Their ‘Blockchain’ is Cryptocurrency Technology
Last week, the latest business industry article touting “blockchain” as more useful than “Bitcoin” made its rounds in social media. Like articles prior to CMS’ “Blockchain On Its Way To Become Mainstream,” such stories prove finance reporters know buzzwords, but not the technology behind Bitcoin. While they may claim “blockchain” is the bee’s knees for the business world as compared to Bitcoin; their “blockchain” definition is inclusive of Bitcoin’s technology so much so that the proper term of “cryptocurrency technology” over “blockchain technology” should be standard vocabulary.
For clarity, block-chain cryptography has existed since 1976 for encrypting data placed in sequential blocks to eventually be received and decoded by an intended recipient. It is the only element of Bitcoin that can rightfully be labeled “blockchain” technology. Blockchain is one of several ingredients that Bitcoin white paper pseudonym author Satoshi Nakamoto used to develop the digital money we call cryptocurrency. Yet, Blockchain is part of the solution — not the entire programming answer — for workable digital cash.
Bitcoin’s technology also includes Proof of Work (PoW). In PoW, computers (or mining nodes) compete to send transactions into the blockchain. Such competition basically randomizes which computers actually “win” the right — and earn payouts for job completion — to order the transaction. (Note, the alternative or sometimes complementary Proof of Stake (PoS) also is cryptocurrency technology.) This PoW battle to transact makes earning cryptocurrency difficult thus creating value and scarcity. It also prevents computer owners from knowing their machine processed an order until after the transaction is in a block. Reducing the potential of human-generated fraud. Proof of Work (PoW) is from Nicholas “Nick” Szabo’s and Hal Finney’s writings from the early 2000s and is not blockchain specific technology. It is an ingredient of Bitcoin that blends into blockchain and the entire value-transfer system.
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A third Bitcoin ingredient is the distributed mutually shared ledger. Blockchain functionality can exist without this. Shared distributed ledger technology (DLT technology) existed since 1995 with London based financial venture Z/Yen. Decentralized and shared DLT was used by Satoshi Nakamoto in the Bitcoin white paper to ensure the honesty of transaction records within the system. If any single storage computer (Bitcoin node) or several hundred for that matter attempted to alter a recorded transaction; the other nodes in the system would void the manipulated data. The more system-wide storage nodes then the less likely there would be fraudulent or erroneous records. Mutually shared ledgers become an ingredient Satoshi Nakamoto paired with PoW and blockchain based cryptocurrency technology.
The fact that writers — out of convenience — have lumped block-chain cryptography, Proof of Work/Proof of Stake, and DLT as one label: “blockchain technology,” does not change facts of each created at different time periods but did not come together until Bitcoin as its first combined use-case. So using these features in combination; is using Bitcoin technology.
Next, Bitcoin (the coin itself) is a monetary unit whose entire unit (as well as denominations as low as .00000001 of a Bitcoin) has value based on the willingness of people who accept it in exchange for goods and services or fiat exchange. Its value is rooted in confidence of the technology itself; the security, speed, and automation provides more trustworthiness than human beings prone to errors, fraud, or decisions resulting in behaviors creating advantage or disadvantage for its consumers (i.e. closing bank accounts for some people but not others; charging more bank fees for some but not others, etc.). Bitcoin — the coin — has a value based on global spending and accepting of the cryptocurrency in lieu of fiat currencies such as the yen, euro, or dollar. Bitcoin’s value is measured and displayed mathematically based on accounting the exchange rates where Bitcoin is bought and sold. The coin is connected to blockchain in that viewers can watch transactions of the Bitcoin blockchain as the cryptocurrency moves into the blocks onward to a destined wallet address. Digital currencies managed by private firms existed before cryptocurrency. So, this too is independent of blockchain; it just works better with it.
Financial institutions support their own coins they have created — based off Bitcoin technology — often manipulated into “brand name” coins or “stable coins.” Brand name coins are currency created and controlled by a known brand that may not use all the elements of cryptocurrency technologies. Stable coins have humans adhere values of commodities or preexisting government issued money to the digital currency created. In a theory that coins need backing to be price-fixed and valuable, stable coins are like digital Carnival fair tokens with a value dependent on something else of value. Such “Stable Coins” require human intervention to ensure the commodity (i.e. gold, gems, silver) or fiat (euro, yen, dollar, etc.) is stored at amounts in value of the digital currency’s price they created; i.e. 4 Widget Coins for every 1 USD in storage. Already a viewpoint relying on brand-name comfort, or honest, error-free, wise-decision making of the finance industry’s personnel for their coins to be trustworthy and valuable instead of the mathematical technology of Bitcoin and its like.
Also in the mix of financial industry defined “blockchain” is the use of smart contracts, first mentioned in Nick Szabo’s 1993-1994 writings of the cypherpunk movement. Smart contracts customize computers automated payouts based on timestamp sending or split payouts among multiple recipients. This computer programming breaks free from the one wallet to another wallet sending/receiving of cryptocurrency norm. This ingredient is most noted with Ethereum Smart Contracts. However, this is not blockchain in-and-of itself. It is just another ingredient that combines well with blockchain.
