Superpower is a curse
What makes Bitcoin and blockchain so special and worthy being called a revolution magnitude bigger than that of the Internet? Well, Bitcoin, with a specially constructed data structure called the blockchain, brought us some unique characteristics that render it fundamentally different from all other applications, even those before the era of digital computers and the Internet – they are:
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(a) decentralized consensus⁵, (b) permissionless network and (c) censorship resistant functionality.
Those esoteric characteristics (in the eyes of a traditionally centralized economic world) are the fundamental axioms of the decentralized blockchain. They provide us with a crucial gene pool combinatorics to construct a new breed of economy that will be able to acquire new dimensions of value that have not been seen in our current economy, including the Internet. However, having this terrible superpower comes with a curse – the curse of not being able to scale out like that of the Internet.
Bitcoin really did box itself into a tight corner – intentionally, by design – any parameter deviation from the protocol, especially those relaxing block production latency requirement to boost throughput, risks compromising the integrity (security) of the protocol. Also counterintuitively, in decentralized systems, overloading the system actually helps strengthen the security of the system, such as in the case of Bitcoin. Since the key active agents of the system, the crypto-hash miners, get supplemental reward whenever there is congestion in the Bitcoin network⁶, they (the miners) are economically incentivized to pour more resource – in Bitcoin’s case, computing power – into the Bitcoin network, thus strengthening the security of the system, at the expense of user experience, a dampening effect to attract more users and scale. On the other hand, in centralized systems, service providers – servers – become fragile when load is overbearing, and security (as well as service quality) is weakened (overloaded servers behave indistinguishably from those that are under a DDOS network attack).
Evidently what makes a decentralized blockchain protocol strong is at odds with it getting popular – in other words, the innate security design of the first generation of blockchain protocols hinders their ability to properly scale – at least in the sense of being able to scale out.
Now let’s take a closer look at the three defining characteristics of Bitcoin and decentralized blockchain networks – trustless consensus, permissionless network and censorship resistance – they are truly extraordinary, aren’t they? Each of those characteristics runs directly against what makes our existing societal and economic regime tick, which hints at a defiantly oppositional blockchain economy than anything we’ve known, including the Internet.
Not being able to scale out devastated the development of the first generation of blockchain species from becoming a full-blown economy. The news of that era was littered with one speculative bubble after another which only fed into the suspicion by the mainstream financial institutions that the whole blockchain phenomenon is nothing more than a scam. Though that sentiment of the old guards is biased, unfair, and reactionary, the blockage of Bitcoin adoption into the existing economic order is real – e.g., the designated use case for
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⁵ Also called trustless consensus, decentralized trust, or simply decentralization.
⁶ Congestion can allow Blockchains to Finance their Infrastructure and is Vital to Bitcoin.
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Bitcoin, digital payment application⁷, has never really penetrated into mainstream adoption, compared to other non-blockchain digital payment applications.
In the early days of Bitcoin many in the community ardently promoted a narrative of Bitcoin assimilation into the mainstream financial regime as decentralized FinTech⁸ (many still do today, though with less conviction). However, most of the myths of that narrative have been proven to be unfounded – e.g., Bitcoin will help central banks solving monetary problems, taming inflation, etc. – all debunked⁹.
Bitcoin eventually settles unto a narrative of store-of-value, like gold (some call it digital gold). This notion sticks as it became a self-fulfilled prophecy among people who are critical of the mainstream financial institutions and their power but still won’t dismiss the apparatus of traditional economic regime (e.g., money, token of value). Gradually the world came to the observation that the robustness of Bitcoin’s decentralized existence holds steadily for over a decade due to ever increasing networked hashing (computing) power – a testament to the superpower of the idea of true decentralization. The Bitcoin token became an ideal setup for the underpinning of a quality financial asset. However, in the case of building a true economy, there is nothing worse than store-of-value, as the deflationary nature of store-of-value is a terrible woe to a throbbing economy, since it sucks oxygen out of it (nobody likes to spend store-of-value, a thorny problem for a transaction-based modern economy).
Now we can see that for blockchain, the curse is a double-edged one – first the scalability curse then with that came a consequential phenomenon we call the barren economy curse – it is rooted in the unshakable blockchain characteristic, decentralization.
Those pieces of history reminds us that assimilation had failed as a viable strategy for the upbringing of blockchain economy because decentralized blockchain’s fundamental characteristics are in direct conflict with the core logic of our existing centralized economic regime – we must always remember that.
Yet hope is not all lost. Oftentimes for the truly extraordinary, a curse is but a guise of blessing.
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