

If large blocks are adopted, it will create an attack vector and ultimately make people increasingly dependent on a ‘human blockchain’ of accountants, investigators and lawyers, which will be more labor-intensive and country-siloed, just like traditional IT systems.”

Szabo noted that Visa and PayPal can process far more transactions per second than Bitcoin (similar to how a truck can carry more U.S. dollars), but they are more labor-intensive and often difficult to use across borders.

He said:

“If that’s the trade-off you’re thinking about, Visa and PayPal already exist, and they do a very good job of doing it within national borders. It’s foolish to try to turn Bitcoin into another Visa and PayPal.

This means that Bitcoin (the blockchain network) will grow into a higher value settlement system: as it grows, it will not change into a large freight car carrying more money (processing more transactions per second). This means that we need other systems to do the retail payment functions of Bitcoin (the currency itself).
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Szabo believes that these systems already exist, such as ChangeTip, which provides innovative ways to combine social networks and micropayments.

“It makes perfect sense, even if some Bitcoin purists don’t like it, that they want to replace the dollar and debit credit and debit cards with Bitcoin, rather than replace the federal settlement system and place payments on the Bitcoin network.”

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