Blockchain - Bubble or Revolution - Book highlights

Pulkit Yadav

Pulkit Yadav

Feb 21, 2022

1. Bitcoin and the blockchain

Tangible (physical) money is impractical to physically carry and it is unsafe because needs to be guarded against theft.

Middlemen Mediated Money (or M3) solves some of the problems of tangible money. But it has its own disadvantages:

  • fees on transactions
  • safety risk - banks can still be looted

You could either have intangibility or be middlemen-free.

Bitcoin provided both the advantages. Bitcoin is a digital currency, so it’s intangible, and it’s (in theory) middleman-free because it doesn’t rely on a bank or other institution to keep track of people’s money balances. Instead, Bitcoin relies on a network of computers around the world to keep a shared log, or ledger, of every past payment. This “shared public ledger,” as it’s known, is called a blockchain.

Benefits of blockchain:

  • Decentralized: No middlemen - single points of failure; fees and restrictions. Safety against natural disasters, power failures.
  • Trustless: Don't need to trust anyone eg. banks or governments.
  • Transparent: Entire history on a blockchain is public and immutable. Easy and fast audit and data tracking and sharing.
  • Tamper-proof: Difficult to hack because of immutability (Proof-of-work, Proof-of-stake, etc.).
  • Access control: Sensitive data parts can be made private.

2. Bitcoin Economics

Inflation vs Deflation

Capitalist economies need people to spend and invest money, since that’s the only way the economy can grow. Deflation shuts this down. Meanwhile, a small, stable amount of inflation pushes people to invest — since they realize their money would become worthless if they sat on it forever — which helps keep the economy growing at a healthy rate.

If your economy has deflation, you miss out on the wheel-greasing benefits of small amounts of inflation, and your economy can grind to a halt if people hoard cash (or bitcoins) instead of trying to grow businesses. So while Bitcoin’s deflation may be a good thing for investors, who can see potentially massive returns by just holding (or hodling) coins, it would make Bitcoin a poor basis for a national (or world) economy.

Bitcoin is immune to inflation, because it’s supply is constant (or even decreasing) over time.

Investment vs Currency

The thing that makes currencies good is stability, while the thing that makes investments good is growth. These are mutually exclusive. A financial instrument can’t be both growing and stable at the same time.

Bitcoin is a unique invention because it is both a currency and an investment at the same time.

You can use bitcoins to buy and sell things online, or you can buy and hold (or hodl) bitcoins in the hopes of turning a profit. Bitcoin is like Venmo (or PayPal), but if you sent and received stocks. This makes Bitcoin a truly unique financial invention.

Bitcoin is highly volatile and Bitcoin's community doesn't like periods of price stability (complains about BTC being stuck and facing resistance). So, while Bitcoin can be both a currency and an investment, it’s clearly chosen to be an investment. You can still use it as a currency, but it’s highly flawed — and the things that make it such a flawed currency are the exact same things that make it such an interesting investment vehicle. Bitcoin may not be the future of money, but it may well be a part of the future of investing.

3. Bitcoin's Blunders

The scaling problem

  • Fees: Satoshi envisioned Bitcoin to be used to small transactions or micropayments. However, this isn't practical today as average BTC transaction fees are 1-2 USD and they have even reached 60 USD in the past (Dec 2017 and Apr 2021) during times of chain congestion.
  • Delays: During Dec 2017's congestion, it took around 16 hours for transactions to get confirmed and put on the blockchain.
  • Throughput: Bitcoin can process 4.6 transactions per second (TPS) today. It is no match to Visa - which can process 65,000 TPS.
    • Bitcoin transactions take an average of ten minutes to go through even if you offer a huge fee, since blocks are mined an average of ten minutes apart. Merchants who accept Bitcoin are actually advised to wait for six more blocks to be mined after the transaction goes through to minimize the risk of fraud.

With new improvements to Bitcoin's protocol like SegWit and The Lightning Network, the scaling problem might be tackled.

Criminal's favorite currency

  • Dark web sites (eg. The Silk Road) and hackers demand payments in BTC which gives cryptocurrency a bad rep.

Not quite anonymous

  • Your wallet's address (public key) is publicly visible on the blockchain. So anyone who can tie that address to you knows everything about all your past transactions.

