I came across this Twitter thread, which I agree with on some aspects, but found to be incomplete w.r.t a more general aspect of blockchains: Smart Contracts. But before I go into that, I'll start by addressing a few points made about Bitcoin in the Twitter thread.
Let's discuss the environmental cost of bitcoin.
I agree about the environmental impacts of bitcoin mining. This is however not true of all blockchains. Not all of them rely on proof-of-work for mining every block.
It's a pyramid-shaped investment scheme backed by the collective delusion that value can created out of nothing by convincing greater fools to buy it after you do. ... Unlike other economic activities, the bitcoin scheme produces absolutely nothing for all this waste. It is a pure speculative activity of people gambling on the random movements of prices and the only output is simply shuffling numbers around in a computer at insane cost.
While I agree that this is how it seems to be working in practice, it isn't fundamentally what Bitcoin is. A good analogy that illustrates my point is the market value of gold today. Apart from uses of gold due to its chemically inert properties, it has no intrinsic value. Gold is valued highly today primarily because of its limited supply throughout history. It isn't too rare (making it impractical to use as currency / for trading) nor is it too abundant (making it less valuable). Gold has the value it has, because we have all agreed to give it that value. Bitcoin is better seen from this perspective. A currency that is limited in its supply, available for use in trading, with no central authority controlling its price. So if Bitcoin is to be seen as a "purely speculative activity of people gambling", the same can (I guess) be said about gold too, igoring its intrinsic value (which is far below its market value).
Peer-to-peer networks, such as BitTorrent
have been popular much before Bitcoin beacme popular.
However, it was hard to enforce rules (of any kind) on these networks.
For example, while someone who had a copy of a file would seed it,
to share among others, and there was a moral obligation for the
person downloading it to re-share it, it was hard to mandate seeding.
People could just leech of seeders, being a bad member of the community,
without having to pay any kind of penalty.
Suppose we want to mandate compensation of seeders for their bandwidth / power costs. With a central authority, the problem could be simpler to solve, with the money paid from the leecher to the seeder upon completion of a download. In a decentralized network, this is a harder problem. The network, as a whole, must monitor that data indeed was transferred from the seeder to the leecher's computer, and then, the leecher's money (to which the network must have access to already) transferred to the seeder.
Suppose you could write a program, which is an entity in itself, to which money could be sent from the leecher, as a collateral. The seeder submits "proof" of having shared the file to this program. If the proof is valid, the program sends the money to the seeder. We do not dwelve into the details of how such a proof can be designed in this article.
All we need now is a decentralized enforcer of this program's rules. That's exactly what a blockchain is, and the program: a smart contract. A blockchain protocol ensures that all the nodes in that network together arrive at a consensus over a transaction.
The nodes (computers) on the blockchain network perform computations inorder to arrive at a consensus on the transactions (say the execution of a smart contract). Just like in our example, a torrent seeder needed to be paid, these node operators need to be paid for carrying out computations on behalf of the entire network. Tokens such as ETH or ZILs are the currency in which they are paid. This is commonly referred to as "gas" in the blockchain world. As a blockchain network gains popularity, more smart contracts are deployed on it with a wider application spectrum. A higher demand on the network leads to higher costs of executing your smart-contract. The cryptocurrency now has a higher intrinsic value. It isn't just something that people attach a value to, anymore. It can be used to run computations on the network, a decentralized network with node operators paid to perform computations.
So while it looks like, as the Twitter thread pointed out, a pyramid scheme where people bet on other people buying your invement for a higher value, it isn't really so. At least not on smart-contract enabled blockchains.
On a closing note, while there are a lot of "made up" applications of blockchains (which are probably better of carried out on a traditional centralized model), there are few applications that cannot be done without blockchains.
A few that come to mind:
- A decentralized BitTorrent like file-sharing network where seeders are actually paid for their bandwidth and electricity.
- A decentralized social network (like Twitter, for example) where users can post publicly, for free, and advertisers can pay for the network cost. All of this can be transparent, with the bonus advantage of being immune to censorship. We already have a step in this direction, Unstoppable Domains.
These applications are currently not very practical on popular blockchains such as Ethereum, mostly because of the high computation costs in arriving at a consensus. I'm hoping that more modern blockchain networks, such as Zilliqa (the company that I currently work for), will bring these applications to a practical, usable reality.