When looking at Bitcoin in the context of the greater fintech space, the big debate around the technology right now involves the requirement of an underlying token, cryptocurrency, or digital commodity (such as bitcoin) to power the entire system. While some banks view blockchain technology as the true innovation in Satoshi Nakamoto’s white paper, Bitcoin purists view decentralization as the key to the network’s success up to this point.
Bitcoin Foundation Chief Scientist Gavin Andresen recently shared his thoughts on the Bitcoin vs blockchain dilemma at Web Summit. The Bitcoin XT Developer was able to provide some insightful comments from both sides of the debate.
What’s Wrong with Existing Database Technologies?
One of the main objections to private blockchains that has been brought up by Xapo CEO Wences Casares and others is permissioned ledgers do not appear to offer any serious advantages over existing database technologies. Andresen made this point during his recent Web Summit appearance:
“One [observation regarding private blockchains] comes from some academics who wonder: If there are six banks that get together and have a private ledger that they all agree on, why can’t they just use existing database technologies? Have a MySQL database that they all agree [on], they all have copies of, [and] they all synchronize with each other. I think that’s kind of a valid point.”
A distributed ledger does not necessarily need to operate on a blockchain. As many have pointed out in the past, some financial institutions may want to think about what they’re actually getting out of the blockchain before they integrate it into their back ends.
Bitcoin’s Security Has Been Tested in the Real World
Another issue with private blockchains pointed out by Gavin Andresen was the fact that Bitcoin evolved in the wild. Unlike closed-source, proprietary systems, Bitcoin was open to scrutiny from hackers and various bad actors from day one. Andresen explained:
“Bitcoin evolved in a very harsh world. Bitcoin evolved as this open-source technology vulnerable to hackers on the open Internet, and I think because it evolved that way, it really has some strength at its core that — if you look at like commercial databases, it’s the opposite model of [putting a moat around the network and not letting anyone get in]. And so I think going more towards the Bitcoin model of [assuming that there will be attackers] gives a lot of strength [to the network], and I think that interests a lot of people.”
Third Key Solutions CTO Andreas Antonopoulos gave a presentation on this point at the recent Bitcoin Foundation Devcore Workshop. In his talk, Antonopoulos compared private blockchains to bubble boys who are never allowed to face the dangers of the real world.
Private Blockchains are Not Designed to Compete with Bitcoin
Although Andresen had a few negative points to make on private blockchains, he also noted these private or permissioned systems are not supposed to compete with decentralized solutions such as Bitcoin. He stated:
“The other observation is bitcoiners who I think don’t understand why these private blockchains are appealing. They’re not designed to compete with Bitcoin; they’re not designed to be a new currency; they’re not designed to be an open system where anybody can innovate. They really are designed for problems that these financial institutions have today. And so I think there’s a role for them there, and I think the technology will work for them.”
At the end of the day, it makes sense for banks to apply blockchain technology to aspects of their businesses where it has the potential to cut costs or improve efficiency. Again, it goes back to these banks and financial services companies figuring out why they want to use a blockchain in the first place. Many financial institutions are experimenting with various blockchain and consensus systems, and it’s possible that one solution that works at one bank won’t work at another (and vice versa).
The future of blockchain technology remains unclear at this time, but there is plenty of experimentation taking place at some of the largest financial institutions in the world. Having said that, it’s possible much of the real innovation in blockchain technology will take place completely outside of the current banking system.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.