Wild Wild West: Mt Gox hack

A Bitcoin wallet is only as secure as its private key, and if someone gets ahold of that private key, the money is theirs — and if they steal it, it’s practically irreversible. Instead of trusting exchanges, users should keep their coins in cold storage i.e. make private keys offline using either paper wallets or hardware wallets.

Mining and climate change

“Bitcoin mining is a competition to waste the most electricity possible by doing pointless arithmetic quintillions of times a second.”

The wastefulness of mining does serve a purpose — keeping Bitcoin tamper-proof — but it’s wasteful, and the competition is getting more extreme each passing day. Miners are locked in a perpetual arms race. Your chance of successfully mining a block is proportional to the percent of total hash power you control, so if other miners build more powerful mining computers (known in mining slang as rigs), you have to build more powerful rigs yourself just to keep up.

The myth of the solo miner

Bitcoin mining has gotten prohibitively competitive. The number of blocks you can mine is proportional to the fraction of the world’s total hash power you control, so your key to making more money is to build more powerful computers than your competitors. Since everyone thinks that way, everyone builds more powerful computers — but that just leaves everyone back at the same competitive position they were at before.

  • One quick fix to the randomness of payouts is to join a Mining Pool, or a club of miners who share their hash power and split the proceeds from any blocks they mine.
  • Cloud Mining: you just rent mining rigs from a professional and collect a portion of the profits from whatever blocks your rented rigs mine. The company that runs the cloud rigs takes care of buying, maintaining, and upgrading the computers.

Even with tools like mining pools and cloud mining, Bitcoin mining isn’t a very profitable venture for small-time, solo miners anymore.

Pickaxe Theory - it’s hard to get rich by participating in the latest technological craze — but it’s very profitable to sell equipment to those who are - it’s a sure bet that a lot of people will be trying to cash in on the fad, and they’re very eager to buy equipment.

That's why there's been a boom in GPU sales because of BTC mining.


Few Nodes

The number of full nodes have flatlined at 10k. The problem is that nobody gets paid to maintain a full node, yet full nodes are essential for Bitcoin to operate since they’re the only ones that store the official blockchain. The lack of a financial incentive and the mounting difficulty of maintaining a full node mean average Bitcoiners will no longer maintain full nodes. Instead, it’ll fall on a few huge companies that profit massively from Bitcoin — mining pools, ASIC manufacturers like Bitmain, cloud mining firms, et al. — to run full nodes.

Same Software

97.5% of all full nodes run the Bitcoin Core client software. Disturbingly, the team behind Bitcoin Core is primarily funded by a blockchain company called Blockstream. And, more disturbingly, Blockstream employs a large number of the core Bitcoin Core team. This should worry any proponent of decentralization: the software that’s at the heart of Bitcoin is primarily owned and maintained by a small group of people that are employed and funded by a single company. The potential for conflicts of interest and user-hostile changes by Blockstream is high.

Few Mining Pools

The top 15 pools mine about 95% of all Bitcoin blocks.

In some cases, some pools become so powerful that they control a majority or near-majority of the whole Bitcoin network’s hash power. In 2014, the now-defunct pool controlled 55% of all hash power.
51% attack risk - any entity who controls over half of all hash power could out-mine everyone else combined, which would let them create the new longest chain, which in turn would let them rewrite history and steal funds. Individuals can’t ever hope to reach such power, but mining pools — as the GHash and Bitmain stories show — can reach that quite easily.

Chinese Control

Chinese pools control over 80% of the Bitcoin network’s hash rate and thus mine 80% of the world’s bitcoins. Additionally, the Chinese company Bitmain owns 70-80% of the market for Bitcoin mining hardware. The Chinese government likes to exercise control over its top tech companies. This means that the Chinese government could easily censor or interfere with the Bitcoin network, limit mining, or otherwise harm the Bitcoin ecosystem, something it’s threatened to do repeatedly. A powerful central government and a handful of big companies could control the future of Bitcoin. This is not the world that Satoshi envisioned.

