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The Bitcoin Enigma - 12 questions to chew on

I am fascinated by Bitcoin.

It gives a glimpse into the future architecture of money and finance, one that is very different to today. Understandably, the Banking industry dismisses it. Bitcoin has caught it off-guard, and it neither likes nor wants it. Instead, it is focussing on its underlying technology, the “blockchain”, “distributed ledger technology”, or the “distributed consensus ledger (DCL)” as I prefer to call it.

Meanwhile, Bitcoin continues serenely on.

The key metric I watch is the daily transaction count. This averaged 197 thousand transactions per day in March 2016, up 101% on March 2015. I am open-minded on whether Bitcoin will succeed or not, no-one can know for certain either way, but failure will be evident if this metric starts falling. Conversely, the more Bitcoin transactions rise, the more interesting Bitcoin becomes.

To me, Bitcoin is interesting as an economic network, not as a technology, I will blog on this in more detail later.

However, it is true to say that despite its success to-date, Bitcoin is an enigma. Below is a list of questions that puzzle me about Bitcoin. I don’t have answers, but your ideas and views on them are welcome.

1. Assuming that implementing Bitcoin was a low cost, volunteer project in 2009, why in comparison, are VCs and banks having to invest millions, possibly billions of dollars to find alternative use cases for blockchains?

2. Seven years after Bitcoin was launched, why are there no breakthroughs in industrial uses for blockchain, except for Bitcoin?

3.The Bitcoin protocol is remarkable and ingenious – but why did Satoshi overlook the importance of the blocksize, could it be deliberate?

4. Why is mining a sustainable economic activity? - is the effort to mine Bitcoin a massive waste of resources (computing power and electricity) and inefficient, or is it setting up an immutable ecosystem that will sustain massive transaction volumes in the future, where mining rewards are substituted by transaction fees?

5. Why is the speed of transaction confirmation locked at about 10 mins (the average time to create a new block) and not adjustable so that blocks can be created faster to support a wider set of payment use cases?

6. Notwithstanding the blocksize and transaction limit debate, why do some believe that Bitcoin is not suitable for micropayments when the lowest txn size is theoretically 10-8 btc?

7. Why do people talk about searching for the killer app for Bitcoin? It is designed to be a payments platform – it is like asking “what is the killer app for dollars?”

8. Why is “Coin” in the name, a very physical concept?

9. Why is there so much talk about smart contracts when Bitcoin script is not Turing-complete (not fully computational)?

10. Who are the so-called “crypto-anarchists” behind Bitcoin, do they exist, what do they do, what influence do they have?

11. Will quantum computing eventually break Bitcoin’s ingenious solution to the double-spend problem, or will Bitcoin keep one step ahead?

12. Why are some people (particularly some journalists and economists) so emotional about dismissing Bitcoin and keen to see it fail, why do they care so much that it does?



Comments: (1)

A Finextra member
A Finextra member 26 April, 2016, 11:00Be the first to give this comment the thumbs up 0 likes

I'm just a layman, but I'll have a go:

1. Implementing it was cheap, but the distributed hardware is not. For other projects using a blockchain (not bitcoin) then there is the additional expense of creating their own bespoke blockchain from scratch.

2. Because it is not as useful as other databases.

3. Probably didn't anticipate the exponential growth over time.

4. Mining gets harder as time goes on, which is why mining is increasingly dominated by fewer miners (with dangerous implications for transaction verification and forks). I do not know about adding in transaction fees, but these will likely kill bitcoin off.

5. Because blockchain is inherently inefficient as a database.

6. Not sure - I thought that was the main use case for bitcoin.

7. Bitcoin has not overcome the problem of conversion to real currency. The exchange is problematic, and certainly costly.

8. So is "Bit", which is not physical. It merges the two.

9. Pass.

10. Because of anonymity. Same reason it is used by criminals (e.g. silk road) and those avoiding laws to move currency (e.g. Cyprus, Greece).

11. Yes. It will also break the encryption opening the door to theft of coins.

12. Probably because of bitcoins clear usefulness for fraud/crime.

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