Could Bitcoin work “without” Bitcoin?
One of the most solid Bitcoin criticisms I have read so far was during a conversation with Keith Weiner (here are Keith´s articles on Bitcoin), where we both agreed on the utility of Blockchain as a very secure and tamper proof transaction registry in a degree that any other known technology has not achieved yet. In that context he made me ponder if Bitcoin as a monetary unit was the essence of such immutability (understood in relative terms) or if it was simply an accidental or circumstantial element of the Blockchain technology.
With essence I am referring to what makes Bitcoin to be what it is. To illustrate it with an example, if the first chair we know about was made of wood and had 4 legs, and we conclude that the essence of the chair is having 4 legs or the wood from which it’s made of, we would fail in our analysis because a chair would be still a chair if it is made with other materials or if it had 3 or 5 legs. It wouldn’t change its essence.
As I did in my previous posts, I want to emphasize that when I refer to Bitcoin’s Blockchain, I am referring to the system as a whole including its consensus system because as of today, this consensus system is what gives Bitcoin’s blockchain its security and integrity (the same would apply to other open blockchains such as Ethereum, Bitcoin Cash, Litecoin etc).
Departing from the premise that Blockchain is useful as a transaction registry, we can analyze now its essence and if Bitcoin or the corresponding native token is part of that essence. In my opinion the essence of Blockchain is “being an information registry with a very high degree of persistence” in a way that once the information is recorded, it is extremely difficult to delete it or modify it.
In this context, the role that Bitcoin plays as a currency is key because it is the incentive the system uses to reward and coordinate the miners, which are the market agents that maintain the security and integrity of the system.
Keith argued that he did not see why another more efficient technology could not be invented which could accomplish the same objective but without Bitcoin´s consensus algorithm and therefore without the need of Bitcoin as a reward. And I have to say that this argument is irrefutable. No matter how much I claim that Bitcoin is a key incentive for the miners to play its role, and that would be impossible without Bitcoin (gold or dollars would never work), but that does not prevent from other technology to achieve the same objective without Bitcoin.
That being said, I would add that it doesn’t make much sense to give up using any technology just because we fear it could be improved, we would not ever progress with that attitude. All technologies will be overcome sooner or later. I don’t want to say with this that Keith´s argument is a fallacy, because it is not. Depending on what technology we should be more or less cautious. It is not the same a new medicine than a new type of chair. I´d agree with him that Money is an extremely important institution, it is not a joke at all.
But the most important consideration to which I arrived after Keith criticism is: What if an immutable registry is developed without the need of rewarding miners with Bitcoin? Well, the first use of that registry that I would suggest is using it precisely to implement Bitcoin or a currency of similar properties, in both cases without the cost of miners. This technology could also be adopted within the current Bitcoin implementation, dumping the miners.
I guess that the immediate criticism to my proposal would be that without miners, infinite identical currencies could be implemented in that registry, which would lead to exorbitant inflation and would render all those currencies useless. That’s a possibility, but based on what is happening right now with Bitcoin or the endless Ethereum tokens that are being created every day, it is also a possibility that the free market would choose a specific implementation and just ignores the other identical ones, the same way that the free market currently ignores any copycat of Bitcoin that does not provide anything new.
If, on the other hand, other currencies with different properties are implemented in this immutable registry, then we would be talking about competition, and that’s more than welcome.
In this sense, I would like to address a criticism from Peter Schiff, a known gold advocate, in which he stated that the creation of other cryptocurrencies such as Ethereum or Litecoin, or other Bitcoin copycats such as Bitcoin Cash or Bitcoin Gold had a clear inflationary effect. I couldn’t disagree more, that would be like saying that a currency based on gold is inflationary because it could be possible to create as much currencies as metals and metal alloys exist (that is, infinite). No, the same way the free market knows how to differentiate and select gold above other metals and alloys, the free market is also perfectly capable to differentiate and select which crypto are useful and which are not depending on its properties, including the properties that would render a sound money.
Satoshi Nakamoto hitted two targets with one shot when he created Bitcoin, although Bitcoin as a monetary unit was his end, at the same time he used it as the means to fulfill that end. His objective was to create digital cash, and for that he needed an immutable registry. He used Bitcoin itself as a reward to get bitcoin users to cooperate in achieving that immutability.
The essence of the Bitcoin system is being a highly tamper resistant registry, and although historically that tamper resistant registry and Bitcoin monetary unit were created simultaneously, this does not change the theoretical fact that once such a registry is created, one of the immediate consequences or applications is the implementation of Bitcoin or a currency with similar properties.
Therefore, to the question at the title of this post the answer is yes, Bitcoin or the monetary concept that Bitcoin represents could indeed work “without” Bitcoin.