Next, there is the talk of private industry computers dispersed globally as part of “blockchain technology.” These machines would be pre-funded with the industries’ coins. By using such machines, that prepay before a transaction completes in a blockchain, the system will run quicker than just using the slower blockchain system alone. Once the real transaction completes, the pre-funded machines would be reimbursed with extra payment in transaction fees. Well, low-and-behold, they are suggesting using Dash coin’s masternodes technology (Note, Dash masternodes influenced Bitcoin’s lightning network that also works with pre-funded machines for expedited transactions.); another cryptocurrency innovation. Yet, they are not naming Dash (or Bitcoin) directly for proper attribution of this feature already in existence in conjunction with blockchains. They also will not highlight Dash or Bitcoin allow anyone to run these pre-funded machines from which they can earn revenue from transaction fees. It should be obvious these machines are not blockchain functionality. Huh? Okay.
Sprinkled into their recipe of hot air pie, is the marketing of their knockoff coins having a global reach when in reality that is every cryptocurrencies‘ realm. Bitcoin and other cryptocurrencies were designed for global, cross border sending of cash. So their future is Bitcoin’s genesis and present.
Finally, there is the somewhat muted talk of providing privacy functionality for preferred (Read: Wealthy) clients sending a large number of funds through financial institutions’ systems; a feature that already exists with privacy or semi-privacy coins such as Monero, Dash, and Zcoin. So, again, this is not a blockchain feature but is a preexisting cryptocurrency technology feature that they may or may not use. Funny. Right?
Such articles proclaim blockchain technology is a benefit to various industry sectors more so than Bitcoin because it provides a means for securely ordering transactions (Yes, that’s “blockchain.”). Those articles also state blockchain technology can contain a distributed shared ledger system (Wait! That’s not a blockchain but is part of how Bitcoin works). Additionally, it can result in the use of stable coins (Nope, it does not HAVE TO BE a stable coin affixed to any commodity. A cryptocurrency is stabilized by mathematics, protocols, and computer processing and storage.) Furthermore, “their blockchain” will use smart contracts (That’s Nick Szabo/cypherpunks’ creation, not blockchain. It also is the basis of what differentiates the Ethereum’s cryptocurrency and token platform). Then there is the notion blockchain will have computers that expedite payouts by maintaining storage of coins to prepay at a faster pace than blockchain alone. (Again, Dash, its many forked masternode coins, and now Bitcoin technology do this and it is not part of the blockchain functionality. It is a partner to it.). Finally, that blockchain could implement private-send features (again already existing with coins such as Monero, Dash, and others and not specific to blockchain functionality).
So, the ingredients of the private business sector’s “blockchain” does indeed include block-chaining cryptography but also includes several features existing independent from the blockchain. Those features are directly attributed to Bitcoin’s mixing it in its white paper to create a secure, computer-automated cryptocurrency. What is not Bitcoin’s directly belongs to other cryptocurrencies still available to the masses.
Understanding the diverse ingredients comprising Bitcoin, and the differing cryptocurrencies having launched from Bitcoin make the “blockchain is better than Bitcoin” claim idiotic. It is a semantics game lacking either knowledge, honesty, or a bit of both. Bitcoin marks the genesis of a merger of preexisting technologies in as much as milk by itself, flour by itself, eggs by themselves, sugar by itself, and butter by itself are valuable and make many edibles, but they don’t make cake until combined and baked. Bitcoin is the original cake of what’s being copied by the financial sector. The other cryptocurrencies are more cakes with added or different measuring ingredients that are being copied as well by the private sector claiming it’s all “blockchain” while debasing cryptocurrency. An attempt to claim that flour (blockchain) is more important or can be used to fry chicken is irrelevant to the fact that the cake is what is new. Bitcoin and cryptocurrencies are cakes no matter what else its individual components can produce.
The financial sector has personal — preservation of the existing paradigm — reasons for downplaying decentralized cryptocurrency but does have a use-case for actually taking all of the cryptocurrencies’ technologies. The “branded/stable coins” being a cryptocurrency whose value they can manipulate with customer wallets (accounts) they can control is an example of what works for them. So, financial institutions have latched onto the “blockchain is better than Bitcoin/cryptocurrency” hype while deflecting their definition of “blockchain” is copy-paste-modification of the entire development behind cryptocurrencies. Their “blockchain” is every bit of “cryptocurrency technology” from coins, smart contracts, expediting payments through pre-funded nodes, to privatization options – none of which is the original “block-chain” technology even though that is what they are calling it. So it is very much the same as them saying they hate “cake” but love to mix butter, eggs, flour, and sugar to bake and make “sweet bread” which they claim is way better than “cake” – even if one opens the oven and sees it’s the same thing.
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