4. Altcoins

  • Mike Hearn hard forked Bitcoin to form Bitcoin Cash (BCH) to increase block size and make a few other changes.
  • Ethereum is the most popular alt-coin. Based on the idea that blockchains can do more than just record transactions: they can run code, host apps, store data, and really do any kind of computation.

Ethereum Smart Contracts: Ethereum adds the concept of smart contracts, or mini-apps that live on the blockchain, to cryptocurrency. Smart contracts can follow rules and move money, data, and other assets around accordingly. They have addresses just like people do, and you can send them commands (with a small fee) to make them act. In this way, they’re a bit like vending machines on the blockchain: put money in, get a predictable item out.


  • Pegs are implemented by offering a simple trade: a central bank (or Tether) creates a currency board, a sort of bank counter that anyone can visit to exchange currencies at the predetermined rate. In Tether’s case, anyone can swap 1 USDT for $1 at any time.
  • The challenge with pegs is that the currency board offering the peg has to have enough of the bigger country’s currency, known as the reference currency, sitting around.

Problem: the stability of the currency is determined by the actions of a privately-held company — a middleman, so to speak. Without the Tether company, the Tether currencies would collapse. This runs counter to the spirit of blockchains and cryptocurrencies: the technologies should be able to run without human intervention, their future should be democratically decided, and they shouldn’t rely on the trustworthiness of a small group of people.

Monero, privacy and cryptojacking

Monero, which is popularly known as a privacy coin, uses a technology called CryptoNote to obscure the identities of the sender and receiver of every transaction.

While all Monero payments are indeed stored on a blockchain, there’s no way for the public to see who the sender or recipient of any transaction was. There’s also no way to link transactions, so if you send money to someone, you’ll have no idea if or when they spend that money. (Both these things are possible with Bitcoin.).

And because Monero’s mining algorithm is so easy to run on a normal computer, even a web browser can mine for Monero coins, known as XMR. So, in 2017, a startup named CoinHive started letting website owners embed a small snippet of Monero mining code on their websites. Visitors’ browsers mine XMR, which flow to the website owner.

This is an interesting idea in theory: website owners can now profit from their websites without having to rely on annoying and intrusive ads.

Cryptojacking: Shady websites started secretly hijacking a visitor's browser into mining Monero coins. You can see why cryptojackers love Monero: it’s easy to mine it on a browser, and since it’s totally anonymous, the crooks don’t leave any fingerprints behind. This illustrates one of the fundamental tensions of cryptocurrencies: anything designed to promote privacy and anonymity — which are usually good things — ends up helping criminals more than anyone else.

5. Public blockchains

Blockchains and elections


The idea of blockchain voting relies on tokens, which are digital assets whose movement can be tracked on the blockchain. On Ethereum, the most popular public blockchain platform, any app can issue tokens to users, and these users can send tokens to others the same way they might send ether.

Anything of value can be represented as a token — for instance, a gold-exchange DApp could give you a gold token if you gave it an ounce of gold, you could trade around this token, and anyone could go back to the DApp to redeem their token for an ounce of gold. (The big difference between tokens and ether is that anyone can create a token out of nothing and issue as many tokens as they want, whereas ether is the only official form of money on Ethereum, and new ether can only be made by mining.)

Voting mechanism: In blockchain voting, the government would issue a voting token to everyone eligible to vote in the election. Each voter could send their token to an address representing the person they wanted to vote for. Each “payment” of a voting token represents a vote and is stored on the blockchain. So because all votes are stored publicly on the blockchain, there’s a robust paper trail, and anyone can count the votes to verify who won, removing the potential for error and corruption in vote tallying.

Blockchain is:

  • tamper-proof => hacking the blockchain to add or remove votes is nearly impossible.
  • resilient => they survive as long as at least one computer has a copy of them — there’s very little risk of the ledger of votes getting lost.
  • decentralized => the government can’t delete electoral results it doesn’t like.


  • Deciding who should get a voting token in the first place.
  • Maintaining anonymity. Since all votes are stored publicly on the blockchain, anyone can see which Ethereum address voted for which candidate. And since the government has to choose which addresses get voting tokens, it probably would have to match real-world identities to addresses. This means the government, and possibly hackers, could figure out which voter owns which address and thus which candidate each voter chose.
    One potential solution to the anonymity problem is called homomorphic encryption, which lets you encrypt each person’s vote (so you can’t know who any one person voted for) but still count the votes and figure out who won.

