Nobody puts bitcoin in the corner

Suppose for a moment bitcoin never existed. And ethereum never existed. And the whole crazy world of cryptocurrencies never happened.

Someone comes along and tells you to imagine an electronic network, for moving money anywhere in the world, that no-one owns. It’s an intriguing idea. It’s an unprecedented idea. In the entirety of human history such a thing has literally never existed.

Would your response really be: ‘lol the true value of bitcoin is zero’?

There’s a lot that’s dumb about cryptocurrencies. The dumb seems to increase proportionally with the price. Every day, some new idiot tries their luck on the ICO roulette wheel in the hope of making the fortune of a lifetime for doing little more than writing a piece of paper and sticking a countdown clock on a website.

But there’s a lot that’s really profound and you need only look as far as bitcoin to see that.

The problem of transferring or holding value digitally without permission is not a trivial one. The fact the solution requires huge amounts of energy is just one sign of the difficulty. The upshot of solving it, however, is you get an electronic network for value that governments cannot control or destroy except with significant financial and social cost. (Even then they might not succeed.)

You can’t put that idea back in the box, even if the politics are disagreeable. Bitcoin is not elegant or efficient — it’s pretty much broken as a payments network at the moment — but it’s clearly something that a non-negligible number of people on the planet want, even if you wind things back to before the stratospheric price rises of 2017.

The wider promise follows from this idea.

The New York Times recently published a piece about the arguments for blockchain — the technology underpinning bitcoin — that venture capitalists are putting forward. It’s a lengthy piece, so by no means assume this summary reflects its totality, but the basic idea is that systems built with blockchain will create a more equitable online world than the ‘winner-takes-all’ status quo:

Instead of all the economic value being captured by the shareholders of one or two large corporations that dominate the market, the economic value is distributed across a much wider group: the early developers […], the app creators who make the protocol work in a consumer-friendly form, the early-adopter drivers and passengers, the first wave of speculators. Token economies introduce a strange new set of elements that do not fit the traditional models: instead of creating value by owning , as in the shareholder equity model, people create value by improving the underlying protocol, either by helping to maintain the ledger (as in Bitcoin mining), or by writing apps atop it, or simply by using the service. The lines between founders, investors and customers are far blurrier than in traditional corporate models; all the incentives are explicitly designed to steer away from winner-take-all outcomes.

There is every reason to be sceptical about this promise, as we should have been about the promise of digital liberation in the 20th century. Utopias have a funny way of never arriving. Profit-hungry companies have a funny way of always arriving. And venture capitalists don’t get paid for being equitable.

(In any case, are early developers, app creators, early-adopters and ‘the first wave of speculators’ really that large a group of people?)

The more hard-nosed view of what’s going on is more persuasive. It’s the argument that Adam Ludwin at Chain has made repeatedly. Blockchain is a tool for resisting censorship:

Censorship resistance means that access to decentralized applications is open and unfettered. Transactions on these services are unstoppable.

More concretely, nothing can stop me from sending Bitcoin to anyone I please. Nothing can stop me from executing code on Ethereum. Nothing can stop me from storing files on Filecoin. As long as I have an internet connection and pay the network’s transaction fee, denominated in its crypto asset, I am free to do what I want.

Basically, you can build things that are really hard to shut down. Who would want that? Not everyone. But almost certainly enough people to ensure that this phenomenon is not going away anytime soon.

Related links:
The entertainment value of bitcoin — FT Alphaville
Busting the myth that bitcoin is actually an efficient payment mechanism — FT Alphaville
Bitcoin passes $1,000 but only number that matters is zero — FT
Bitcoin’s place in the long history of pyramid schemes — FT

Copyright The Financial Times Limited 2019. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Read next:

Read next:

Lookout, there’s a dollar crunch!

FT Alpha Tweets