If you haven’t heard of Bitcoin by now, then you should probably find out about it right now if you even remotely want to have any Geek-cred at all.
Okay, anyway, I actually made a pretty nice chunk of money off of Bitcoin. A few years ago I took a modest chunk of bitcoin in return for an item I was, well, returning, and didn’t think much of it, other than it was, at the time, and easy way to get some bitcoin. I sold it on the back side of last years big runup, and made a tidy profit.
I viewed Bitcoin as pretty much everyone does — a “cryptocurrency”, that is “money”. It had similarities to gold in that respect.
Bitcoin’s popularity has given rise to countless other “cryptocurrencies”, and I started wondering how the heck they can all be valuable. “BlockChain” (the “handle” of the technology behind cryptocurrencies) has become a huge buzzword, so much so that some Iced Tea (!) Company added it to their company name and the stock went up 500%. And to tie this back to Delphi and Pascal, there is even a PascalCoin project written in Pascal.
It’s been crazy. And I thought I was super-cool and understood it all.
At least until I read this. Then I realized I was all wrong about cryptocurrencies. I thought that they were a big deal before. Now I realize that they are much more important than that.
The article is entitled A Letter to Jamie Dimon and is written by a guy named Adam Ludwin. Mr Ludwin writes in response to some postings by Jamie Dimon that were less than kind to Bitcoin, and that showed, frankly, a willful ignorance about it.
Ludwin’s article was a revelation to me. It lead me to search further. I found this article, Why Decentralization Matters by Chris Dixon, and finally, perhaps the most interesting one of all, Dawn of Autonomous Corporations, Powered by Bitcoin, which was written, by the way, five years ago. Yikes.
This reading-fest blew my mind. I mean, seriously, chances are that everything you think you know about Bitcoin and crypto-currencies is pretty much wrong.
So I’m here to tell you — Bitcoin and all the rest of the cryptocurrencies (or as Ludwin rightly calls, them “Crypto Assets”) are not about being money. Not even close. Instead, they are all about the next wave on the Internet: decentralized organizations.
I think and learn in terms of examples, so I’m going to use the example of FileCoin, a decentralized organization that allows users to store files like Dropbox, only without the centralized storage.
FileCoin works (or will work, as it isn’t up and running yet…) like this:
- Files are stored across a network of storage space providers. These providers could range from small, one-man shops with a few terabytes to spare, to huge storage facilities with spare petabytes, and everything in between. In other words, anyone can participate to whatever extent they please.
- Files are encrypted and diced up and distributed across the network in pieces. No one storing data can look at your cat pictures that you store on FileCoin storage.
- People who want to store files in FileCoin will have to pay – presumably in FileCoin or some other crypto asset — for the privilege according to market pricing. I have no idea what that is, but I’m willing to bet that it will be a lot cheaper than DropBox or other cloud storage providers are.
- People are incented to provide storage space by receiving FileCoin tokens for letting others use their space. You provide storage space and you get FileCoin tokens which can be converted into Bitcoin or “real” cash money. It is this incentive — the “paying” of people to provide storage — that gets people to provide the storage.
- While the good folks at FileCoin are the creators, they will no more “own” FileCoin than you or I will. Granted, they hold a ton of FileCoin tokens, and will likely be very rich, but once FileCoin is set in motion, they’ve effectively lost control of it.
So, what can we take away from this?
- See how this is “decentralized”? There are no central servers, there is no one “in charge”. There is no single point of failure. The rules are encoded into the software, and the software just runs on the Internet autonomously on the nodes provided by willing users.
- Open-source is critical to the success of decentralized organizations. They simply won’t exist without the notion of open-source software.
- These organizations cannot be stopped short of shutting down the whole Internet in its entirety, something that is impossible. I laugh when I hear people say that government is not going to “put up” with BItcoin and squash it. That’s a joke, because there is literally nothing anyone can do to “shut down” Bitcoin or any other decentralized organization. They are, quite literally, unstoppable. Once they have been set in motion, they will exist as long as the Internet does and as long as anyone at all in the world participates.
- There are, as you’d expect, strengths and weaknesses here. Ludwin’s article covers them quite well. But as with all systems that “yearn to be free”, these weaknesses will almost certainly get better with time.
- These entities will have “owners” in as much as the holder of the crypto assets for any given entity “own” the entity, much like shareholders own public companies.
So when you see some Wall Street guru say something like “I think the next move up is gonna need custody from a trusted source, it’s gonna need a little regulatory clarity…” then you know that he doesn’t have the slightest idea what he’s talking about. These guys are saying things like this all the time. They just don’t get it.
Now, in my mind, decentralized applications/organizations are the next big wave on the Internet. The notion is in its infancy, and applications of this amazing technology will no doubt arise in ways that we haven’t yet conceived of. You might imagine a Twitter-like application where you have complete freedom to tweet whatever you like without fear of being censored or controlled in any way by twitter. That can be very cool and very scary at the same time. But either way, something like that is coming whether we want it to or not.
Now you know, and now we are both ahead of this curve. Now if we can only figure out how the money is going to be made, we’ll be golden. And money will definitely be made.