In a recent interview with PayPal President and CEO Dan Schulman, PayPal Board Member and Xapo CEO Wences Casares shared his vision of a world where bitcoin becomes a global, apolitical standard of value.
Casares is known as “patient zero” in terms of Silicon Valley’s interest in Bitcoin and blockchain technology, but he thinks the road to success for Satoshi Nakamoto’s original creation may be much more boring than most of the people in Silicon Valley and on Wall Street would like to think. In the recent interview, Casares was also asked to compare Bitcoin with the distributed ledger technology (DLT) being worked on by major banks and the alternative public blockchains that compete with Bitcoin more directly.
Bitcoin vs Blockchain Technology
Although it became somewhat fashionable for people to say that they’re interested in blockchain rather than bitcoin a couple of years ago, Casares believes this is an ignorant viewpoint to hold.
“That shows quite a lot of ignorance about how the system works because that would be the equivalent of saying, ‘I like the web, but I don’t like the Internet,’” Casares told Schulman. “Well, the web doesn’t work without the Internet. The blockchain doesn’t exist without bitcoin.”
Casares went on to explain that, in his view, the key, world-changing attribute of the Bitcoin blockchain is that it is no longer necessary to trust anyone else to verify the data held in a particular database. Instead, the level of trust in the data found in the blockchain exists on a spectrum related to the amount of work that has been expended on the verification of that data. In other words, a transaction gains more trust as it receives more confirmations from miners on the network.
“A blockchain of four banks — it’s a database of four banks,” added Casares. “It’s nothing new. That’s not really a blockchain. A blockchain is something where you don’t have to trust any counterparty.”
In Casares’s view, Bitcoin is the only blockchain working at scale in this manner, and that is due to the financial incentives around mining the bitcoin asset.
The Incentives for Everyone to Build Around a Single Blockchain
When asked about cryptoassets more generally, Casares was quick to point out that anyone making a prediction in this area is nothing more than a speculator.
“I think that this is an experiment, and as such, nobody really knows what the outcome of the experiment [will be],” said Casares. “It will take a long time, and a lot of different things can happen.”
In terms of his “best guess”, Casares analogized Bitcoin to the early days of the Internet. According to Casares, solid cases were made for the use of different Internet protocols for different use cases. For example, TCP/IP could be used for low-bandwidth applications (email for example), while X.25 could be used for something like Netflix.
This is similar to how some people view Bitcoin as a network for digital gold today, while Ethereum is a network for smart contracts or Monero is a network for privacy-focused transactions.
“Even though it made some engineering sense, it didn’t really make sense as a whole,” said Casares in terms of using different protocols for different use cases in the early days of the Internet. “There were huge incentives [around TCP/IP]. Today, the Internet won, and TCP/IP transports everything . . . Even things you never imagined — at some point, [started] being transported via TCP/IP.”
To Casares’s point, layer-two networks on top of the base Bitcoin blockchain, such as the Lightning Network or sidechains, are intended to enable any value-related use of a blockchain. For example, RSK recently launched the beta version of an Ethereum-esque sidechain for Bitcoin (also see my post on the effect the Lightning Network may have on altcoins focused on low-value transactions)…