Did you know the Bitcoin community is riven by tension, drama, competing agendas, and at least two starkly different visions of our economic future? That even as major banks who thought of Bitcoin as snake oil re-assess its blockchain technology as a major breakthrough, and smart money pours into blockchain startups, the few at its cutting edge are increasingly divided against themselves?
This is no bad thing. Bitcoin believers–and I’ve come to number myself among them– believe that, one way or another, it will usher in a new era of frictionless commerce and programmable money. Bitcoin true believers think it will ultimately do to Wall Street what the Internet did to fax machines, while also decentralizing much of the Internet. Bitcoin extremists believe it will replace “fiat currency” like the US dollar or the euro (in the Bitcoin world, “fiat” is a four-letter word) and bring on the Libertarian Rapture. If those are the stakes, then obviously we want competition.
What you may not realize is that we’re already close to a fairly critical decision point.
The War of Blockchains
A flawed but illustrative analogy: think of this as a modern-day equivalent of the famous War of Currents between Thomas Edison and Nikola Tesla. Bitcoin is like Edison’s light bulb; the Bitcoin blockchain is like DC electricity … and the champions of the many “altcoin” blockchain alternatives which have bloomed in Bitcoin’s wake are like a thousand mini-Teslas. (Lest you think I’m taking sides already, let me stress that it’s not at all clear that AC is actually better than DC.)
Prominent among those mini-Teslas is 20-year-old Vitalik Buterin: Thiel Fellow, dropout from my alma mater, and founder of the potentially extraordinary Ethereum project, built to “decentralize the web” with its blockchain, which recently raised $15 million (in bitcoin, of course) by pre-selling its cryptocurrency prior to next year’s launch. Buterin recently penned a blog post condemning so-called “Bitcoin Maximalists”:
essentially, the idea that an environment of multiple competing cryptocurrencies is undesirable, that it is wrong to launch “yet another coin”, and that it is both righteous and inevitable that the Bitcoin currency comes to take a monopoly position in the cryptocurrency scene […] Bitcoin maximalists often use “network effects” as an argument, and claim that it is futile to fight against them.
That’s not a bad introduction to the conflict. Ladies and gentlemen! In this corner, weighing in at 800 pounds, the gorilla King Bitcoin! In the other…weighing a collective eight pounds…a thousand Lilliputians!
One Coin To Rule Them All
It is hard to overstate Bitcoin’s dominance in the world of cryptocurrency. I’d say its name recognition, blockchain hash rate, transaction count, real-world applications, startup ecosystem, and VC interest dwarf those of all other cryptocurrencies combined…except that dwarf seems like much too weak a word. Completely obliterate might be closer. I suspect most people who have heard of Bitcoin don’t even know alternatives exist.
Extending our analogy: it’s the early days of electricity, but a massive nationwide DC system has already been built. It was really only designed to provide light, but a whole ecosystem of companies has sprung up to provide DC infrastructure and services, some of which don’t involve light at all.
Meanwhile, these thousand mini-Teslas keep championing a hundred different homegrown AC systems whose plugs and bulbs don’t interoperate with that DC infrastructure or with each other, and/or try to layer their own AC plugs atop the DC distribution system. Each claims–some correctly–that theirs is newer and better and more powerful and versatile if you would just install it, and what’s so great about interoperability anyway?
It’s pretty clear, to me at least, who the real target of their ire is today. Not the too-crazy-for-fiction mysterious psuedonymous figure of Satoshi Nakamoto. Not the miners who actually power Bitcoin’s blockchain with many millions of dollars worth of dedicated hardware.
Sidechain Gamechangers
Instead their target is a brand-new company called Blockstream, whose developers are offering a remarkable new option; keep the old DC network…but morph any part of it into a new AC one any time you want, while still using your old plugs and bulbs. (See this piece I wrote, largely about Blockstream, six weeks ago.) Blockstream recently raised $21 million from Reid Hoffman, Khosla Ventures, and a pile of other impressive investors.
That alone sets the mini-Teslas’ teeth on edge. To their mind, the ethical way to raise money is to issue a new currency and sell it for bitcoins; VC money is tainted, even poisonous, because it means its recipients are then answerable to those VCs rather than their community. (This has grown to become something of an article of faith among hackers. It’s certainly not always wrong.) To them, any company that takes VC money is guilty of a “conflict of interest.” The so-called Bitcoin maximalists counter that it’s “unethical to sell a dream” by pre-selling a brand-new virtual currency to raise funds.
