What is the difference between Bitcoin and the blockchain(s)? Proof of Work is an essential feature for many aspects of Bitcoin. PoW, not openness, brings immutability. Immutability is not the same thing as unforgeability. Anonymity prevents coercion. Permissioned ledgers are vulnerable to extortion. Bitcoin sacrifices transaction efficiency to give you freedom, global access, permissionless innovation, and censorship resistance.
Transcript
[AUDIENCE] Major traditional consultancy companies and thought leaders, such as Tascosa LP, say that... Bitcoin is nothing and [we should] focus on blockchains. What is your view? Can we have blockchains without bitcoin, or must they go together?
[ANDREAS] That question comes up a lot. I will talk about that more tomorrow. I think there is a lot of misunderstanding as to what blockchains are, what Bitcoin is, and how the two relate. I call Bitcoin the open blockchain, with an emphasis on the word "open." That qualifier is the important one.
Bitcoin has an open blockchain which is global, decentralized, and borderless, allowing anyone to participate and innovate without needing to ask for permission. Those are the characteristics. It is a system that works through the anonymous submission of proof-of-work, which is a very key characteristic of Bitcoin. You can create other blockchains.
However, if you create a blockchain without currency, you must come up with... an alternative way of [incentivising and] reaching consensus that doesn't lead to centralization. You must realize that some of the characteristics you see in Bitcoin would not exist without proof-of-work. One of the most important characteristics is immutability.
You will hear a lot of people say, "We built a blockchain to record things that cannot be changed." But the reason things cannot be changed on Bitcoin is because of the proof-of-work. Even miners with 99% of the hashing power colluded, they could not re-write history for more than.. a few dozen blocks, 144 blocks per day. They can affect [the history of] an afternoon.
Beyond an afternoon, Bitcoin is immutable. You cannot forge proof. You would need to re-calculate Bitcoin's proof-of-work [for the whole block history]. That is physically impossible at certain scales.
[Immutability] stems from the need to present proof-of-work. [Many] people who use the term "blockchain" do not mean an open and decentralized ledger. "Distributed ledger technology" is the new term. [These are not systems] that use proof-of-work.
Yet they assume immutability is one of the characteristics. It doesn't have immutability. It might have unforgeability, to a certain extent. But if the five banks in a blockchain consortium have signing privileges, and decide to re-write the last two years in order to change the balance in WikiLeaks' account to zero...
because the government ordered them to... not that they would do that, of course not. [Laughter] We live in a democracy and it would [require] a big court fight first, right? No, they could do that.
They could do that instantaneously without presenting proof-of-work. They couldn't do that without it being noticed. But the fundamental difference on Bitcoin's open blockchain is, they could not do that at all. These two [scenarios would play out] very differently, from a security modeling perspective.
There are other characteristics that are very different. [When you have] a proof-of-work system... You could say that Bitcoin's is currently more centralized and the miners are less anonymous than we would like, but they are still more decentralized and anonymous than many other systems, certainly at that scale. Being anonymous, they can't be coerced.
[So that is important]: if you know who has permission... to write [data] to the permissioned ledger, then you can extort, hack, and steal the keys. [Someone could] take away that permission for themselves. I can't imagine any of these systems...
running as permissioned blockchains with every participant fully identified. They want to require identity and KYC/AML [compliance] on top, in a system where a set of keys being stolen... [could] disrupt the operation of that system and [make] every single transaction visible. Panama Papers on a magnificent scale.
If they want a blockchain that is completely controlled by five entities, [go ahead]. [But if it is] leaked, it will provide forensically secure evidence of every transaction that corporations make. Corporation put on there are like bring it on that's like Bring it on. Anonymous will have a field day.
They will have so much fun hacking distributed ledgers. I am very skeptical until I have [looked at] the security model and what are you trying to achieve. Bitcoin sacrifices transactional efficiency for freedom, global open access, permissionless innovation, and most importantly censorship resistance. If you don't want those things, why are you sacrificing transactional efficiency?
What [benefits] do you get [from using a blockchain]? There is no question that a distributed ledger is better and more secure than one [controlled by] a single entity. But that is only because clearinghouses are ridiculously anachronistic and insecure. As an idea, it should have died two decades ago.
Yes, they will replace SWIFT with distributed ledgers. They will reduce their operating costs by a certain percentage. It puts me to sleep, thinking about it. We are working on the open global blockchain that fundamentally changes the nature of trust, authority in finance, empowers billions to participate in the economy, and provides censorship resistance.
I am willing to sacrifice transactional efficiency for individual freedom.