IPFS: An immortal internet

Web links are unreliable and have a half life of 7 years. Also, web servers are centralized and hence, single points of failure.

InterPlanetary File System, or IPFS proposes a new model for the internet - webpages don’t just live on a central server — anyone in the world can keep a copy of them.

  • Popular webpages will be backed up in computers around the world, making them immune to the link rot that afflicts today’s internet.
  • Files are spread around the world => fetch a file stored on a computer that’s geographically close, which makes accessing it faster.

Currently, IPFS runs its own mini-internet; anyone can sign up for IPFS and start storing files and accessing files from others on the network. Note that this is very similar to p2p torrent system - such a censorship-free, distributed file-sharing mechanism will facilitate digital piracy.

IPFS works with another project FileCoin which incentivizes users to rent out their hard drive space to store webpages in return for filecoins.

Blockchains for small companies

Adding a blockchain to an app comes at a cost. If you’re building on Ethereum, each transaction will cost about 5 - 10 ¢ in fees, which adds up. And the blockchain itself hogs a lot of space : the Ethereum blockchain weighs over 200GB at the time of writing, and growing. Also, blockchains are slow : a classic centralized database called MySQL can handle 60,000 times more transactions per second than Ethereum (which itself can handle five times as many as Bitcoin).

It doesn't make sense for a company to use public blockchain.

Decentralized DNS and Domain Registration (Namecoin)

Anyone could register their website’s IP address into the Namecoin blockchain, which functioned as a sort of DNS. Anyone could run the Namecoin software on their computer and look up the IP address of any website registered there, no matter what their ISP tried to block.

Later Namecoin also tried to decentralize domain registration using .bit domains.

Namecoin's both these attempts failed.

  • Chicken-and-egg problem - Website owners wouldn’t bother registering their websites with Namecoin unless they knew people would use Namecoin and thus visit their sites. And consumers wouldn’t bother downloading Namecoin unless they knew the websites they cared about most were registered there.
  • They underestimated people's inertia.

Common problem for blockchain apps: focusing too much on the technical problems without thinking about the people problems.

6. Business on the blockchain

Walmart's use of blockchain

Walmart reformed its supply chain by demainding vegetable suppliers to put their supply on Walmart's internal blockchain (developed alongwith IBM). Each movement of items in the supply chain network was entered on this blockchain alongwith metadata (prduce's ID, source and destination, time and date).

  • Easy internal and external audits - easy to track down sources in case of bad items.
  • Decentralized data is safe against ransomware and hacking.
  • Transparency - know what's going on instead of hunting down people across companies.

Any supply chain can benefit from the efficiency, security, speed, and transparency that blockchains offer. We think supply chains are one of the killer apps of blockchain — a use case where a blockchain is head and shoulders above every alternative.

Stocks and bonds

Clearinghouses (match making platforms for trading websites) are middlemen — they stand between buyers and sellers , for good reason — so , to increase efficiency and reduce costs , stock markets often employ software - based clearinghouses , known as automated clearinghouses ( ACHs )

Australian Stock Exchange (ASX) tried to make its ACH blockchain-based using smart contracts for more efficiency, reduce fees, increase transparency and lower bureaucratic complexity.

Blockchains and smart contracts can lead to tremendous efficiency gains for the back offices of financial institutions like stock exchanges . But it’s not as easy as dropping in a new piece of software : hot new tools like these come with growing pains and potential legal difficulties.

Xbox and game royalties

Xbox turned all royalty contracts into smart contracts.
The upshot was that Xbox reduced the royalty settlement time from 45 days to minutes, letting publishers get real-time insights and make adjustments to contracts on the fly. Xbox’s finance team also reduced its workload by 70% and reduced the time needed to onboard new publishers from multiple days to 15 minutes. This blockchain solution was a win-win-win for Xbox, publishers, and contracts.

The masters of private blockchains

The groups that have had the most success with private blockchains have not been scrappy startups but rather behemoths like Walmart, IBM, Microsoft, and stock exchanges.

