Blockchain is so hot right now.

2015 was the year the narrative changed. Bitcoin is out, blockchain is in. Attend any financial conference and you’ll hear panels about the brilliance of private distributed ledgers. Private blockchain initiatives like R3 CEV have attracted over 25 of the world’s top banks to participate. Airports everywhere are displaying Bloomberg Markets’ recent cover story, featuring Wall St. tour-de-force Blythe Masters sitting elegantly behind a celebratory banner, “It’s All About the Blockchain.” Even investors who have long backed Bitcoin startups now make sure to convey in their promotional copy that they’re involved with “exciting Blockchain ventures.” What’s your blockchain strategy? Bro, do you even blockchain?

The ascent of this term in the media and financial industry has been dizzying.

And “Bitcoin,” as a thing somehow distinct from “blockchain,” has been left by the wayside, ignored like an embarrassing relative at a family gathering.

Some of us have been amused by this development, but many confounded. Why is everyone talking about the blockchain, and ignoring its central fuel, Bitcoin proper?

First, let’s understand why the change in narrative had to happen, why it was necessary and indeed inevitable.

Bitcoin, to many in the world who have casually heard about it, is an uncomfortable and cryptic creature, existing somewhere between Ponzi Scheme and “money used by bad people.” Didn’t Bitcoin go bankrupt in Japan? Wasn’t the CEO arrested? To others, it’s just downright weird and unnecessary. Visa works just fine, thank you.

More importantly, though, to professionals in the money realm – to bankers and investors and financial regulators – Bitcoin is an awkward and annoying development, a technology almost all of them dismissed as absurd and useless, and yet it keeps growing. Bitcoin promises a dangerous world without strict top-down financial control. Terrorism. Think of the children. Bitcoin made the term “fiat” a thing, and when something has a name, it can be critiqued. Every day Bitcoin exists, it demonstrates the naive idea that money may be able to work without central planning. Worst of all, Bitcoin brings with it an obnoxious cult spouting proletariat nonsense like “financial privacy is a human right,” and “money should move faster than an anvil FedEx’d to Singapore.”

What respectable banker wants to deal with that?

And while the technology brings with it vast promises of financial innovation, these cannot be discussed in terms of “Bitcoin,” because this term brings with it all the aforementioned baggage. One cannot discuss Bitcoin in polite company, for the conversation may veer into one of monetary theory, human rights, massive sovereign theft and bank fraud… better stick with the weather.

But how do you convince your boss or shareholders that you’re keeping pace with innovation? They read the news, they know that disintermediation is a thing. At the edges of their mind, they have a sense that, perhaps, charging $45 to send a money transfer message is neither logical nor sustainable. As Jamie Dimon recently warned in his annual letter to shareholders, “Silicon Valley is coming.”

Enter “Blockchain.”

Ahhh, what a term! It encapsulates all the magic, all the technological brilliance, all the promise and the sparkle of true financial innovation. And it does it without devolving into a discussion of Silk Road or Jekyll Island.

Blockchains, as a concept, are not controversial. Bitcoin is highly controversial. That is why the narrative changed – because “Bitcoin” makes financial professionals uncomfortable. There was no conspiracy to change the subject, it just happened naturally; the path of least resistance.

But what is it, exactly, that they hope to achieve by advancing private, non-Bitcoin blockchains? Without Bitcoin, a blockchain is just a distributed database – not exactly a novel technology. What is R3 CEV but a sexier and more social MySQL database? Why did banks not build such distributed ledgers long ago? If they are the arbiters of transactions, there is no need for mining, and thus no need for a blockchain, per se.

Perhaps such a distributed database never happened before because the banks haven’t felt the true competitive pressure to innovate. Banks’ biggest innovation in the last two decades was the Geithner Swap, in which loss due to excessive risk taking is swapped for taxpayer money. Banks aren’t so much financial innovators as they are lobbying cartels. But can you blame them? When Government forces its way into bed with you, who do you imagine you’ll wake up with?

It remains to be seen how long it takes for the financial industry to realize that the true valuable innovation is not the distributed ledger of the blockchain (which has existed in other forms prior), but rather the open platform of financial inclusion with no trusted party or cartel (which has never existed).

It is precisely Bitcoin’s openness which, like the internet before it, brings revolutionary change to how humans interact. Bitcoin wasn’t revolutionary because it could move money faster, or more cheaply, than banks. Most of the banks’ delay isn’t due to technology – they’re just sending digital messages representing virtual money, after all – it’s due to regulation, bureaucracy, and habit.

Supporters who are “all about the blockchain” may counter that the blockchain demonstrates truth, demonstrates finality, and thus as banks adopt this technology they will be made more efficient because the uncertainty of settlement will be resolved. Sure, blockchains can help with this, and banks can be more efficient for it. It seems clear that blockchain-based banking networks could settle payments in minutes, not days.

