Why Is Bitcoin So Disruptive?
I explained before in my post Education 2 – What Is Bitcoin Technically? how the current financial system wants to control Bitcoin. I also explained how Bitcoin could function as each of the things that those private and government entities regulate. I would like to spend a little time explaining that a little better. My problem with my original answer is that, outside of the technical, all the things I said Bitcoin could be basically call it one form or another of money. To classify Bitcoin solely as money is a misidentification. It’s true that many Bitcoin proponents, such as myself, tend to start by describing Bitcoin as money is because that’s what most new users have heard and want to hear more about. The truth is that Bitcoin is far more than that because of the technical.
I know it’s been said plenty of times, certainly not first and definitely not only by me, that Bitcoin is quite possibly the greatest technological creation since the Internet. I started my research for this post after spending quite a bit of time answering Bitcoin questions on Quora. I was asked by a user to answer the question, How will e-currency like bitcoin influence how banks/bank services work? I did answer the question, was challenged, and then responded with a much larger answer. I decided to expand it and post it here as well. Much of what I’ve written there and here uses what I learned listening to speeches by Andreas Antonopoulos. I think he’s helped me immensely to put into words why many of us feel the way we do.
When Bitcoin proponents talk about Bitcoin as money what we are leaving out is that Bitcoin is not just money. Or, to be more accurate, money is just one application built on Bitcoin. That’s the fundamental misunderstanding of Bitcoin. You see, Bitcoin is at its heart simply an open source protocol with the most powerful network that the world has ever seen securing it. Once you understand this the idea, that Bitcoin is just another protocol that runs on the Internet, you begin to get your first glimpse at what makes Bitcoin so powerful. It is not money. It is the Internet of money.
Bitcoin is a decentralized, permissionless, trustless system that relies on no counterparty for arbitration. This simply means that there is no authority to rely on for trust or to decide truth. The network does not rely on keeping people out, even people with bad intent. Bitcoin relies on its programming and consensus network to decide trust and truth. The network relies on inclusion and everyone is invited, even those that mean it harm. Bitcoin is made more trustworthy by those that attempt to defraud it. Bitcoin is made stronger by those that attack it. Bitcoin thrives on adversity mainly because it operates in the open and adversity is all it knows. Bitcoin is under attack all the time because hackers have a financial incentive to break it. But everyone involved in mining and operating nodes have a financial incentive to make that job as hard as possible.
It has been said by opponents that Bitcoin must be regulated and controlled like money and banks are now to remain safe and secure. But to go that route strips away what makes Bitcoin so powerful. Think if the Internet were regulated and the access and protocols that it uses were locked down to exclude those without permission. We’ve seen that technology before. It’s called an intranet or a walled garden. Companies have been trying this for years. Intranets are weak, archaic systems that even the largest of companies are leaving behind. Keeping the bad people out has failed repeatedly. All it takes is one breach and chaos is unleashed. Once someone is inside the walls, they have free reign, often to disastrous result. Successful companies have recognized this and begun to do their business over the open Internet because they’ve chosen to base their security on stronger stuff than limits and exclusion, like encryption.
So why does the current financial system not see past examples of failure and success when it comes to new technology and work to incorporate something like Bitcoin? Banks first ignored Bitcoin because they thought it was insignificant. Established power structures usually take no notice of new technology. But it continued to grow and get noticed. Then they scoffed at Bitcoin because they thought it couldn’t possibly be a threat. Established power structures usually do not see new technology as such. But it refused to die and even began to thrive. Then a few on the fringe of the establishment started to get curious and began to look at what was behind Bitcoin. Once they started to gain an understanding they reported their findings up the chain of command and that’s when the established power structures began to bargain. Banks began hoping to use the technology behind Bitcoin, but strip away the parts that they didn’t like. This is why you now hear about banks exploring blockchain technology, but wanting to leave Bitcoin behind. The problem is that the parts they didn’t like are the very parts that make Bitcoin so powerful. By the time they figure that out it’s going to be too late.
You see, the blockchain is not something new. It’s simply a ledger. To be fair, it is an advanced form of it, but it’s still based on technology that is thousands of years old. You could write down data on paper and create a ledger. If you number those pieces of paper you’ve created a paper chain. If you staple those pieces of paper together you’ve created a spreadsheet, or a block. If you digitize that spreadsheet you’ve created a database, or blockchain. If you give copies of that database out to trusted users you’ve created a distributed database. But if you let just anyone use that distributed database, especially someone untrustworthy, you’ve just destroyed it. The blockchain without the Bitcoin consensus network securing it is as weak and archaic as an intranet. It is the decentralized, distributed, trustless nature of the Bitcoin blockchain and the power that comes from inclusion that makes it so powerful. Anyone can take part. All you have to do is follow the rules of the protocol and you can be included. But if you don’t follow the rules you go against consensus and are denied. And the network doesn’t need an authority figure to decide consensus. It does this all on its own automatically. It’s designed that way.
And people are starting to notice. Bitcoin is an open source project the likes of which the financial world has never seen. People every day are programming new Bitcoin based financial services, looking to be the first to do what they do. Others are looking at what those people did and trying to do it better. And none of them need to ask permission to do so. Billions of dollars of venture capital have been poured into Bitcoin related development so far and it shows no sign of slowing down. Bitcoin doesn’t need the current financial industry’s monopolistic systems of data transmission. It doesn’t need aging, proprietary, point of sale systems. It doesn’t need ATM network infrastructure to convert digital money to paper notes. It uses existing technologies. It is not only a currency, it is the entire payment network. And it doesn’t need to ask permission to exist. That is what is really beginning to terrify the established power structures.
What’s more, Bitcoin opens the financial services world, not to the 1 billion that currently have adequate, international, liquid, banking services available to them, but to the 4 billion that have limited and inadequate services or the 2 billion that have none of those services at all. Those 6 billion have been waiting far too long to join a modern system that considers them too poor to be worth investing in or including. And many of the 1 billion that have the so called privilege of being a part of that system are tired of the only innovations being produced involving plastic cards with stripes and subpar, closed, online systems that continuously get hacked. They are tired of the owners of those systems being too busy to innovate because they’re figuring out new ways to squeeze fractions of a penny out of trades before their competitors manage to do so, or figuring out ways to bet on financial gains and losses and wiping out homeowners or retirees in the process, or too busy figuring out ways to maximize a fee structure and screw people out of their wages. People are tired of the current system and want something better. And the more people learn about Bitcoin the more they realize that it truly has every potential to be something better.
The stagecoach industry scoffed at the car. Electricity was considered too dangerous, a plaything of the rich, and a fad. The telephone, it was thought, would only ever amount to a toy. IBM ignored the personal computers market. Long distance companies fought incorporating the Internet. HP laughed at Linux. Kodak seemed surprised by digital photography. Tower Records failed to embrace MP3s. All of these established power structures were at the top of their game when they met their demise at the hands of technology they first ignored. And when the mighty fell they fell quickly, usually no more than a decade. I don’t know if Bitcoin in particular is the protocol or network that will be the one to win, but it is certainly the one that changed the game. The genie is out of the bottle. Scoff if you will.