In today’s era of ICOs, appcoins, and “permissioned blockchains”, I am often asked about what I think about the future of bitcoin. Will it still be relevant in 20 years? Will it ever be used as anything but “digital gold”? I believe the answer is “yes” to both of these questions.
Get you a blockchain that does both
First to answer the question “will bitcoin ever be used as anything but ‘digital gold’?” This idea of bitcoin as “digital gold” has been embedded in the minds of Bitcoiners since the beginning when bitcoin mining was first analogized to the process of gold mining, and the inflation curve was compared with the rate of gold production. Since then, however, this analogy has created what I see as an artificial and unnecessary debate about whether bitcoin is “digital gold” or “electronic cash”. The answer is that bitcoin is both.
Bitcoin the token is like a digital form of gold. The supply is limited, it gets harder to mine over time, and it’s valuable for monetary, industrial, and creative uses. At the same time, bitcoin transactions work a lot more like cash than a credit card payment. Transactions are expensive to reverse once confirmed, requiring a certain amount of computational “force” to pry coins out of the wallet of a recipient. And with the activation of Segregated Witness just weeks away, it will soon be possible to send bitcoin transactions worth fractions of a cent. Try that with the physical cash!
Beyond bitcoin as money
The feature that makes bitcoin valuable as both “digital gold” and “electronic cash” is the security or immutability of the blockchain. The computational guarantee that transactions are expensive to reverse provides a solid foundation upon which many useful applications and “Layer 2” protocols are being built. For example, enterprises are recording hashes in the blockchain to create verifiable timestamps for valuable datasets, and engineers are registering domain name records on the blockchain to create a more secure web architecture.
Despite snickers from veteran Bitcoiners over the “blockchain not bitcoin” rhetoric that dominated the FinTech press cycles in 2015, it turns out that both camps were off the mark. Permissioned blockchains are beginning to show real utility as auditable, cryptographically-secured, shared ledgers of record between disparate parties in given industries or business ecosystems. But to really gain the benefits of the blockchain, operators of these permissioned systems are realizing that they need a common “trust layer” that can be used to resolve disputes over conflicting transaction histories.
Thus we come full circle as “blockchain not bitcoin” becomes “blockchain with bitcoin”. The bitcoin blockchain is beginning to fill that need for a neutral “trust layer” upon which distributed applications and shared ledgers are being built. Developers are beginning to “anchor” snapshots of their databases into the bitcoin blockchain so that they can compare histories over time and catch any discrepancies in their records. They are also utilizing bitcoin’s Layer 2 protocols to create secure PKI and payment systems for their applications. It’s looking more and more like there will be many blockchains secured by bitcoin.
The bitcoin network of blockchains and applications
In the not-so-distant future we will see hundreds of blockchains processing trillions of transactions and thousands of applications with billions of users, all secured by bitcoin. There will be machines sending each other nanopayments for bits of information or joules of electricity, people transferring money overseas and across the internet, and applications anchoring data to and retrieving verifiable information from the blockchain.
These interactions will happen across layers of protocols that form fractal networks to enable robust and scalable application ecosystems. Sidechains and interoperability protocols like Interledger will enable trust-minimized transfers of bitcoin across different blockchains, each with their own unique features and applications. For example, people will be able to pay for Turing-complete smart contracts with bitcoin on the Rootstock sidechain, and the Liquid sidechain will enable faster, more discreet transfers of bitcoin between exchanges and wallets. The days of using altcoins for anything but pump and dumps and niche experiments will be a distant memory.
Keep It Simple, Silly
The reasons why I believe bitcoin will be the Trust Layer of the internet and not a competing open blockchain are twofold:
- Bitcoin already has a massive network effect, giving it a strong lead over competitors, and
- The bitcoin blockchain is relatively simple, which is great from a security perspective. As computer security expert Bruce Schneier has said, “Complexity is the worst enemy of security.”
The most obvious runner-up for the “Trust Layer of the Internet” title is ethereum, a cryptocurrency that has an impressive amount of hype for how unstable the network is. To its credit, ethereum is still very much a work in progress, and the hype is mostly due to overzealous startups and crowdsale investors than any concerted effort on the part of the core development team. That said, while ethereum seems to have the potential to catch up to bitcoin’s network effect, by its very nature it will never compare when it comes to simplicity.
I believe that the Trust Layer of the internet demands the simplicity of bitcoin’s limited scripting language, because it is much easier to reason about when analyzing the security properties of the system. With ethereum, it is fundamentally impossible to know whether or not a contract will be deployed that could crash the nodes in the network since anything is possible with a Turing-complete scripting language.
My personal view on this is that if you need Turing-complete contracts, you can use a sidechain or permissioned blockchain for that. Then if there’s a problem, it doesn’t damage the Trust Layer, the problem is isolated to the other blockchain. The same goes for any other experimental, novel, or exotic blockchain use-case.
Due to the costs of transacting on open and decentralized blockchains at-scale, most people will choose to transact off-chain anyways. Since the scripts required to support a range of off-chain transaction security models are relatively simple, it’s reasonable to conclude that bitcoin is “good enough” to serve as the Trust Layer upon which everything else is built.
My vision for the bitcoin application stack
After watching the evolution of bitcoin and the blockchain technology ecosystem over the last few years, the stack of protocols and services that developers are using to build the next generation of digital applications is becoming more clear to me. It looks something like this:
Of course, developers won’t have to use each “brick” or even each layer in the stack when building their applications. But each component will be available for building centralized and decentralized applications alike, and at the bottom of the stack sits the Trust Layer, the decentralized arbiter of truth and justice – the bitcoin blockchain.
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