Big companies, for all their slowness in picking up new technologies, are very good at these people problems. They are much better than startups at getting large groups of people to change their behavior.

Startups may have better blockchain technology, but for most private blockchain projects, it’s not the technology that matters — it’s getting adoption, getting people comfortable with change, and working out all the legal and financial difficulties that come up. This is a space where established players have an edge.

7. Cryptocurrency Policy

Since cryptocurrencies don't attach your name to transactions - this makes it much easier to launder money. That's why a few countries outright banned all cryptocurrencies.

Difficulty of regulation - The fact that Bitcoin is still thriving in China despite the (very powerful) government’s heavy restrictions shows that cryptocurrency regulations are difficult to enforce.

  • Cryptocurrency users are tech-savvy, often more so than regulators.
  • Traders and miners can easily shift operations to more permissive areas.

Regulation of ICOs: As time goes on, we expect crypto-fundraising to look more and more similar to traditional IPO fundraising. That means that all the benefits and drawbacks of the old approach will continue showing up in the crypto space.

8. What's Next

Facebook's Diem

Bitcoin was invented to cut out middlemen, work around banks, make transactions transparent, and give average users a way to earn money and be part of the currency’s future (as via mining). Diem is the prime example of how cryptocurrencies are being used in ways antithetical to their founding spirit: it’s run by gargantuan tech and finance companies, all payments and data will flow through Facebook, the blockchain may not be publicly viewable, and ordinary users get no say in its future.

Currency Tokenization

Cryptocurrencies’ role in currency will be similar to that of the $100,000 bill of the 1900s: boosting efficiency behind the scenes, but far out of the reach of average people. Tokenized dollars would be used for efficiency gains in transactions between banks and payments between companies, but average person won't have to deal with them.

Blockchains in IOT

IoT devices’ flaws:

  • Lack of security - always connected to the internet.
  • The server which they talk to is a centralized point of failure.

IoT devices need a secure, tamper-proof, and decentralized way to store, access, and share data.

IOT devices can store every bit of data they gather — the current number of parts available, the room temperature, the location of any defects — on a blockchain.

  • Since each IoT device would store its own copy of the blockchain, it would always have the latest information and would be fine if the internet connection briefly failed.
  • Tamper-proof blockchain => security against hacking. Even better if the devices are only allowed to run smart contracts.

Scalability problem: IOT can have millions of devices and events - blockchains are just not built to handle that kind of scale.

IOTA created an alternative to blockchain for IOT called Tangle. The tangle has no mining, no fees, infinite scalability, strong security, and less reliance on a perfect internet connection. This makes it ideal for the massive amounts of simultaneous communication that IoT devices need.

Decentralized ledger technology (DLT) can have multiple forms - blockchains, Tangle, Amazon's QLDB (for companies' internal tools - centralized but with blockchain’s transparency, immutability, and verification).

9. Bubble or Revolution

The future of money

Problems with cryptocurrency from citizen's POV:

  • bad for small payments (fees and delays)
  • irreversible payments - dangerous for consumers
  • huge volatility. Also, how do you make stablecoins if there are no stable fiat currencies?
  • too clunky and difficult for average person to use

Most people want a monetary system that just works: it should be stable, forgiving, and easy to use. On all these fronts, crypto loses to our current system.

If a country made Bitcoin its primary currency, it would become far harder for the central bank to regulate the economy. To avoid sudden price swings, the central bank needs to constantly adjust the money supply.

With a fiat system, central banks like the Fed can easily create or destroy money at will by buying or selling bonds to banks, making it pretty easy to change the money supply as needed. But in a Bitcoin-based system, the bank couldn’t print money — it’d have to keep billions of dollars in Bitcoin reserves and inject or remove those reserves from the economy.

This would be similar to US's pre-1971 gold standard era:

  • massive amounts of gold stockpiled at Fort Knox was a huge security risk.
  • uncertain availability of gold prevented government to inject money for regulating economy, causing econimic crises to magnify So, in addition to hacking security risks, it doesn't make sense for a country's government to lose ability to moderate the economy. Also, crypto is impractical for running entire economy (Dec 2017 congestion).

