Analyst Ari Paul again reminded us of the discussion, which contrasts the blockchain and Bitcoin. Paul believes that “beyond being the first distributed blockchain, Bitcoin’s major innovation was tokenizing the distributed blockchain and solving the Byzantine general’s problem (aka the double-spending problem) with Proof-of-Work game theory.” By the way, since Satoshi Nakamoto, the founder of Bitcoin, has “fallen under the radar,” one of the creators of Ethereum, Vitalik Buterin, was able to get honorary doctorate on November 30, 2018, for solving this dilemma, which allows to have a decentralized consensus between the participants of the blockchain.
Blockchain Depends on Bitcoin, and Not Vice Versa
Paul emphasizes that in his classification, blockchain is one of the types of distributed ledgers that is decentralized, and distributed ledgers are subspecies of databases. Meanwhile, Bitcoins can work in other networks, not only on the native blockchain and not only potentially on the blockchain. That is, with the advent of technology that will more closely comply with the principles of decentralization, Bitcoin will “move” to it. Thus, Bitcoin, in Paul’s eyes, is more important than blockchain. But can the Bitcoin blockchain make sense without a Bitcoin? As Bitfury vice president Georgy Kikvadze notes, “Without bitcoin, blockchains are just databases.”
Blockchain Is an Imperfect Technology
Does blockchain need institutional players? SWIFT, a system that was considering working with Ripple, eventually abandoned the idea of moving from testing to more serious interaction with the company. Yes, Ripple has a choice of three platforms, and not all of them are tied to the native XRP token. But SWIFT found a problem in how Wim Raymaekers, the head of the global banking division in this organization, said that the blockchain has “excessive transparency” of transactions: every participant in the operations sees all the changes on the blockchain, and the banks that SWIFT works with (more than 11,000 in the whole world), signaling that “Banks have indicated they do not want to communicate how much money they have on an account to everybody else.” Running the “several hundred bilateral blockchains became very complex.” These claims are more serious than those of economist Nouriel Roubini, who reduces any blockchain to a simple spreadsheet table. But the transparency of transactions on the blockchain does not allow for an increase in their number for a company that works with such technology just as it happened with the Revolut advertising campaign in the U.K.
These are weak spots, but cryptocurrency expert Michael Casey also notices others: the blockchain is “cumbersome, expensive, and inefficient.” Casey, at the same time, like Paul, mentions the many improvements that are aimed at jointing those “bottlenecks.” The “threat” to the US security is seen in the blockchain by former U.S. intelligence officer Andrew Bustamante. The fact that the data on it cannot be changed is an advantage that is valued in the cryptocurrency community, but it also causes resentment in Bustamante. In addition, the use of Bitcoins makes it impossible to maintain the U.S. sanctions regime against other states.
Obviously, depending on the goals set, blockchain may look like the right technology in the eyes of someone, while it may seem nonsense to some others. Bitcoin appears to be the incentive that “pulls” technological improvements to the blockchain, for example, coin mixers to ensure address and transfer secrets where necessary, as well as “second layers” to the network, which make it possible to speed up the transaction process with this cryptocurrency.
J.P. Morgan Does Not Care about Bitcoin or Blockchain
Many institutional players cannot “figure out” what they need from the blockchain and Bitcoin. Indicative in this respect is the example of JP Morgan, the seventh-largest bank by capitalization in the United States and the sixth-largest bank by assets in the world. In September 2017, the head of this organization Jamie Dimon said that Bitcoin would end up badl. In August and October 2018, he repeated his sharp criticism of Bitcoin. And if his opinion did not change about Bitcoin, the blockchain was a hitch for the bank. In January 2018, Dimon said that the blockchain was “a real technology,” but this year, on January 24, the organization’s report stated that it was pointless for banks to use this technology in the coming years. And on January 29, Joyce Chang, the head of global research at J.P. Morgan, voiced a strong “no” over the possibilities of transferring the global payment system to the blockchain.
A Stablecoin on a Quasi-Blockchain Is Attractive, but There’s a “But”
After a fortnight, on February 14, J.P. Morgan announced that it launched its own crypto coin, which became a new U.S. dollar-pegged stablecoin called JPM Coin, secured by bank reserves. As Nouriel Roubini noted, “In which way has the new alleged JPMorgan crypto coin anything to do with blockchain/crypto?” Is blockchain even used? Apparently, the question is in the terminology. According to analyst Anthony Pompliano, the bank is building a “closed cryptocurrency system,” which is “a bad idea, but rational from their [organization’s management] seat.” At the same time, the analyst is confident that the decentralized blockchains will win in the competition with JPM Coin and the like.
But the situation is not as simple as it seems to Pompliano. As noted by Ari Paul, the launch of crypto coins such as JPM Coin (and Pompliano is convinced that all banks will develop their own tokens), as well as the use of the quasi-blockchain can give customers almost everything that cryptocurrencies have to offer. Zero fees are already being introduced for money transfers, and transactions will become instant and more convenient than now. But there is one “but,” as all these benefits of progress will lead to the loss of financial freedom when corporations begin to steer them and are one of the principal ideas for which Bitcoin was launched and about which Satoshi Nakamoto wrote in his white paper. It turns out that the bank can “freeze” digital money much easier than fiat accounts. Scaling up this process carries the risk of further loss of financial independence by many people, something billionaire Mike Novogratz wrote about with alarm. He sees the situation in such a way that Bitcoin is the guarantor of the status quo being preserved, with its long process of confirming transactions, high energy consumption, and a blockchain that is invulnerable to intruders. At least for the moment.
Bitcoin Can Say Goodbye to Blockchain
But what if the success of quantum computing, the marginal monopolization of the mining market, and the implementation of a 51% attack will become a reality? In this case, Bitcoin will have to really say goodbye to both its blockchain and blockchain in principle, and “move to a new apartment.” There is no suitable alternative yet, and that’s what technical specialists who intend to save Bitcoin should be working on.
After all, pushing Bitcoin to the sidelines is a dream of some of those who launched the JPM Coin at JP Morgan. It is no coincidence that Barron’s magazine released a publication literally a few hours after the launch of the news on the bank stablecoin, which is called unequivocally: JPMorgan Just Killed the Bitcoin Dream. “Oh Barron’s. You’re so silly,” as Barry Silbert commented. But this completely reveals the cards of those who advocate for the stablecoins and see them as the only future for cryptocurrencies, although it is initially clear that crypto coins “secured” by fiat are nonsense since it is fiat that should at best look for security in such digital assets. In addition, this once again raises the question of what the Winklevoss brothers, for example, are still striving for, both with their GUSD stablecoin and their attempt to launch a Bitcoin ETF under any conditions set by the SEC?
One cannot agree with the opinion that centralized crypto exchanges will not flip through Jamie Dimon’s stablecoin: as long as it is needed for JPMorgan’s internal operations, the bank will not strive to bring it “to light.” But if there are plans, and there certainly are, then JPM Coin will go further and will try to outrun Bitcoin in popularity. At the same time, the blockchains of such banks and large corporations will increasingly become known as “the blockchain options,” although they will not be decentralized.
As a result, the discussion around what is more important, blockchain or Bitcoin, leads to the conclusion that Bitcoin is the main priority for the cryptocurrency world. And the blockchain, on which it now works, may become a thing of the past when technologies appear that will allow this cryptocurrency to perform the functions described in the white paper of Satoshi Nakamoto in any changing situation. Bitcoin is the captain, and the blockchain is its ship. When the vessel no longer meets the requirements, the captain will move to a more advanced one.