Blockchain, Bitcoin & Libra

By Aleksandar Svetski   Jul 30, 2019 10 Min Read

 

I've been told my "definition" of Blockchain differs from the “commonly used” one.

 

This is probably true, so I decided to examine why.

 

First of all, what’s meant by “commonly used”. I have a problem with this idea because I'm yet to understand the parameters of "commonly used", and am still trying to understand what anybody is actually referring to when they begin to throw the word "blockchain" around [with so much certainty].

 

A number of years ago, I found myself personally entangled in the term "blockchain", attempting to explain it to people at the local "bitcoin & blockchain" meetups I was hosting. The argument centred around grouping data in blocks & cryptographically hashing it to the data in the previous block in an attempt to build some form of "immutable ledger" (another term that gets thrown around) that could act as the basis of a more secure method of data storage.

 

Whilst on the surface, this sounds interesting, in reality it’s neither special, unique, profound or even useful.

 

I still remember the "aha" lightbulb moment where I realised that this concept was not the basis of Bitcoin’s immutability, & that immutability of the historical data on the ledger had very little to do with hashing to the previous block & everything to do with using that data structure/methodology together with the economic game of probability that Bitcoin used to achieve autonomous consensus (ie; its inclusion of PoW in its solution to the Byzantine Generals problem, aka; Nakamoto Consensus).

 

What I've since informed anyone I come across (or at least those who choose to listen) is that defining "blockchain" outside of the context of Bitcoin is like trying to define a carburetor without the existence of a car.

 

Blockchain for Lettuce

 

The sad truth is that since Bitcoin's inception, there have been many, many attempts to take absolutely necessary parts out of the Bitcoin Recipe (see page 5 of https://bitcointimes.news) in order to deliver something called a "blockchain" - for just about every application imaginable.

 

When one tries to understand the application or definition of their 'blockchain', you quickly realise it's just a glorified database, utilising some simple time stamps, & maybe data segmentation. Something we've had for decades, & in most instances, the use of which is completely pointless.

 

In a bid to stay ahead of the curve, the "blockchain" narrative evolved into "DLT"; standing for Distributed Ledger Technology, where the "block" part of the blockchain was removed & the "distributed" element (also part of the broader Bitcoin recipe) was now glorified. The new narrative is just a variation of the old. "It's immutable because every validator has a record of the ledger".

 

The problem this time around is that if every validator is known, or permissioned, then have we really created something new? One could argue that in some corporate applications where more checks & balances are required, or there is a need for shared decision making, this could be useful, but by no means is this immutable, broadly applicable, or as one of the ridiculous narratives goes; "faster".

 

Having more parties participate in validation is by definition slower - and that's fine - especially if you want more checks, but digital immutability is a binary term. You either have it or you don't. The private, permissioned distributed ledgers are not immutable in any way, because there is no cost to change the historical record - only a requirement to collude via the quorum of the group. If anything, DLT is just a glorified multi-party authentication system - which like I said, is fine in some cases - but not when painted with "all the glorious things" it's going to give the world.

 

Open, decentralized networks [insert blockchain word here] such as Bitcoin are immutable, distributed & happen to group transactions together to achieve autonomous consensus amongst network participants who do not know each other. The result is a digital network that is inherently tied to real world cost via real-world energy. The more energy & cost associated with the network, the greater it's degree of immutability. 

 

Therein lies the innovation. 

 

It is unprecedented & its application to something that requires an extraordinary degree of censorship resistance, eg; a non-sovereign form of monetary unit, is where "the killer app" lies.

Not IBM's "Blockchain for Lettuce".

 

Is this recipe useful anywhere else?

 

Many have argued that using the entire Bitcoin recipe, & applying its output (ie; digital immutability & censorship resistance) to things outside of a non-sovereign monetary network + unit is a good idea. Enter Ethereum, etc.

 

Whilst I won't go into the details here, I am very skeptical of the need to apply immutability & censorship resistance (or make it an integral component of the stack) to many things in the world due to the inherent cost of doing so.

 

I'm extremely skeptical of the idea of "Dapps". Even if we assume Ethereum is censorship resistant (the numbers don't add up), & that the Dapps are also actually decentralized (they're not), how many applications really need to have immutability or resistance to censorship as a native part of their stack? Maybe an "ebay for Hitmen" - but by & large, if you have an idea for an app, in today's day and age - just go spin up an AWS instance, and make it happen!

 

Bitcoin's unique recipe is very useful for a specific set of things, much like building a tank is useful for a specific set of things. Putting the tank on a race track or removing all the armour to make it faster & then sending it into battle are both misguided.

 

The Verdict?

 

The world Blockchain was popularised in 2013 & 2014 by groups of banking consortiums, who are inherently threatened by the disintermediation that Bitcoin presents.

 

Seeing the banks, accounting & IT giants, like the Big 4, the IBM's & Accenture's of the world, tout DLT or Blockchain is just classic PR. They're announcements by large, (in most cases boring) corporates who are desperately trying to show that they’re still somehow “innovative”.

Similar to how they use (and exaggerate) the words “cloud”, or “Ai”, or “big data”.

 

There is very little innovation there. So I call Bull$#*%.

 

Onto Libra

 

Libra has red-pilled more people into Bitcoin recently than just about anything else.

