Software eating the world and crypto eating the Internet

Why the world needs Blockchain technology and why Blockchain technology needs crypto

These concepts were explained separately by both Andreesen Horowitz (A16Z) and Saxon Advisors, and they are trully connected.

Public and private blockchain-computers have many similarities:

However, many terms have evolved over the years and the terminology is often misconstrued. The sole distinction between public and private blockchain-computers is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared database.

A public blockchain computing network is completely open, free for anyone to use and free for anyone (with the IT resources) to participate in the consensus protocol. Updates to the code-base or conflict resolutions are managed through democratic procedures involving everyone participating. For those wishing to take part in the consensus, they are incentivised by earning crypto-asset denominated financial rewards. The prospect of making a profit through these financial rewards is what encourages participants to join the network.

A private blockchain computing network, on the other hand, requires an invitation and must be validated by either the network starter or by a set of rules put in place by the network starter. Businesses who set up a private blockchain will generally set up a permissioned network. This places restrictions on who is allowed to participate in the network, and only in certain transactions. Incentives for permissoned members wishing to participate in the consensus protocol involve financial rewards too, however, they are denominated in fiat currency.

If we understand these concepts then we understand when people talk about “Blockchain, not crypto” and that they are referring to private blockchains.

As private blockchains are controlled by a small group of permissoned members, they can easily be adapted to solve some of these technological issues, better aligning themselves with the needs of entrepreneurs and enterprise businesses. And also there would be no need to touch volatile crypto-assets.

But Blockchains without crypto fall short. As many of you may know, the blockchain computer enables everyone in the world to:

These three drivers form the basis of a concept we introduced, called the Trust Tripod. A tripod manages stability even if there is a difference in the length of the three legs. However, in the absence of a leg, the tripod is completely unstable and it collapses: losing faith in either transparency, security or governance will result in the breakdown of trust. Which would be the heart of the governance problem, for instance? We could talk a lot about it. Things start to get ugly when a company starts to monopolise. Once a company attains considerable market share, they no longer experience significant threats from competition. Neither demand siders or supply siders have a viable opportunity to move to an alternative solution that can offer the same quality of service that the monopoly can, due to the economic moats they have. As private blockchain participants grow beyond the confines of their permissioned members their interests will become more and more misaligned with the users.

Blockchain computers aim to be foundational technological infrastructure for everyone, used as a globally accessible repository for property rights, financial assets, personal data, etc. They will only become truly valuable if everyone opts into the same system. For us to get to that stage, it will mean competitors at the core base layer of the blockchain computing stack will be few and far between. “Monopolisation”, as we know it today, is inevitable. In the context of private blockchain computing platforms, monopolisation destroys trust due to:

Why Crypto solves this

Unlike the private blockchain monopoly, the crypto-powered blockchain computer allows us to create a system that maintains trust among all three parties as it scales and attains significant market share. As a result, the balance of power no longer swings towards the capital providers (shareholders).

Therefore, supply siders and demand siders no longer need to fear:

Eventually, public blockchain technology will evolve to the point where all of the enterprise needs (e.g. privacy, scalability, integration, etc.) will comfortably be fulfilled. Therefore, we believe that in the long term all enterprise applications and cross-company business logic will run on public — privacy-preserving — blockchain computing networks.

In the near-to-mid term, however, we envision hybrid (public and private) blockchain ecosystems forming. This is where private blockchain computers that are tailored to the need of the corporate world will leverage the crypto-powered public blockchain computer for its trust properties.

The “blockchain, not crypto” argument has merit to it, however, it fails to take into account the real innovation with blockchain: the economic innovation, that allows us to build globally accessible technology without trust ever being compromised.

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Generá intereses, tomá préstamos, tradeá con tus cryptos.