Non-Cash Applications of the Blockchain?

Aug 2, 19

I've uploaded a new video to my Bitcoin Out Loud YouTube channel titled "Non-Cash Applications of the Blockchain?":

Thanks for any support! Here's the script:

While Bitcoin may be a Peer-to-Peer Electronic Cash System, the blockchain on top of which it functions is, most fundamentally, a distributed timestamp server governed and secured by proof-of-work, as described in sections 3 and 4 of the Bitcoin Whitepaper.

Time-stamp servers provide cryptographic hashes of user-provided data at regular intervals so that those users can prove that the data existed at the time the hash was published. Using a public key/private key system, ownership of that data can also be proven. By time-stamping all transactions, and distributing the governance of that time-stamp server via the proof-of-work consensus mechanism, Bitcoin solved the main problem with creating a digital currency: the double spend problem.

Once a distributed time-stamp server is established as a blockchain, however, it’s use-cases aren’t limited to enabling electronic cash. It can be used for any traditional time-stamp application, or brand new use-cases that take advantage of the blockchain’s immutability and/or censorship resistance.

There are those who argue that the Bitcoin blockchain shouldn’t be used for anything other than monetary transactions, and that transactions sent to the network for other use-cases are, by definition, spam. That argument is usually based on the premise that those other use-cases burden the blockchain network with extra data, hurting its ability to facilitate its electronic cash system.

Now, the only way non-cash use-cases of the blockchain could ever "burden" the network to the detriment of the cash use-case is if they were to cause the demand for block space to exceed the technological limits of the network, such that a miner couldn’t continue to include all the user-supplied data in their next block without introducing discouragingly high orphan risk. Large blocks propagate more slowly than smaller blocks, and so a small black, even one found slightly after a large block, has the potential to reach a majority of the hashpower first. And if a block is mined on top of that smaller block before one is mined on top of the larger block, that larger block is discarded even by those that saw it first, since there is now a longer chain available. With demand for block-space above the amounts miners can safely profit from, a fee market would emerge where users of each use-case are forced to outbid one another to get their data added to the chain.

It’s worth noting that that situation is not fundamentally different from one where the network’s limits are reached by purely cash-use-case transactions: users would still have to outbid one another to get their transactions included in blocks.

It’s also worth noting at this point that non-cash applications may actually benefit the network. All data added to the Bitcoin blockchain requires paying fees to the miners, and more use-cases mean more demand for the currency needed to pay those fees. That leads to higher profits for miners who secure the network, and puts that currency in the hands of more people, which can be a huge benefit given that there are so many coins competing for users.

Still, let’s say demand for block space someday exceeds the network’s technological limitations. Critics of non-cash use-cases for the blockchain are still left with the question, who are they to say that one use-case is in any way less legitimate than another, especially in a decentralized, effectively permissionless system like Bitcoin? If only the blockchain had some sort of built-in mechanism to delegate decision making to those most invested in the system, whose incentives would line up with the greater function of the system overall… oh wait right, it already does.

Miners already decide which transactions they include in their blocks. If you believe, as a miner, that it’s in your self-interest to prefer transactions of one use-case over another for the sake of the function of the system in which you are invested, then you can do so, even if there are more fees to be claimed by including other transactions.

And if another miner publishes a block that you think is detrimental to the network because of the transactions it includes, you have the option to reject that block by your own standards. Of course, refusing to mine on top of that block may not be a very wise decision since, unless you’re confident that the rest of the network will also reject that block, you will fork yourself off the network onto a minority chain, but that’s your choice to make as a miner.

The potential for situations like that highlights the importance of agreeing beforehand on the network’s definitions of validity in the software, so that nodes don’t have to guess as to whether the rest of the network will accept or reject a given block. And if a fundamental disagreement is reached at the protocol level about what constitutes valid blocks or transactions, a fork of the blockchain will be expected, at which point each side can go their separate ways, either forever, or until one side of the forked chain dies and the hashpower from the failed side of the fork moves over to the surviving side.

When the blockchain is understood to be not just a decentralized ledger, but, more generally, a distributed timestamp server, the potential applications of such a network become obviously wider in scope than just an electronic cash system. Any needed rules and incentives, including whether or not to include transactions for non-cash use-cases, can be enforced using the proof of work consensus mechanism.

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