(Those quotes are verbatim from an exchange between startup CEOs at the excellent Future Of Money And Technology Summit in San Francisco this week. I’m eliding names in the interests of avoiding gotcha journalism. And it’s worth noting that Blockstream’s funders have explicitly stated that their investment is intended for “the development of the bitcoin ecosystem [without having] as its primary focus, economic returns.”)
Blockstream’s new technology–“sidechains” (PDF)–requires a “soft” (i.e. backward compatible) fork of the Bitcoin protocol to work. I expect this to happen, because
- it seems like a good idea
- Blockstream’s founders include a majority of Bitcoin’s core developers.
But after that soft fork, most subsequent blockchain innovation and experimentation will probably happen on sidechains — meaning many of the existing altcoin mini-Tesla projects will wither away and be replaced by sidechain equivalents (e.g. a sidechain that clones Ethereum) and Bitcoin maximalism will triumph, at least for a time.
A Stellar Reputation
There is one company/cryptocurrency/platform which claims to occupy an interesting space between Bitcoin and altcoins, between DC and AC: Stellar, backed by Stripe. Its CTO, one Jed McCaleb, created Mt. Gox, the first big Bitcoin exchange (and sold it to Mark Karpelès long before Mt. Gox’s notorious implosion began.) He then created Ripple–which, he says curtly, “didn’t work out“–before moving to Stellar to “do it right.”
Stellar has an impressive board, apparently impressive technology (they’ll release a white paper describing it in 2015) (update: then again, maybe not. Yesterday they revealed “a failure of the underlying Ripple/Stellar consensus system.” They’ve implemented a temporary workaround and are hoping to implement a whole new consensus system in a few months. Lesson: distributed systems at scale are really, really hard) and impressive traction: 140,000 weekly users, 35% of whom are female, according to board member Joyce Kim. They make foreign exchange easy with a nifty distributed exchange platform. They’re focusing on the “next billion” of the developing world, which I think is very smart. They’ll be “announcing really cool things in South Africa and Nigeria soon.”
They also claim to be orthogonal to Bitcoin, an assertion which is considerably less convincing. It’s hard to see how a Stellar “gateway” is anything but an outright like-for-like replacement for, say, Coinbase. And s McCaleb mused, at the panel I attended: “[In the long run] there will be one worldwide ubiquitous payment method … Bitcoin is a first iteration … Mining is a big problem.”
The Uncertain Future
That indeed seems to be the case. Gregory Maxwell, a core Bitcoin developer and Blockstream founder, who seemed like the smartest person in the room at the Future Of Money Summit no matter how crowded things got, admitted that the long-term potential problem with Bitcoin mining “does keep me up at night.” (The details are too abstruse for this piece, but here are a couple of links.)
Right now, though, and for the foreseeable future, Bitcoin is the only real game in town. As Marwan Forzley of Align Commerce told me, it’s the only cryptocurrency that has any liquidity. Align is a startup that gives its clients the ability to perform B2B international payments with Bitcoin. They’d be happy to use Stellar if they could. But they can’t, at least not yet.
Forzley also professed one of the better real-world arguments in favor of Bitcoin I’ve heard. He’s a veteran of the voice-over-IP battles, and he sees remarkable parallels. Voice over IP was first laughed at. Then called inefficient and useless. Then, as it became useful, governments tried to legislate against it. And then when that failed, they rolled over and accepted it. Now it’s so standard that the very term voice-over-IP is practically obsolete; it’s just voice. Bitcoin is, to a first approximation, money-over-IP…and as Forzley says: “We’ve seen this movie before, and we know how it ends.”
That said, Dialpad, the initial king of voice-over-IP, didn’t scale, was acquired by Yahoo!, withered into irrelevance, and is now an obscure historical footnote. It wasn’t until Skype came along that large numbers of non-techies really began to care. Similarly, veteran founder John Pettitt analogized Bitcoin today (or at least Bitcoin applications/clients today) to the gopher protocol in the early days of the Internet, adopted by techies but ignored by the general public…and suggested we haven’t yet seen the cryptocurrency Mosaic, much less a Netscape. If either analogy is remotely correct, then the battle brewing today is likely to cast an awfully long and important shadow.
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