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.
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.
— Kyle Torpey (@kyletorpey) April 29, 2015
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.
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