This article is more than 1 year old

Cash, fear and uncertainty: The Holy Trinity of Bitcoin and blockchain

The Snowden factor unnerving your bank

Feature Writing anything about Bitcoin or blockchains is a challenge. It's not the easiest technology to understand – not because it's particularly complex, but because it's grown into something of a confused mess of different technologies and applications. It also "looks" strange compared to most technologies that we're used to.

Plus, it tends to be quite emotive because although it's all open source and open standards, it's all about "money," and that gets everyone excited.

Stuck in the middle

The point of the blockchain is that it looks to "disintermediate trust." Whilst "disintermediation" might be a term you'd be keen to see on a game of Hipster Bingo, we've all been desperately in love with disintermediation since the internet became a big deal because at its core, disintermediation is what the internet "does."

Disintermediation is about removing intermediaries, and we generally like to remove middlemen because although they provide value, they also take our money for their profit. Take the intermediary out of a system, and others in the chain have a little bit more money.

The internet is the most powerful tool for disintermediation we've ever seen. We tend to call this process "disruption." What actually happens is that some previously successful business wakes up and finds out it no longer has one because someone has ruined their business model by negating their value as intermediaries in the value chain.

Most businesses don't see this coming, because most businesses are fairly inept at modelling and understanding risk. But there is one type of business that's very good at managing out risk: banks.


To a bank, Bitcoin is a tremendously scary thing. Most of what a bank does is designed to keep them sitting in the middle, adding some value, and taking a cut for providing that value. A considerable amount of the value they provide comes from helping people store and move money around. For the "end user," having money in some digital form is a lot easier than dealing with cash, hence why we pay the banks to reward them for provisioning that value.

Bitcoin is digital cash. It can be stored and exchanged without having to have an intermediary involved, because at its core it is a disintermediated system. You can buy a miner, refine electricity into Bitcoin, and send those Bitcoins to anyone in the world – all without needing a bank account or asking a bank to transfer the money for you. It's this disruption that banks fear.

This is why we see banks talking so much about blockchain and Bitcoin, although most of them are talking about blockchain rather than Bitcoin. (Which is fair, because Bitcoin itself is a bit of a basket case.)

What we see is the banks making a huge investment in blockchain because rather than burying their heads in the sand, they see a huge risk to their position as intermediaries. They are managing out that risk through investment – know thine enemy, etc etc. Look for references to "R3 CEV" – a commercial entity that manages a consortium of around 42 banks, all of which are big players. It's a bit Bilderberg-ish.


If you're not a bank, the blockchain is unlikely to present such a specifically clear threat.

The blockchain is a very specific type of database. Right now, however, most people get very excited about it and run around with a hammer thinking everything they see is a nail. In reality, it's hard to find good use cases for it.

Blockchains allow an application developer to create a distributed database that can be read by anyone, but can only be written to by consensus.

This consensus isn't done by voting. Writing to a blockchain takes a considerable amount of processing time, and this is a deliberate design requirement. Running a computer takes real money, because you have to buy electricity. Therefore, if you want to write data into a blockchain, you have to be motivated to put your hand in your pocket and pay for that electricity. This approach grounds the whole system in real-world economics. It's this part that makes Bitcoin as a system make sense – it has refined electricity the same way that the "normal" money that we use at some point maps down to some refined scarce resource.

However, once the data is in there, anyone can read it. For example, anyone can download all of Bitcoin's blockchain and read out every transaction that's ever been on the system since the original so-called "genesis block."

Coming back to use cases, we now have a database system with use cases that involve groups of entities, who don't really trust each other, who all want to update a single system, but who don't really mind about transaction times. (Because all this proving of work by definition takes a very, very long time compared to normal database.) Moreover, we're talking about groups of entities that cannot be bound into trusting each other through some other form – e.g., contracted terms. Generally in our society, we're fairly good at building contracts that define how entities work with each other.

From a non-commercial perspective, some sort of new version of Twitter that used a blockchain to record messages would fit that model because all the messages ("transactions") are public, and getting everyone to trust each other is impossible.

Commercial use-cases are well suited to systems where the entities which are involved include a regulatory authority or government agency. Imagine an aircraft maintenance firm where all the work orders and dockets are put into the blockchain, where the FAA, CAA and other such bodies can examine the records after a crash knowing they cannot be lost or modified.

The reason why I've included regulatory authorities in that example is because it highlights the advantage of these sorts of systems, where exposing data publicly is key. In this case, we have a public interest element but it could simply be that it's advantageous to be more visible with your customers. If you don't need to open up the data-set, it may well be satisfactory just to stick with traditional systems.

I'm melting, I'm melting

The hype around blockchain comes from the fact that it looks to disintermediate banks. Fundamentally, a non-fiat currency that behaves like cash – whether that's Bitcoin or something else – is terrifying to a bank. So they're investing in understanding the risk. And we listen, because when banks invest, it attracts attention because it tweaks our nerves around fear or around greed.

Although the hype starts with money, the question is "will the hype sustain"? In a post-Edward-Snowden world, "trust" is a complex idea. If we centralise trust, it's possible for certain types of actors to try and exploit the centralised nature of this system. Think CIA in Snowden-type examples, think the FBI in "please-give-us-a-specific-version-of-iOS-so-that-we-can-brute-force-this-iPhone"-type examples.

The blockchain is our first real example of a technology that allows us to build systems with disintermediated trust. That aspect itself is beyond hype – from a societal perspective we'll likely gravitate towards systems where trust cannot be exploited, and the blockchain is a great way of building those types of systems. ®

More about


Send us news

Other stories you might like