But that’s missing the point. A marginal gain in efficiency isn’t what we’re excited about, and indeed a centralized system like PayPal can always be faster than a blockchain, from a technical perspective.

This technology wasn’t created as a way to make things a little faster, though certainly that’s one of its benefits. The real purpose, the purpose which in hindsight will be hailed as the real innovation, is to remove censorship and central-control from money itself.

Is the internet remembered as the means by which Time Warner more quickly delivered its content to readers? Is the printing press remembered as the means by which the Church more aptly conveyed its prognostications to the devout?

It was the openness of these technologies – the fact that anyone, in any country, could access them, build with them, & experiment with them. One did not have to be 18 to sign up. One did not have to be on a government-approved list. One could write whatever she wished, communicate with whomever she felt relevant.

Blockchain technology, properly understood, is decentralized. It is an open platform. It does not pass judgement on human actions, it simply enables more action, more easily, to everyone. A blockchain strategy that doesn’t appreciate this is doomed in the same way and for the same reason as AOL and CompuServe. Does industry really need that lesson again?

How many billions will be wasted by banks seeking their own private distributed ledger, before they realize that the service of “ledger” is just one branch in the tree of broad human communication, and such communication tends to open over time, rather than close.

So industry – if you need to keep using the word “blockchain” to feel socially comfortable when discussing the renaissance, that’s fine. But for the sake of intellectual honesty, not to mention fiduciary duty to your shareholders, don’t fall into the hallucination that siloed financial networks are innovative or lasting. If your blockchain strategy ends at the edge of another bank, you’re doing it wrong.

Moving from a permissioned financial network between banks, to a permissioned financial network among banks, is no great step for mankind.

Erik Voorhees
Erik Voorhees
Erik Voorhees, CEO of leading digital asset exchange, is among the top-recognized serial Bitcoin advocates and entrepreneurs, understanding Bitcoin as one of the most important inventions ever created by humanity. Erik's former project, the groundbreaking gaming phenomenon SatoshiDICE, was, at its peak, responsible for more than half of all Bitcoin transactions on Earth and popularized the concept of "provable fairness." Having been a featured guest on Bloomberg, Fox Business, CNBC, BBC Radio, The Peter Schiff Show, and numerous Bitcoin and industry conferences, Erik humbly suggests that there is no such thing as a “free market” when the institution of money itself is centrally planned and controlled. This blog is about the human struggle for the separation of money and state, and about Bitcoin as the instrument by which it will happen.
  • Daniel Murrell

    Let the banks create their own ledgers, let them stock them with value, let them put them up to trade on exchanges, let the value flow from them into Bitcoin.

    October 30th, 2015 19:27
  • johannes gerardus

    Good piece thanks

    October 30th, 2015 19:43
  • Chris Guida

    Come on, the Geithner Swap was pretty innovative… :P

    October 30th, 2015 20:12
  • Jean-Claude Morin

    Already great to your you Erik, the funny part about private blockchain is that they never answer questions like: how someone else will be prevente to write a transaction? how someone else will be prevent to “mine” a block. How the initial money will be created?

    Those “details” are what’s make Bitcoin great, they are extremely important and cannot be figured out later!

    October 30th, 2015 20:25
  • Dominik

    If you find a man living in a garage, let him stay in the garage.

    October 30th, 2015 20:27
  • Thomas Bjerring

    Spot on. And it’s obviously not just about money! Our world will never be the same.

    October 30th, 2015 21:46
  • Max

    Erik, thank you for sharing. Objectivity, common sense and a great degree of knowledge and professionalism definitely make you a leader to look up to in this space. I look forward to learn more from you. About the topic itself, I believe there is not much to add to your words. What we have seen during a large part of this year has been “an insult to our intelligence”. It is definitely a human defect not to learn from previous mistakes, which as you have mentioned, it seems we will see again. Those on the right truck will ultimately excel. Cheers!

    October 30th, 2015 22:03
  • bc

    You make me want to be a better bitcoiner.

    October 31st, 2015 3:03
  • Kenneth Halliwell

    Thank you Erik. It is time for the original leaders in bitcoin advocacy to get back to focusing on bitcoin. Altcoins and alt-networks have been a distraction and should stop slowing progress.

    November 1st, 2015 13:56
  • Marc A

    My problem with bitcoin is 2 fold.No. 1 and Most Important) it is designed for deflation and subject to hyper-deflation. This makes it an asset, not a currency as it is not a true store of value. For it to be a true store of value then the number of bitcoins should always equal the true value of items traded in bitcoins. I dont know how you determine that but I do know that arbitrarily limiting the total number in circulation will only result in deflation.

    2) All that energy expended in mining just seems wrong and ultimately limiting which results in the situation in No 1 but now with extra carbon!

    November 1st, 2015 16:52

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