There is no “Blockchain Technology”

There is only Bitcoin…

How many times have you heard the term “blockchain technology” or the phrase “the technology behind Bitcoin”? If you hear anyone using these terms you’re probably talking to someone who’s either ill-informed or a scammer. You probably shouldn’t trust anyone using these phrases. Here’s why.

The whole point of Satoshi’s invention is sound money or money with a guaranteed limited supply. Bitcoin is inflationary in some sense but when all is said and done there will never be more than 21 million coins. This is arguably the most important aspect of the invention. It prohibits counterfeiting and inflation is counterfeiting. The Bitcoin blockchain is constructed in such a way that a miner gets rewarded with a fixed amount of a token native to this blockchain, called Bitcoin, for each block he finds. This fixed reward is halved every four years. The bitcoin protocol is open source and anyone can clone it or fork it at any time. We call these forks and clones altcoins. Since the Bitcoin protocol needs 95% consensus to be changed in any way and anyone can make an altcoin there’s a huge difference in immutability between Bitcoin and all the altcoins. In some sense, altcoins defy the very purpose of Bitcoin by cloning the code and conjuring up new tokens out of thin air. This behavior is precisely the kind of behavior Bitcoin is supposed to be an antidote to. Bitcoin remains immutable though. This is what the blockchain does. It keeps track of who owns what Bitcoin. There’s only one. That’s the point.

Most people who use the term “blockchain technology” are simply uninformed. They heard the altcoin narratives and bought them. They see the price of Bcash, Dash or Ether and fail to see that these tokens would be worthless if Bitcoin would cease to be the dominant cryptocurrency. Add to this the Lindy effect. The Lindy effect is a concept that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy. The groundbreaking invention is the blockchain and with it comes its native token, Bitcoin. Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system. In Bitcoins case this is reflected in how the average price moves over time. It’s also worth noting that in Bitcoins case, a user can also add even more value by simply buying more Bitcoin. Also, Bitcoin actually has users which cannot be said of most altcoins. The uninformed proponents of so called “alternative blockchains” may have an understanding of economic analysis or how day trading works. While these skills can be useful to have from time to time, they’re hardly insightful about valuation in any meaningful, long term sense. To truly see the beauty of this new technology you have to dig a little deeper and figure out what mechanisms make a commodity valuable in the first place. Therefore, don’t trust people who talk blockchain. They might be sincere but they don’t really know what they’re talking about.

Then there’s people who do understand what the blockchain is that still try to convince others that altcoins are valid alternatives to the original. These people are snake oil salesmen at best and it is very ill advised to trust them with anything. The people behind most altcoins fall into this category and they’re almost always motivated by greed. So are Bitcoin proponents since they almost always own Bitcoin but there’s a difference between these actors. Bitcoiners acting in selfish ways benefit the entire ecosystem. Bitcoin was built on a game theoretical foundation which makes the system thrive on everyone acting in their own self interest. Imagine if an altcoin one day was to dethrone Bitcoin as the dominant cryptocurrency. Such an event could be viewed as a proof that the underlying game theory was wrong or at least incomplete when applied like this. In any case, miners will mine the most profitable coin, traders will trade for profit and almost all hodlers are Bitcoin maximalists. Stay vigilant!

On a side note — There are some tokens that are not blockchain-based at all. This article is not about them. Consider this article a warning about the buzzword “blockchain”.