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Blockchain and the bitcoin are new and useful

Jean-Michel Fayard πŸ‡«πŸ‡·πŸ‡©πŸ‡ͺπŸ‡¬πŸ‡§πŸ‡ͺπŸ‡ΈπŸ‡¨πŸ‡΄
Weeks of programming can save hours of planning
・2 min read

Unfortunately, the useful part is not new and the new part is not useful.

Blockchain

The useful-but-not-new part is that its data structure is a Merkle tree - something you know already, it's like git.

The new-but-not-useful part is that it has a decentralized consensus algorithm. Technically, it's impressive, but it is also very complex, which means for whatever thing "you can do with the blockchain", there is a simpler - therefore better - technical way to do it. Therefore, in most cases the blockchain is "needed" not technically but for ideological tech-bro libertarian reasons.

Bitcoin

Likewise, Bitcoin is new and that is mistaken with being useful.

You have story-telling from the tech-bro who have invested early in Bitcoin and got rich. That's the ultimate proof it must be good right? Nope. It was a good investment precisely because it's a bad currency. A good currency needs stability. The value of your savings never lose 20% just because Elon Musk said mean things about the euro or the dollar.

There are lots of people who wants to get rich by doing shady and/or illegal things.

Bitcoin's killer feature is that police is police, and the banks and the democratic institutions are relatively powerless to go after those guys.

  • Bitcoin is good for non-regulated internet gambling
  • Bitcoin is good to sell arms and drugs
  • Bitcoin is good for obtaining ransom

A personal story

Two weeks ago, my wallet was stolen in Paris, and the thieves took 5,500 euros from my bank account.

When something like this happens - and it happens all the time - with bitcoin, that's the end of the story. Too bad for you, you lost your money, you are on your own.

But there I had a centralized institution called "the police" where I said my money was stolen. And just like that, a centralized institution called "my bank" gave me money back. Because a centralized institution called "the government" forces it legally to do so.

Don't buy the libertarian ideology that centralized institutions must be thrown away with the bath water.

Recommended reading

I only scratched the surface, didn't evoke the gigantic waste that Bitcoin's proof-of-work causes, but if you want to know more, I promise you will find those articles interesting:

Discussion (4)

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thorstenhirsch profile image
Thorsten Hirsch • Edited

I think you're wrong in many aspects. First of all: Bitcoin is not good for selling arms or drugs or paying ransom, because every transaction is recorded and it's only a matter of time to de-pseudonymize addresses. If you want to do illegal stuff use Monero!

However I wouldn't blame Bitcoin for its shortcomings. After all it's a global transaction system without a single day of outage for over ten years. I never thought this was possible. And due to its shortcomings Bitcoin has triggered so many developments: faster blockchains, more versatile blockchains, decentralized global networks with better data structures than blockchains...

Most of these developments happen in a finance/tech bubble, and we still see failing projects where millions of dollars are being lost just like that. But the technology is so much simpler, transparent, fair, and yes: cheaper(!) than the global financial industry - it's obvious that "DeFi" (decentralised finance) will take over the world in a few years. However: your bank is not obsolete. You've got a perfect example for why we still need trusted intermediaries in the future, e.g.: your bank will take care of your Bitcoin wallet.

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jmfayard profile image
Jean-Michel Fayard πŸ‡«πŸ‡·πŸ‡©πŸ‡ͺπŸ‡¬πŸ‡§πŸ‡ͺπŸ‡ΈπŸ‡¨πŸ‡΄ Author • Edited

But if we have trusted actors, we don't need the blockchain! We can record transaction in decentralized Merkle tree structures like git repositories.

Behind Bitcoin lays the ideology that trust cannot and should not be built.

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thorstenhirsch profile image
Thorsten Hirsch

...and that's exactly what the financial industry needs.

You might trust your bank, yes. I might trust my bank as well. But does my bank trust your bank? Should they trust each other...? In 2008 we've seen that the collapse of Lehman Brothers triggered a global financial crisis. Now imagine how much worse this would've been if banks weren't suspicious of each other, but trusted each other, if all banks had trusted Lehman Brothers. A domino effect much worse...

Maybe the infrastructure between financial institutions is the only other real use case for blockchains besides Bitcoin, but it's huge. In the aftermath of 2008 regulators have pushed the markets towards central clearing partners for better transparency of the risks in the derivatives market. But now these central clearing partners are a risk themselves since they have become the trusted party for trades with a volume of hundreds of trillions USD. A huge systemic risk!

The trust(less) model of blockchains represent the trust model between financial institutions and provide a solution to resolve the systemic risk of central counterparties without creating new central intermediaries. And that's why banks have started to love blockchains.

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cermitio profile image
Cermitio

That is great that more and more people become competent in the blockchain and cryptocurrency sphere. This is a new branch of the economy, as I think. I am using cryptocurrency markets for several months, but your article has some useful informative aspects for me. As for the beginnings of crypto traders, such posts is a real source of the information for them.