Please Don’t Change Bitcoin, You’ll Break It!
Please don’t change Bitcoin, you’ll break it!
The entire digital currency industry is in an uproar over the civil war in Bitcoin. They are apparently going to break it into competing chains: “BTC” and “BCC”. No matter who wins, this will end badly… and it is soooo unnecessary.
Bitcoin has a lock on its monetary role as a store of value for the same reason that physical gold is seen that way…by global consensus. But neither Bitcoin nor gold fill the other role of money as a medium of exchange. Both are just too hard to move around.
As Dominic Frisby, an astute UK commentator, put it: “Broadly speaking, money has two main uses. One is as a medium of exchange. The other is as a store of wealth. You might find other characteristics in an economics textbook, but these are the crucial ones. Our modern fiat system of money is a quite brilliant medium of exchange”.
Thanks to the Internet, you can buy almost anything anywhere in the world and pay the seller instantly. Short of a single global currency that eliminates the need for foreign exchange, it's hard to see how you can improve on modern money as a medium of exchange. But it's a rotten store of wealth. Every year it buys you less and less.
Gold has, of course, proved to be a wonderful store of wealth. It lasts pretty much forever. And it buys you as much as it ever did – as much energy, clothing, bread and meat as it did 50, 500 or even 5,000 years ago. It's why, in this era of negative real interest rates (i.e. rates are negative once you adjust for inflation), more and more people are choosing gold as a means to store their wealth.
But as a medium of exchange, it's been found wanting. From about 1700 on, people began to prefer to use paper certificates representing gold – which eventually became bank notes – in the marketplace to gold itself. And the chances of my going to Tesco's some time in the not-too-distant future and doing my weekly shop with a gold sovereign are, at best, remote.
If you want to move gold around, you hire a slow armored truck and drive it there. If you want to move Bitcoin around, you use the comparably slow Bitcoin network. Patching that network to double its capacity, or even boost it by ten, is the equivalent of putting wings and propellers on a Ford Model T. It is simply not going to compete with the airplane as a medium of transportation around the world.
There are better solutions.
Yet breaking The World’s Reserve Digital Currency into two (and inevitably more) competing assets destroys its usefulness as the undisputed point of reference for everything else.
The Bitcoin industry has already lost huge momentum as we approach the August 1 crisis point. Uncertainty has caused a major pullback affecting all digital currencies. And if there are two Bitcoins after that date, the uncertainty will remain – setting Bitcoin back for a year or more – just like the splitting of Ethereum did. Sure, this modern equivalent of the VHS-Betamax videotape war will eventually shake out a winner, but only after dragging the industry down for another year and slowing adoption for everyone.
And to what end? Both versions will still be unable to scale to the transaction rates needed on a global scale.
And there is a very real possibility of more damaging splits in the future as the Bitcoin Brand keeps undermining its store of value role trying to be the medium of exchange it will never be. BTC and BCC are looking at increases in transactions per second (TPS) to merely a few dozen TPS.
Planes, Trains, and Automobiles.
We have planes, trains, automobiles, and supertankers for a reason. They are each adapted to, and therefore more competitive in, their own ecological niches. Turning Bitcoin into a medium of exchange for the global economy is like trying to hack a Model T into a starship by adding propellers. It’s not going to happen.
But the world has already put together a rather marvelous global transportation system out of planes, trains and automobiles. Sure, there’s a bit of friction each time we change modes, but overall that mix provides by far the most practical way to travel from doorstep to doorstep on a global scale.
Why aren’t we using the same strategy to meet our digital currency needs?
Bitcoin, BitShares and the Hero.
There are many potential technology mixes we could cite here, but we’ll just choose one to make the point: Bitcoin, BitShares and the Hero. Three very different coins that together completely solve the mainstream adoption and scalability problems for the industry. (Ethereum solves other interesting problems but is already saturated at 25 transactions per second is not a serious contender to handle global demand.)
· Bitcoin is your store of wealth. It belongs in cold wallets just like gold belongs in underground vaults. For real time transactions, you trade bitcoin receipts – fast tokens that can be exchanged for bitcoin. That’s what every exchange does already. Your bitcoin goes into their cold wallet and you trade the exchange’s surrogate ledger entries representing bitcoins until you cash out. That’s how all exchanges achieve acceptable trading performance. If those exchanges facilitated account-to-account transfers you could pay as fast as you can currently trade. Instead, people do up to three hour-long transactions: withdraw, pay, deposit to achieve what they could do in seconds inside the exchange. Madness.
· BitShares is your real-time counterparty-free exchange. “But paying through the exchanges is not free of counterparty risk”, you may say. True. If you store your bitcoins in your own private wallet, you can (slowly) pay them to some other private wallet without counterparty risk. But who really does this? Most bitcoins used in actual commerce spend most of their time in notoriously risky control of some counterparty exchange waiting to be hacked. BitShares implements a counterparty free exchange called the Bitshares DEX where all the trades and payments occur at the speed of light – under three seconds – with no counterparty in the loop. And it is scalable beyond 100,000 TPS (transactions per second) today and to infinity when it upgrades to EOS technology next year.
· The Hero is your medium of exchange. The Hero is a stable smart coin backed by equity in the BitShares platform. During the recent industry collapse, it held its value perfectly while everything else, including BitShares, dropped at alarming rates. You can spend it in real time on the BitShares network, and it is programmed by smart contract to appreciate by 5% annually against the dollar. The Hero is also the subject of a billion dollar promotion aptly called the Billion Hero Campaign to achieve mainstream adoption. So, you have the equivalent of a stable, appreciating certificate of deposit you can spend like cash in under three seconds at full global workload.
These three currencies already work together perfectly today to solve all the problems causing the current BTC Civil War. There is no need to disrupt the whole industry with ineffective patches to Bitcoin. Bitcoin’s unique strength is that it is the venerable, immutable, acknowledged granddaddy of them all – the undisputed reference against which all other currencies are measured. And they are breaking it up!
Why would rational people do that?
Well, Bitcoin miners are vested in their hardware and Bitcoin core developers are vested in their software. Neither will upgrade to the state of the art needed to scale because it would put them both out of business. They are stuck like dinosaurs in the crypto tar pits, fiercely defending their turf, while agile little mammals prepare to inherit the earth.
We all know how THAT ended up.