Say the Big, Bad ‘B’ Word Bitcoin and the Internet of Money

Go ahead and say the word 'bitcoin' and acknowledge that it's the actual platform that is driving this innovation that we're all building on.

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It has been a bit amusing watching as intellectuals and “thought leaders,” financial industry executives, technologists and even the media itself have fallen in love with “the blockchain,” “distributed ledgers” and other phrases to talk about the innovation happening in how trust and value exchange work on the Internet.

Notably absent from this high-minded and purportedly insightful thinking is reference to bitcoin, the actual open platform that distributes trust and provides a highly secure ledger to exchange value around the world.

If bitcoin is referenced, it’s dismissively, as if smart people are in the know that bitcoin (the digital asset) isn’t necessary or important to fueling this global network of distributed and decentralized trust. For the most part, it’s just a cop-out and intellectual laziness; I have yet to meet anyone who shares these thoughts who actually has any idea how any of the technology actually works.

If bitcoin is referenced, it’s dismissively, as if smart people are in the know that bitcoin (the digital asset) isn’t necessary or important to fueling this global network of distributed and decentralized trust. For the most part, it’s just a cop-out and intellectual laziness.

When pressed, proponents of “permission blockchains” espouse the need for control, for building multilateral consensus-based settlement networks; they speak of the incredible savings in IT expense and back offices of financial institutions. These are real use cases, and bitcoin’s blockchain can’t solve all use cases, just as HTTP doesn’t solve every form of data and information transfer on the Internet. But for the most part, what people are saying is that “they want all the benefits of bitcoin, without bitcoin.”

Imagine back 20 years, when the core protocols of the Internet were getting going (HTTP/HTML, SMTP, etc.), and venture capital began to pour into software and Internet companies, while the leading media, telecom and communications companies plotted to create their own private, gated online services. Remember, the Internet was unreliable, insecure, and filled with creeps and hackers. People wanted safe, secure, trusted and proprietary networks. That was the future. Throughout the world, national monopolies, government-run telecoms companies and large commercial industry players drafted up strategies for building closed and proprietary systems to deliver “the information superhighway” to consumers.

All of these companies were interested in the “technology behind the Internet,” but not in the Internet itself. They sought to build “permission Internets,” where they could control what went online, who could publish and who could access the information. And they’d take a toll, as they always had, for providing these commodity information utilities.

We all know what happened. Smart creators and engineers from all around the world got inspired by the open Internet, and rather than waiting around, started coding and building on these limited, but conceptually transformative, protocols. More and more people got connected to the network. Permissionless innovation took hold, and we changed the world.

There are so many lessons for us here, and when we think about where we should apply our energy and focus, what ideas we should support and build upon, we need to have intellectual honesty and not fall into the trappings of established power and institutional biases.

Why are we here, working on this project? What’s important about the work, and how does that relate to the technology choices and investments that we make?

It’s an incredibly unique moment in human history — in the past 10 years, we’ve connected almost every human on the planet, we’ve radically expanded access to knowledge and information, we’ve made it possible for commerce and communications to flow in ways that were unimaginable just decades ago.

What was it about the open Internet that helped all of this to grow and flourish? What lessons can we draw from that when we think about the prospects for bitcoin and blockchain technology?

The DNA of the Internet

I like to think of the Internet as having a set of embedded ideals, a kind of intellectual and ultimately technical DNA.

 

The Internet uses a distributed and decentralized architecture, originally conceived by the Defense Department as a way to provide greater security and no single point of failure in the network. With its commercialization, the Internet is also a permissionless network. Anyone can join by putting a computer on the network that speaks sufficient protocols. You don’t need permission to run a mail server or Web server, you just plug in.

The Internet is not truly governed by anyone — no government controls the Internet; no private corporation controls the Internet. If anything, the Internet is governed by open and free intellectual property, by open standard protocols that technical contributors around the world help to shape year in and year out, through standards organizations, hacking and open source software. All of this intellectual property is free for the world, a gift to the global commons. It’s also now the very fabric of our global society and economy.

