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Bitcoin, Not Blockchain

Author: Reedy Zzx
by Reedy Zzx
Posted: May 21, 2020

When Bitcoin became quite successful in late 2017, everybody was rushing to buy-in. They started to assume that BTC would keep going up. Due to this "gold rush" mindset, governments were forced to pay attention to Bitcoin due to its sudden meteoric rise. However, after months of debate, many companies and traditional economists decided that "blockchain, not bitcoin" is the right mindset to adopt this technology. But with this article, I analyze why that mindset is actually wrong.

Before we continue, you might want to learn more about Bitcoin. A good explanation about Bitcoin can be found here.

If you already understand the basics about Bitcoin, let’s continue.

The Problem With Blockchain, Not Bitcoin

Many experts and people who represent central banks often praise the blockchain technology and concept. They understand there’s a huge potential behind distributed ledger technology (DLT). However, they believe that cryptocurrency is not needed for blockchain technology to function. They believe decentralization and all that could work even without being tied to any cryptocurrency.

For that reason, many big companies tried to experiment with private or semi-private blockchain ecosystems. Let’s use IBM Blockchain as an example. Unlike Bitcoin or Ethereum, IBM Blockchain doesn’t use any cryptocurrency. It does use the blockchain concept (decentralized network) among its partners and network supporters but the fact that it’s crypto-less makes it interesting for other companies to use it.

If we analyze IBM blockchain or R3 Corda or similar crypto-less blockchains, we understand that they are able to attract many traditional companies to use their ecosystems. And it makes sense too why they do not need any cryptocurrency to function, as they only need other companies to start participating in the blockchain ecosystem itself.

However, in the bigger picture, "blockchain, not bitcoin" movement is very niched. Apart from supply chain verification and several other use cases, the potential of "blockchain, not bitcoin" is very limited. The reason why cryptocurrency exists is not to support the blockchain technology but to remove trust and still be able to incentivize all the participants (because who will provide any resource without getting anything in return?).

The Point Is About Trust

The problem with "blockchain, not bitcoin" movement is that outside the corporations that can benefit from cost-saving issues, you don’t find many benefits. The public (average guy) will never provide any resource on these semi-private blockchain networks because they don’t receive anything. And for that reason, the "decentralization" aspect of semi-private blockchain will always be questionable. If there are never hundreds of different entities or individuals supporting the same blockchain network, it means they are actually semi-centralized.

The point of having a native cryptocurrency in a blockchain network is about eliminating trust. I don’t need to trust the data that’s provided by the other nodes in the blockchain network. I provide my computer resources because I want to get the mining rewards (or validating node rewards). And when everybody thinks like this, you will have more and more people supporting the blockchain.

When there are thousands of different entities in a blockchain, you will have much bigger decentralization and trustless information at the same time. And this is the point of a blockchain. When the power of data is too centralized in the hands of the few, you can assume the data is not that much trustable from the point of outsiders. A closed system (like IBM Blockchain or R3 Corda) will always look like "intranet" compared to public blockchain networks that look like "internet". The potential of semi-private blockchains is there but very limited.

Bitcoin Is About Not Trusting Centralized Entity

Remember that money is always a sensitive issue. For decades we have been very dependent on central banks on controlling the supply of fiat currencies. And for decades our fiat currencies have been losing its valuations due to uncontrollable inflations. When central banks have absolute power to do whatever they want with our currencies, they always breach that trust.

The point of Bitcoin (and the reason why it uses blockchain) is because you don’t need a single entity in order to trust the currency. Due to its decentralized network, you only need to trust the code and the trust that people have in the currency. This is the exact opposite of (for example) US Dollar, where you also need to trust the Federal Reserve and not just the US economy.

When blockchain and crypto are mixed into one basket, you will have a much bigger potential due to their decentralized nature, and their ability to incentivize its participants to join the network.

If you are interested to learn more about Bitcoin, you can check out this article.

The movement of "Bitcoin, not blockchain" covers the whole audience, including average joes that believe in supporting the Bitcoin blockchain (or any other public cryptocurrencies out there). On the other hand, the movement of "blockchain, not bitcoin" opens a lot of doors to collusion and possibly back to centralization, due to how small the amount of participants is, and usually, they are always the same companies (who know each other) over and over again. And of course, no outsiders would be willing to join, as they don’t get incentivized at all.

About the Author

A strong blockchain advocate, crypto enthusiast, and secretly hoping crypto will go mainstream

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Author: Reedy Zzx

Reedy Zzx

Member since: May 05, 2020
Published articles: 7

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