Contrary to the statements, studies, and findings of leading financial institutions, the blockchain is not the only technology behind bitcoin.
Four Fundamental Technologies
For many years, ever since the popularization of the term distributed ledger back in 2015, banks, including central banks, have pushed the narrative of “blockchain not bitcoin” or “blockchain not cryptocurrency.” Consortia like Hyperledger and R3 have continuously developed permissioned ledger networks or centralized blockchains, allocating billions of dollars into development.
Three years have passed, and the public is yet to see a commercial implementation of permissioned ledgers and centralized blockchains, that have minimal nodes and one-of-a-kind consensus algorithms that are nor proof-of-work (bitcoin, Ethereum) or proof-of-stake (Cardano).
Previously, bitcoin and security expert Andreas Antonopoulos stated that the blockchain is one of the four fundamental technologies behind bitcoin, the other three being Schnorr signatures, advanced elliptic curve applications, and ring signatures. He explained:
“Blockchain is one of the four foundational technologies behind Bitcoin and it can’t stand alone. But that hasn’t stopped people from trying to sell it. Blockchain is Bitcoin with a haircut and a suit you parade in front of your board. It is the ability to deliver sanitized clean comfortable version of the blockchain of Bitcoin to people who are too terrified of actually disruptive technology.”
Jimmy Song, a prominent bitcoin developer and principal architect at Paxos, echoed a similar viewpoint has Antonopoulos, but emphasized the security and decentralization aspect of bitcoin. Song said that centralized cryptocurrencies or permissioned ledgers have the ability to adapt to changes more quickly than decentralized currencies like bitcoin, as do centralized businesses.
However, Song stated that for money and cryptocurrencies, centralization is a key flaw, because it opens blockchain networks vulnerable to attacks, single points of failure, and security breaches.
“Centralized coins have the ‘advantage’ of being able to change things quickly in response to market demand. Centralization is certainly a good thing for businesses as they are often trying to make a profit by providing some good or service to their customers. A centralized business can better respond to market demand and change what they sell for better profits. For money, however, centralization is a bad thing,” Song wrote.
Is Centralized Blockchain Wrong?
Last year, Intel, $235 billion technology giant, debuted a permissioned ledger with Hyperledger called Sawtooth, with a consensus algorithm known as PoET.
“Proof of Elapsed Time (PoET), a Nakamoto-style consensus algorithm that is designed to be a production-grade protocol capable of supporting large network populations,” the whitepaper of Sawtooth read.
Certainly, there exists a big market for permissioned ledgers like Sawtooth, but the structure of these ledgers are similar to conventional databases with timestamps and minimal node activity. Hence, there is a clear tradeoff between security and flexibility in permissioned ledgers. Decentralized blockchains have virtually no chance of being vulnerable to breaches, while single points of failure on centralized blockchains are