Encoded in this DNA is also a very deep democratic and liberal ethos focused on freedom of expression, personal privacy and creative freedom; despite attempts to limit this, that ethos still breaths heavily even through the darkest and most controlled parts of the Internet.

Bitcoin itself is an outgrowth of this same DNA: A distributed and decentralized network, based on open standard protocols, open source software, that is permissionless — anyone can join and use the network. But instead of providing protocols for sharing information and communications, bitcoin and the blockchain network are for sharing value in a trustless fashion.

In order to create a transaction settlement network without a central intermediary, there needs to be a way to secure the network from abuse, especially if the network’s purpose is to record ownership in an irrefutable manner. With bitcoin’s protocols, newly created ledger entries themselves act as a token which market participants can earn by conducting work on behalf of the network. And, once issued, those tokens are what allow value to move on the ledger. This ingenious model, leveraging proof of work, has demonstrated tremendous resilience. To date, no one has devised a better scheme to build a global trust and transaction ledger.

Do we really think that financial industry consortia and alt-chain startups can challenge the open Internet? Does anyone really think these “permissioned blockchains” have an iota of a chance at accomplishing anything more than building buggy, insecure closed back-end IT systems for banks?

Of course, many people are now starting to realize that this $5 billion asset and secure ledger are quite powerful, and that many other layers of applications can be built on this infrastructure. With greater extensibility and programmability, bitcoin can evolve to enable transformations in how all forms of property are secured and exchanged, how voting and governance function, including spilling into the automation of commercial law, audit and accounting. Essentially, just as the early Internet disrupted and transformed media and communications, this wave will disrupt the “trust and assurance” industries, which includes government, law, accounting, insurance and, last but not least, finance.

But it’s not a currency

On one point, I think some of the “blockchain is good, bitcoin is bad” narrative is reasonably accurate. Bitcoin the token is not a government-issued currency. At this stage in its evolution, I don’t think it’s helpful to think about bitcoin as a currency, but rather as a new kind of asset — a “digital asset” — that provides a valued token necessary to exchange value in a secure manner globally. It’s the fuel that powers the blockchain network, and it’s increasingly important that there be robust liquid marketplaces globally to access and use this powerful digital asset, as it can be used to secure and exchange nearly anything of value, including fiat currencies.

At this stage in its evolution, I don’t think it’s helpful to think about bitcoin as a currency, but rather as a new kind of asset — a “digital asset” — that provides a valued token necessary to exchange value in a secure manner globally.

So what about a hybrid digital economic model? Most people don’t want a new currency, they are quite happy with their dollars, euro, pound, yuan and yen. They get paid in these currencies, they pay their taxes in these currencies, they understand their purchasing power in these currencies, etc.

But, pretty uniformly, people want the benefits of bitcoin and the blockchain — near-instant transfers, globally available on any Internet-connected device, highly secure and nearly free value transfers.

In such a model, consumers and businesses rely on whatever currency is important in their lives, but can share value globally and instantly for free, by using the bitcoin blockchain as an open and secure ledger and settlement network. For the duration of a transfer, local currencies are converted into and out of “digital tokens,” and the transaction is settled over the Internet.

Soon, we’ll be able to share value globally, and soon thereafter, we’ll start to layer in other forms of value — property, securities, insurance — and then later we’ll build in smart rules and business logic that can run on this global secure network in a trustworthy manner, and we’ll all be part of constructing new rules of global commercial and legal governance.

Everyone, it’s okay to say the word “bitcoin” and acknowledge that it is the actual platform that is driving this innovation that we’re all building on. It’s also okay to say “the bitcoin blockchain,” or “the blockchain,” if you’re afraid that people will think you’re weird. But until someone actually builds, ships and scales a global open platform, open like the rest of the Internet, that can do what the bitcoin blockchain can today, there’s really nothing else to talk about.

Jeremy Allaire is an Internet entrepreneur who has spent the past 20 years building and leading global technology companies with products used by hundreds of millions of consumers and millions of businesses worldwide. Today, Allaire is co-founder and CEO of Circle, a consumer Internet company focused on transforming the world economy with secure, simple and less costly technology for storing and using money. Reach him@jerallaire.

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