Nic Carter’s prodigious post on the evolution of Bitcoin’s narratives over time perfectly captures how the mainstream perception of Bitcoin has evolved. It has moved away from being perceived purely as something to transact with on the dark web, one of the dominant narratives that are still in vogue in some quarters, unfortunately; However, a critical mass of thoughtful folks (with and without ‘skin in the game’) are now coming around to the view that Bitcoin might ultimately be definitely a non-sovereign censorship-resistant form of money, sort of a gold 2.0. There is an increasingly growing belief that Bitcoin does a better job as a non-sovereign store of value than a low-cost medium of exchange (although Bitcoin Casherscontinue to make the argument that the latter is indeed Satoshi Nakamoto’s original vision).
We believe that Nakamoto’s idea was not to create another low-cost instant transfer Paypal-like service for easy transfer of value, rather it was to solve the problem of a fundamental lack of trust among a group of participants who are strangers to each other, to achieve what is known as ‘trustless, distributed consensus’. Bitcoin was, therefore, an elegant solution to a long-standing theoretical challenge in computer science as the Byzantine General’s problem. Bitcoin Cashers increasing block sizes (8MB to 32MB, recently) to accommodate more transactions in a block are effectively not conforming to Satoshi’s original vision of trust minimization (increasing block sizes will result in full nodes dropping off as it becomes expensive to run a full node. As nodes drop off, the network becomes more centralized).
Owing to Bitcoin’s abjectly low transaction throughput, a number cryptocurrency projects have sprung up in the past few years promising thousands and millions of transactions per second. These projects include several Ethereum competitors such as EOS, ADA, and NEO. The jury is still out on whether any of these self-proclaimed Ethereum alternatives have truly managed to crack the transaction scaling problem. Firstly, the reported numbers are the ones that were achieved on testnet, which is usually a bunch of Amazon servers. When the project launches on mainnet and runs on a distributed system of computers, the throughput numbers drop significantly. Secondly, the number of participating full nodes in these projects is usually orders of magnitude less than that of Bitcoin or Ethereum. As for quantitatively measurable metrics, there isn’t (yet) a universally agreed upon metric for measuring the level of decentralization, unlike scalability. Many cryptocurrencies are seemingly taking advantage of this ambiguity by promising very high transaction throughputs with little regard to the degree of decentralization that can be achieved. As we covered in an earlier post, there is critical trilemma between decentralization, scalability, and consensus at the heart of current blockchain development efforts.
Having said that, like with most seemingly intractable problems in technology, we believe that the scalability is eventually going to be solved for. It is a problem. Till it is not. For this reason, we are closely watching Dfinity, that just raised another round of capital from some leading investors.
“History does not repeat itself, but it often rhymes” – Mark Twain