The idea that a non-sovereign currency can be issued, by an entity which is not a government or a state has actually opened the minds of millions of people who could not perceive that earlier.

 

The fact that Facebook has circa 2bn people on their network makes it the largest community (country) in the world, & people’s ability to grasp the notion of that community having their own money is a much easier mental leap.

 

Once they make that leap, they then have an easier time understanding Bitcoin, as seen by the journey people like Joe Kernan from CNBC Squakbox are on.

 

Whilst Facebook has used the term "Blockchain" in their definition of what Libra is, it’s actually an inaccurate representation. I won't do the argument as much justice as Jameson Lopp did, so I'll link to his article here:

 

https://onezero.medium.com/thoughts-on-libra-blockchain-49b8f6c26372

 

But suffice it say; it's not a blockchain.

 

In fact, Facebook & the Libra consortium have ZERO interest in building their own “blockchain”.

What they’re attempting with Libra is something so much larger, & it’s exactly why all the governments (big or small) are up in arms about it.

 

Let’s think about it for a moment.

- Libra is in direct competition with government based fiat currencies (and they all know it)

- Consider what a population in a jurisdiction with a weaker national currency would do if LIbra launches there. Why would a citizen hold their hard earned wealth in something that’s depreciating by 10 - 20% per annum?

- You quickly come to the realisation that there would be a “bank-run” on the national currency, with all the capital flowing onto Libra. The result would be catastrophic for the government in power, as it’s economic lever is the basis of its control of the population.

 

Governments are scared — and rightly so.

Facebook is arguably the largest “country” in the world, & their currency would be more useful to more people than the fragmented fiat ones they’re using today.

 

This is the real play. Libra is attempting to do their own Bitcoin - they couldn’t care less about Blockchain.

 

Bitcoin is the “Killer App”.

 

Bitcoin is fundamentally unique.

 

Its immaculate conception & organic introduction to the market, its initial broad based adoption for strong, libertarian reasons & the timely disappearance of the founder, leaving no “head of the snake” to cut off are just a few of the things that make it impossible to replicate.

 

Digital scarcity, Bitcoin’s core innovation is by definition, a one-time event. Every other cryptocurrency, optimising for complex, turing complete smart contracts on the base layer, or faster payments are quickly being shown as irrelevant or short term noise.

 

Bitcoin’s focus on being a censorship resistant public network, owned by the participants, that’s broadly decentralised & organically priced by the market is the killer app.

 

Libra by facebook reinforces all of the above, by making all other cryptocurrencies who optimised for the wrong thing obsolete, & giving us a strong contrast to what Bitcoin represents for the world, ie; a money of & for the people — that cannot be shut down, censored, confiscated or inflated.

 

This was a once-off opportunity. 

 

The smart money knows this & Bitcoin will continue to suck up all the capital & liquidity whilst all the other noise (crypto) will continue to trend toward $0 against Bitcoin in both dollar terms & relevance.

 

Bitcoin VS Libra: The real showdown.

 

Libra inherently validates Bitcoin.

 

It opens people’s minds to the idea of a floating, global currency that is not managed or issued by a state of government.

 

The question is, would you use it?

Or would you prefer to use something like Bitcoin?

 

Whilst there are similarities between them, I would argue that Bitcoin is the antithesis to something like Libra, which to me sounds like we’re jumping from the frying pan into the fire.

 

Whilst I’m not a fan of government or central bank-decreed fiat money, I question the logic of moving from a global USD reserve to a Libra reserve.

 

Sounds a little like 1984 to me.

Not to sound conspiracy theorist, but the idea of one party, or even a consortium of the “big boys” having the final word on the most important resource in society, ie; money, ie; the unit of account that measures the input of all participants in society + the world at large → sounds dangerous to me.

 

This, fellow readers, is why Bitcoin matters.

It’s exactly why Bitcoin optimised for censorship resistance, privacy & self-sovereignty, not “fast payments” or “smart contracts” like all the other now-irrelevant crypto’s did.

 

All of the “potential” that’s promised (amongst the noise) in crypto will be built on top of the most robust network. What remains to be seen is whether that’s Bitcoin, or whether that’s Libra (or both).

 

A new Money is the real battle-ground.

Not Blockchain.

 

And in my mind, Bitcoin is the only real alternative to a potentially Orwellian future.

 

Verdict on Libra?

Big Brother.

 

Conclusion

 

Bitcoin is the most under-appreciated innovation in History, but as with all great zero to one innovations, it’s the contrarian aspect that makes it so much more profound.

 

In 1000yrs, the concept of money will very much still exist — because it’s the foundational element required for any society to function.

 

Much like the internet, Bitcoin is a public good — owned by the people — and by taking the only two finite resources that we know of (time & energy), Bitcoin is able to give the world a superior monetary network & unit that we can use to better collaborate & function as an open society.

 

Blockchain is not an alternative, nor does it even matter & nor will it even be spoken about in the coming 5yrs. The real alternative is potentially 1984-stye big brother currencies, whether they’re government issued (eg; China’s social credit system), or issued by non-state consortiums with disproportionate influence in the world (eg; what FB is doing with Libra).

 

It’s the opt out of those that gives Bitcoin the brightest future of all.

 

Verdict on Bitcoin?

Brilliant.





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