There is an interesting controversy brewing in the world of cryptocurrencies and distributed ledgers, which has been fueled by the rise in popularity of blockchain as a distinct technology from bitcoin, the virtual currency. The controversy actual surrounds whether bitcoin and blockchain are separate – or two different things entirely.
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As most of us have learned, Bitcoin is a virtual currency while blockchain is the technology that offers Bitcoin many of its distinct features: a single system of record distributed across multiple synced ledgers; privacy; and the ability to bypass traditional market channels.
Yet Bitcoin purists, along with those invested in Bitcoin’s commercial success, argue that the bitcoin currency and the blockchain technology are one. Further, this community states that there will be only one public blockchain left standing – the Bitcoin blockchain, if you will. In their view, there will be a single public blockchain complemented by multitudes of privately managed and administered sidechains. The same blockchain technology would be used for the private chains, but there would be only one publicly accessible blockchain. In this theory, there is no separation of Bitcoin and blockchain – they are interwoven.
Effectively, these theorists suggest that blockchain’s ascension would parallel that of the Internet, as there is one single public internet but many private intranets that are administered separately.
Need for evolution
Obviously, this concept of a single Bitcoin blockchain is hypothetical as even the most ardent Bitcoin supporters agree that the Bitcoin blockchain needs to evolve to support the transaction volumes that mass adoption for global commerce would necessitate. For example, it is generally accepted that the Bitcoin blockchain has a capacity of seven transactions per second, although the highest volume observed on bitcoin has been less than 100,000 transactions per day (i.e. less than one transaction per second). Presuming that seven transactions per second is possible, it is magnitudes less than what is needed to support transaction processing for even a global payments application, never mind other possibilities.
This has spawned yet another interesting controversy in that even within the bitcoin community there is splintering of what Bitcoin technology will prevail. Bitcoin insiders have built an alternative to the original Bitcoin called Bitcoin XT (as well as other variants such as Bitcoin Classic and Bitcoin Unlimited). These factions believe the Bitcoin blockchain, and those managing it, are incapable of meeting blockchain’s disruptive potential – so, they built their own blockchains that they believe address these inefficiencies by having the capacity to exchange more information within a block, and communicate this data more quickly within the blockchain.
Whichever variant of the Bitcoin blockchain that prevails, the theory of this Bitcoin community is that there will be a single, intertwined Bitcoin blockchain complemented by private sidechains.
Having talked about Bitcoin blockchains as one and the same, the other side of the Bitcoin vs. blockchain argument suggests that there is room for many blockchains – some public, some private. This community believes that multiple blockchains are necessary to realize the full potential for blockchain as a disruptive technology. Since there is less reliance on a single blockchain infrastructure, different blockchains can be developed specifically to support the computing demands of different business applications.
This multiple blockchain side of the discussion is more interesting to finance and treasury because the development of multiple, simultaneous blockchain applications would speed development for the many business use cases that we see in global finance. This is because blockchains can be designed specifically to meet the needs of these markets, and therefore time to market would be significantly quicker. This is the view that banks are taking, especially for the 42 institutions that have joined the R3 consortium to study business applications of blockchain. Those applications include – but are certainly not limited to – peer-to-peer payments, financial transaction settlements, trade finance, smart contracts, identify management, and others.
Regardless of whether there is one public blockchain with many private sidechains or whether many public and private blockchains coexist, the value of the blockchain for finance and treasury is in the blockchain enabled applications that deliver improved efficiency, privacy, and (reduce) cost of ownership.