Bitcoin vs Blockchain: Barry Silbert Weighs-in at Inside Bitcoins NYC

By Kyle Torpey May 1, 2015 11:00 PM EDT

At the recent Inside Bitcoins conference in New York, Bitcoin Investment Trust (OTCQX:GBTC) Creator Barry Silbert sat down with American Banker Editor-in-chief Marc Hochstein to discuss the ongoing debate between bitcoin (the currency) and blockchain technology. Silbert is behind the first publicly-traded bitcoin fund in existence, so it’s clear that he sees potential in bitcoin as an investment. There has been a lot of discussion around the idea of taking certain aspects of bitcoin and using it to improve the legacy financial system without creating an entirely new currency; however, Silbert — and many others in the bitcoin community — believe that you can’t have the full benefits of bitcoin without also using the underlying token in the system.

Also Read: Barry Silbert Plans to Have Bitcoin Fund Traded on NASDAQ or NYSE

Blockchain good, bitcoin bad?

After Silbert provided a quick update on the status of the Bitcoin Investment Trust, Hochstein decided to ask the bitcoin investor about the idea of using blockchain technology without the underlying bitcoin currency. Do we really need a new currency for the technology to work? Hochstein noted that Silbert seems to be more interested in the currency aspect of bitcoin, and Silbert responded:

“For all of the reasons why the blockchain is exciting and has the potential to change the world, it’s really only possible because it’s secure — it has the capacity to process large amounts of transactions. The only reason it’s secure and has that capacity is because there’s a bunch of miners around the world that are dedicating energy, money, and time to mine bitcoin. The reason why they’re doing it is not because they’re good citizens; they’re doing it because they want to make money. And they make money by receiving bitcoin through rewards and transaction fees, so if you eliminate the money making opportunity from mining you’re [not going to have the proper incentives to secure the blockchain].”

It should be noted that Silbert’s argument may not apply to all use cases of a blockchain. As the Bitcoin 2.0 panel noted the previous day at the same conference, “the blockchain isn’t for everything.” Companies and organizations that are not worried about complete decentralization and censorship resistance may decide to opt for more-centralized approaches such as the offerings from Hyperledger and Eris Industries.

The narrative is changing from blockchain to bitcoin

Silbert also addressed bitcoin’s evolving narrative. His explanation of how the ways people view bitcoin and blockchain technology will change is quite similar to the path that many individuals go down when getting hooked on researching bitcoin in the first place:

“If I was going to guess, we’re probably six to twelve months away from the narrative going from — well again, before it was tulip bubble, crazy cryptoanarchists, and silicon valley types. [Today, it’s] interesting technology, who needs the currency. Six or twelve months [from now] it will be great technology, really interesting currency. And then the debate is going to be, ‘Is it bitcoin or something else?’”

The banks will figure out that they need bitcoin

A final point that Silbert made on the use of bitcoin or blockchain technology by large financial institutions was that it may take some time for banks to figure out that bitcoin is the right solution. This is no different from companies and organizations from other industries that are looking at how they can take advantage of blockchain technology; some are sticking with bitcoin, while others have decided to create their own altcoin or a completely new blockchain. Silbert explained:

“The more time you spend with the banks — which is quite a bit of time — they’ve all come to the conclusion that this is the future. They’ve all come to the conclusion that the future of clearing and settlement, the future of trading is something — whether it’s bitcoin or something else, that’s the way the future is going to process transactions. And my opinion is that it’s going to be bitcoin. They may try to do their own thing, [and] there’s lots of [those kinds of] efforts [already] underway. It’s going to take them awhile to figure that out, but from a narrative perspective, I’d much rather have it where it is today rather than where it was two or three months ago.”

It’s clear that Silbert sees bitcoin as the correct option for banks who are interested in blockchain technology, but there are plenty of other thinkers and researchers in the space, such as Hyperledger’s Tim Swanson, who would disagree with that premise. Swanson recently wrote a report (PDF warning) on “permissioned distributed ledgers”, and he feels that many banks could move away from bitcoin due to the simple fact that they may not have a need for complete decentralization.

You can follow @kyletorpey on Twitter.

 

  • Milly Bitcoin

    Those things had business plans and use cases. There are defiantly use cases for Bitcoin and decentralization but those benefits have to be clear for users to get them interested. Going around saying “Bitcoin is great” and “decentralize everything” is not an incentive for end users and it is not a business case.