In normal economic times, most citizens wouldn’t want to switch from a government-backed currency to a non-governmental cryptocurrency like Bitcoin, and most national governments wouldn’t want to either. But during economic or currency collapses, though, we might start seeing cryptocurrencies being used for unofficial digital transactions.

In sum, while government-run currencies may become crypto-fied, we don’t think they’re going away anytime soon. Non-government-run cryptocurrencies will have their place in the monetary system, too, but we don’t expect them to oust dollars or euros anytime soon.

The real uses of cryptocurrencies


While cryptocurrencies are too slow and expensive to overthrow credit cards, they have a lot of use for high-value or international payments (because they treat all transactions the same). We think that, eventually, most remittance platforms will use stablecoins under the hood.


Non-stablecoins are an interesting investment option: they’re very high risk and very high reward, making them better than stocks for hyper-aggressive investors. More crypto regulation makes institutional investors happy because they invest on behalf of others. But it makes them out of reach of everyday investors.

In the long term, each cryptocurrency will have a different valuation based on the underlying payment system, blockchain, app, or other value that the currency enables — much like how stocks are priced based on the performance of the company that sells them. That is, cryptocurrencies’ prices won’t be so tightly correlated going forward, making them a more stable and reliable investment.

Big institutional investment is pouring into BTC, which may help reduce volatility.

Replacing Gold

Gold's price moves inversely to USD - that means inflation is good for gold holders i.e. gold is a useful inflation hedge.

Bitcoin’s price also moves inversely to the US dollar, and during the COVID19 economic crisis, it rose along with expected inflation in the US, thus making Bitcoin an inflation hedge too.

BTC's advantages over gold:

  • higher growth
  • guaranteed limited supply
  • easier to store, transport and subdivide
  • less prone to fraud (vs fake gold bars)

Despite these positive factors, it’s unlikely that Bitcoin will totally replace gold. Bitcoin remains a poor store of value; in the past it’s repeatedly shed half or more of its market value within just a few hours. Analysts have also argued that Bitcoin’s scarcity is completely artificial; it’s possible that the Bitcoin community could agree to raise the cap of 21 million bitcoins in the future.

It’s clear that the two biggest use cases for cryptocurrencies going forward will be as payment methods (primarily for large or international transfers) and as investments (supplementing, but not replacing, stocks and bonds).

Deep irony: the reason cryptocurrencies will succeed (in terms of how much they’re used) is because they’re abandoning a lot of their original philosophical goals. The technology designed to upend the monetary system and cut out banks and governments is being integrated with the monetary system, adopted by banks, and regulated by governments.

Private vs Public Blockchains

Private blockchains, at a high level, help organizations optimize the flow of information and goods through processes they control.

  • Walmart - understand movement of veggies in its supply chain
  • Xbox - automate movement of money between customers, contractors and publishers
  • UN (tracked refugees' credits on blockchain) - track current buying capacity of refugees

Public blockchains:

  • aim to track the ownership and movement of assets held by the general public. Cryptocurrencies track the movement of people’s money, BandNameVault tried to track trademark ownership, FileCoin tracks the “rental” of people’s computer storage, and Namecoin tried to track the ownership and sale of website names.
  • try to go around centralized power brokers: cryptocurrencies want to cut out banks and governments, BandNameVault wanted to go around national trademark offices, FileCoin and IPFS want to avoid giant websites like GeoCities or MySpace, and Namecoin wanted to go around traditional domain registrars.

In short, private blockchains are process optimizations imposed from the top down, while public blockchains are radical new ways to track valuable things, grown from the bottom up. They’re very different ways of using the same technology.

Different success track records

Private blockchains have had a relatively strong record so far. They have already transformed several sectors: supply chains, clearinghouses, refugee relief, and royalty payments. Companies can build blockchain apps using cloud blockchain solutions.

Public blockchains face 3 main challenges:

  1. Chicken-and-egg problem: Public blockchain solutions like IPFS, Namecoin, FileCoin struggle against strong network effects - no initial users. Private blockchains don’t have to worry about these problems because the companies who build them can just force people to use them.
  2. High technical complexity: New public blockchains are hard to build. Private blockchains can simply be forks of Bitcoin or Ethereum. Or rent from cloud blockchain providers.
  3. Legitimacy: Decentralized agreement over ownership (eg. tracking brandname or land ownership) only works if everyone agrees that the decentralized system is legitimate and can enforce their claims to ownership. Private blockchains have it easier because they have such a limited scope. Instead of trying to reinvent how society tracks the ownership of land or art or IP, they are content with upgrading the technology behind a financial clearinghouse or back offices.

