Why Bitcoin Maximalists wrongly dismiss blockchain technology for use cases other than Bitcoin

No Maxis, not every blockchain is slow and inefficient. The Bitcoin blockchain is, which is not a bad thing.

Introduction

In the realm of blockchain technology, a debate has emerged between proponents of blockchains and Bitcoin maximalists. Bitcoin maximalists, are individuals who believe that Bitcoin is the superior cryptocurrency and that other digital assets are unlikely to succeed. It is often argued that (permissionless) blockchains, which allow for decentralized participation, are slow, inefficient and useless. However, this article aims to shed light on the benefits of other blockchains than that from Bitcoin and debunk the claims made by Bitcoin maximalists, that those are useless.

Understanding Blockchain Technology

Blockchain technology, a form of the distributed ledger technology (DLT), is a decentralized system that records transactions across multiple nodes. It ensures transparency, security, and immutability through the highest possible number of independent nodes and the highest possible energy consumption. This eliminates the need for trust that a central entity will change the documentation of the transactions (blockchain) and, thanks to the high energy overhead, high finality is achieved. One of the most prominent examples of blockchain technology is Bitcoin, which serves as a digital currency.

Benefits of Permissionless Blockchain Technology

1. Decentralization and Security: Permissionless blockchains are built on the principles of decentralization, meaning that no central authority controls the network. This ensures that no single entity has complete control over the system, making it resistant to censorship and manipulation. The distributed nature of permissionless blockchains enhances security, as there is no single point of failure that hackers can exploit.
2. Transparency and Trust: Blockchain technology provides transparency by recording all transactions on a public ledger. This transparency fosters trust among participants, as anyone can verify and audit the transaction history. In the case of settlements for bitcoin transactions, this transparency ensures the integrity of the process and reduces the risk of fraud.
3. Speed and Efficiency: Contrary to the claims made by Bitcoin maximalists, permissionless blockchains can be fast and efficient. While Bitcoin’s consensus algorithm (Proof-of-Work, PoW) may result in longer confirmation times (which is not a bad thing), advancements in layer-two scaling solutions such as the Lightning Network have been developed to enhance transaction throughput, making settlements faster and more scalable.
4. Global Accessibility: Permissionless blockchains offer global accessibility, enabling anyone with an internet connection to participate. This inclusivity is particularly beneficial for settlements of bitcoin transactions, as it allows for cross-border transactions without the need for intermediaries or traditional banking systems. This feature makes permissionless blockchains ideal for facilitating fast and cost-effective international settlements.
5. Innovation and Interoperability: The permissionless nature of blockchain technology encourages innovation and fosters an ecosystem of decentralized applications (dApps) and smart contracts. Developers can build upon existing blockchain networks, creating new functionalities and services that benefit various industries. Additionally, permissionless blockchains can be interoperable, allowing for seamless integration and collaboration between different blockchain networks, further enhancing their efficiency and utility.
6. Revolutionizing the settlement of traditional financial assets: Blockchain technology holds immense potential for revolutionizing the settlement of traditional financial assets such as stocks, bonds, and other securities. By leveraging the speed and decentralized nature of blockchain networks, the settlement process for these assets can be dramatically reduced. Traditionally, settling financial transactions involves multiple intermediaries, complex paperwork, and lengthy verification processes, leading to delays and increased costs. However, with blockchain technology, these inefficiencies can be eliminated. By digitizing and tokenizing financial assets on a blockchain, transactions can be settled directly between parties in near real-time, without the need for intermediaries. This streamlined process reduces settlement times from days to minutes, enhancing liquidity, reducing counterparty risks, and unlocking new possibilities for financial markets. Additionally, the transparency and immutability provided by blockchain technology ensure that the settlement process is secure, auditable, and resistant to fraudulent activities, further instilling trust in the financial ecosystem. Overall, the fast and decentralized nature of blockchain technology offers a transformative solution for the settlement of stocks, bonds, and other financial assets, improving efficiency and opening doors to innovative market mechanisms.

Conclusion

The benefits of permissionless blockchain technology are vast and extend beyond the claims of slowness and inefficiency made by Bitcoin maximalists. As we have discussed, permissionless blockchains provide decentralization, security, transparency, speed, and global accessibility, making them an ideal technology for settlements of bitcoin and traditional financial assets transactions. It is crucial to recognize the potential of blockchain technology and consider it as a key technology in Germany and Europe, much like artificial intelligence (AI), due to its transformative capabilities across industries. The goal of the Blockchain Bundesverband e.V. (Bundesblock) ist, to make sure this happens in a timely manner. Embracing permissionless blockchain technology can unlock new opportunities for efficiency, security, and trust in financial systems and beyond.

Remarks

Please note: This is a brief overview of the Blockchain Technology from the point of view of the author, and was updated after discussions with other experts.

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Philipp J.A. Hartmannsgruber holds a master’s degree in Finance & Accounting. He is a Board Member of the Blockchain Bundesverband (Bundesblock). In 2019 he founded PJAH Consulting, a blockchain and digital assets-consultancy.