  • Kevin Q

    It was really not that long ago when you couldn’t have imagined people watching cell phone video. The bandwidth was just not available though the video was. Remember when you had to choose your bandwidth and possibly watch a very small video version? It was only about 10 years ago as I recall.

  • all of your ‘reasons’ are reflected through the rear-view mirror… try instead to look through the windshield – where the world will be in the future – and you’ll notice that the possibilities are damn-near endless…

  • Haha! That didn’t take long!! FinCen just pimpslapped Ripple today!

    Coinkidink? I think not…

  • I agree they will try. Looks like Ripple is their first vehicle.

    I predict their end result will be laughably insecure and proven to be so within a year of launch.

  • Banks securing a blockchain without the mining network is like putting a padlock on the hoover dam… All it would take is one hack into that closed network and 51% attacking becomes less than trivial.

    Bitcoin’s incentive structure is security that CANNOT be overcome by mere hackers or even large armies with guns… It’s security you just can’t seem to appreciate, but that doesn’t mean it’s not orders of magnitude more safe.

  • I agree that bitcoin is better. That won’t stop banks from implementing permissioned distributed ledgers. I wouldn’t be surprised to see permissioned distributed ledgers used as the rails for transferring bitcoins in certain situations.

  • The Rats view is that any blockchain where verification nodes have an interest in the nature and provenance of the transaction, rather than just getting a reward for block building as in the bitcoin model, is simply going to lead to the continuation of the malpractices, corporate cronyism and exorbitant fee structures that our current Banking system has developed.

    If The Commercial Banks are to be the judges of the suitability of entrants they will favour incumbents and “known” players , ie some degree of entrant vetting will occur. ( be that societal, political or through the exercise of selective corporatism) So, although the mechanism of a distributed ledger can be solved by software algorithms the selection of “gatekeepers” will still be a centralised status-quo decision.

    The real innovation in the bitcoin blockchain is that it opens the process to anyone who wishes to participate; ie to freely transmit their own money without the need to be in the “closed loop” of existing Banking. Recent events have shown us that there is no public trust in the existing banking incumbents, whose profligate behaviour, market manipulation, money laundering for Tax Evaders and lack of transparency and accountability have crippled the global economy

    To have a blockchain system where the verifiers are part of the economic transaction loop will not give us the change that is needed in the new generation of Fintech, especially where it is going to impact on the global un-banked and the development of alternative P2P economies.

    In addition, a consensus ledger with a central “board” type approach – which would be needed in any centralised model – to implement changes to ledger protocol and verification of new entrants etc is fraught with the danger that “suspected undesirable transactions” could be arbitrarily blocked or withheld from the chain, either because they were being processed through a possible mistrusted node ( ie new entrant from an emergent country) or an organisation that the “board” subjectively deems inappropriate. ( such as Visa refusing to process donations to WikiLeaks etc , whilst still allowing donations to the American Nazi Party)

    So, before we all get carried away that you can have a secure and “transaction neutral” distributed ledger, without a bitcoin type verification process, we need to examine what that would actually entail in the real world of International Corporate Banking.

  • Banks could secure a blockchain without a token by having specific, known participants sign blocks rather than miners.

  • So let me get this straight; Tim Swanson wrote that “many banks … may not have a need for complete decentralization.”

    I guess those would be same banks that have no desire to secure their money?

    This whole line of reasoning is completely oblivious to the point of this article, which is you can’t have a secure blockchain without a valuable token to mine.

    Silbert is 100% correct, and those that can’t see it have no idea of how bitcoin’s incentivization structure works… Even after it is spelled out to you here… It’s something Satoshi wrote about in the whitepaper and us “bitcoin maximallists” as you call us figured out back before the dollar parity.

    Why is this so hard for you? Is it just because you don’t want to believe that it’s impossible for a better coin to come along and overtake bitcoin? Did you just miss the buy-in boat for bitcoin and already think it’s near the top of it’s eventual value??

  • random_bitcoin

    Tim Swanson wrote a book about bitcoin (not a very good one imho).
    Satoshi wrote code. See the vast difference?

  • random_bitcoin

    Milly Bitcoin is Charles Hoskinson. Disaffected late adopter, substandard project-hopping cryptographer, noted ethereum and mastercoin pumper. He really should put financial disclosure legal disclaimers on all his posts before obsessively bashing bitcoin.