Different futures

Blockchains are just tools, and as such, they shine when they have to solve technical problems like automating a supply chain. They’re great for improving highly-inefficient, complex systems that are currently based on old technology or paper. But by themselves, blockchains can’t reshape society in the way that many public blockchain apps hope to do — blockchains are just tools.

To drive social change, the people behind public blockchains need to do the difficult “people” work of building communities, gaining media attention, and working with governments to create policies. So far, at least, startups working on public blockchains have been very excited about building the technology but less excited about doing the “people” work. For this reason, we’re more bullish on private blockchains, which don’t have to deal with “people” problems — they just need to solve technical problems, and they do so admirably.

Private blockchains, despite being less sexy and ambitious than public blockchains, have more potential to change the world.

Bubble or Revolution?


The future of cryptocurrencies, it seems, is not in community-run coins that replace banks and weaken governments but rather in highly-regulated coins that are smoothly integrated into the existing legal, financial, and political systems.

Blockchain has had a similar reversal. It was originally designed as a technology that could “record everything of value to humankind” and lead to an era of “decentralized man” where everything — patents, copyrights, art, real estate, stocks — would be stored as crypto-tokens.

  • But a lot of the efforts to “put everything on the blockchain” we’ve seen so far are either stuck in prototype phase or have fallen flat.
  • Public blockchains aren't truly decentralized either (disproportionate powers to founders).

Meanwhile, private blockchains are helping industries tremendously by making huge, complex processes more efficient: monitoring crops’ soil temperature, managing car warranties, tracking airplanes’ maintenance history, and such. These are unsexy problems to be solving, and private blockchains aren’t always perfect tools, but still, private blockchains are making a real contribution to the world.

Public blockchains are closer to what the early innovators of blockchain intended — a decentralized way to track any kind of asset. But the real success of blockchain seems to be coming from private blockchains, which are actually pretty centralized.

The ultimate irony

Thus, the ultimate irony of crypto, and perhaps the central theme of this book, is that crypto is succeeding by doing exactly the opposite of what it was originally intended for.

  • Non-government-run cryptocurrencies like Bitcoin and public blockchains like Ethereum stay close to the founding ethos of decentralization, but it’s far more likely that government-run cryptocurrencies (i.e. tokenized currencies) and private blockchains will win out.
  • Crypto will make governments and big corporations more, and not less, powerful - big companies (Walmart/Microsoft) increased profits, China can dominate world economy by its tokenized currency.

Reasons for this inversion:

  • Technical limitations: the massive amount of money and resources needed to create a non-volatile cryptocurrency can only really be marshaled by governments and massive corporations like Facebook, and the slowness, expense, and complexity of blockchains makes them unsuited for everyday use but doable for a dedicated company.
  • Impractical social change: The technologists who created blockchain and cryptocurrencies were better at solving the thorny technical problems and not these social problems. Perhaps the creators of crypto were too optimistic: you can’t just “disrupt” governments that oversee millions of people, banks that handle billions of dollars, and economies that move trillions of dollars a year.

The big picture

Crypto is useful any time there’s an inefficient system that needs a purely technical solution: streamlining international payments, fixing broken supply chains, and so on. But once you start getting into “people” problems — law, governance, economics, and such — crypto, like all technologies, runs into trouble.

Thus, most of the people successfully using crypto are those who just need better technical tools. These tend to be big companies, governments, and banks, who are using blockchains and cryptocurrencies to increase efficiency, transparency, security, and savings.

In the short term, cryptocurrencies will definitely see their values spike and crash, and blockchain apps will come and go. But we don’t think cryptocurrencies and blockchains are a bubble in the long run because they definitely have value, and they will definitely change the world — just not in the ways they were intended to.

Thanks for reading. I would love to hear your thoughts about this article. Connect with me on Twitter.


Pulkit Yadav

Pulkit Yadav