  • inpips

    Courts dont change contracts all the time you are talking nonsense as usual. Ridiculous!!! As are your claims of enthusiasts being cultists.

    Research Bitcoin 2.0 when you get a moment, maybe you could take a course 😉

  • Milly Bitcoin

    Courts change written agreements all the time with court orders. I love Bitcoin but I don’t like cultists who go around spouting nonsense and misinformation and who go around screwing up Bitcoin’s reputation with a bunch of stupid claims about what it can do.

  • inpips

    “Some blockchain entry does not mean anything”

    Like some written agreement?

    We’re not there yet but decentalisation equals more open competition. If you dont like Bitcoin dont use it, simple.

  • Milly Bitcoin

    Many people don’t use the Internet. Second, if a court in a jurisdiction orders physical property to have the ownership changed some blockchain entry does not mean anything. Further, Bitcoin does not offer a better store of value currently with all the volatility and some new system could become more popular than Bitcoin and the value could tank.

    Centralized systems are much cheaper and better in some use cases. You are trading speed, usability, and expense to run mining for decentralization and in cases where you don’t need decentralization there is no reason to accept all the drawbacks and expense.

  • inpips

    I would agree Bitcoin needs to be scaled and I would agree Authoritarian Governments may slow down its adoption. Authoritarian government have already made things difficult in China, New York, and Russia.

    However it only takes one friendly Government such as the isle of man or possibly the United Kingdom/London who knows?

    Basically Milly if people find they prefer the ease of use Bitcoin offers, if they find over time the finite nature of Bitcoin acts as a better store of value than FIAT more and more people will use and value it.

    As for the legality of ownership on the blockchain, the blockchain is an uncorruptable ledger (a record) agreements recorded on it no different legally than any other contract made whether it be written verbel or on an internet tick box.

  • Milly Bitcoin

    You are just hyping Bitcoin and spouting a bunch of hyperbole. Bitcoin is only good in certain use cases and is a supplement to the current system, not a replacement. There is also little or no benefit in many cases to control ownership of physical items in a decentralized manner because the physical items themselves are not “decentralized” and they are subject to ownership and legal issues in a centralized system. the same goes for these proposed autonomous companies, you can have all the decentralized block chains you want but that does not change the fact that a company offering goods and services is centralized and exists with a legal jurisdiction.

    Many Bitcoiners go around spouting all this nonsense that Bitcoin and the blockchain will replace all these functions yet they never think these through or explain how they will actually work. Sure there are going to be some neat applications of the technology but you make Bitcoiners look stupid by making all these prediction with no real explanation as to how it will work. People who understand Bitcoin also understand its limitations which is why Tim Swanson is a good guy to listen to.

  • inpips

    A killer ap might be a seamless secure wallet enabling low cost remittance and currency conversions. This could eventually be developed into a seamless way to transfer other value on the blockchain such as property rights including stocks, real estate, CLOs or any other type of value derivative.

    Peer to Peer exchang of value without the need of a potentially untrustworthy or expensive third party. The possibilities only restricted by ones imagination.

    I imagine you had similarly restrictive and “realistic” opinions about packet switching networks before the advent of the internet browser.

    Why would Bitcoin threaten the very existence of Central Banking? A better question perhaps… why wouldn’t it?

  • Milly Bitcoin

    Why would Bitcoin force the Central Banks out of business? Bitcoin is only useful in certain use cases so it is not a ubiquitous currency replacement. There is also no basis to claim that some “killer app” will change things. Swanson often talks about how Bitcoin advocates make claims like that without any basis. This is why you can’t listen to many Bitcoin advocates.

  • inpips

    Realistically it could eventually force Central Banks out of the Banking business.

    The main hurdle I believe is scalability, Im sure bitcoin CAN be scaled but the question still remains WILL it be implemented sucessfully and will it be implemented prior to bitcoins “big opportunity” that killer ap when suddenly bitcoin becomes adopted en masse.

  • qldrg

    So Milly Bitcoin’s identity is finally revealed! At last, it all makes total sense.

  • Agreed. I’ve always enjoyed his work.

  • Milly Bitcoin

    Tim Swanson has a healthy dose of skepticism about Bitcoin and he looks at Bitcoin realistically.

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