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Is it necessary to innovate blockchain?

Published 12.9.2023

The term ossification is often used in the context of Bitcoin to refer to the difficulty of changing or updating the protocol. Many believe this is the best way for Bitcoin adoption. The IOG team, along with the community, took the exact opposite direction in the case of Cardano. Cardano is synonymous with innovation, the ability to adapt and improve. A hard-fork combinator was developed to easily update the protocol. Let's think about which approach is more beneficial for the future of the protocol.

Different Community Approaches to Blockchain Innovation

From my point of view, ossification is a matter of the trade-offs between stability and innovation, as well as the goals and preferences of the stakeholders involved. Some might argue that ossification is desirable when a technology or a protocol has reached a mature and optimal state and that further changes would only introduce unnecessary complexity or risk. Others might contend that ossification is detrimental to the progress and evolution of technology and that constant adaptation and improvement are necessary to meet the changing needs and challenges of the users and the environment.

Opinions on whether Bitcoin is sufficiently adopted, mature, and in an optimal state are only subjective. Some stakeholders claim that the development of Bitcoin is finished and that there is nothing that should be changed or improved, while others claim the opposite and want changes for various reasons.

There is a unanimous opinion in the Cardano community that the protocol must be further innovated and improved. The questions revolve more around which direction to go. To a large extent, this is still decided by the IOG team. Belief in the project largely depends on the team's ability to innovate.

Note that these are two completely different community approaches to how to perceive the future of blockchain.

It is clear to the Cardano community that if the protocol (including the Plutus platform) remained rigid and did not change (except for necessary maintenance), the project would very likely fail. The success of the project is based on technological dominance and adoption. Adoption is driven by technology. Ossification of the Cardano protocol is not on the agenda.

There is no consensus on this topic in the Bitcoin community. Perhaps the prevailing opinion is that ossification is good for the Bitcoin protocol and that innovations should take place on other layers. However, this may be due to the fact that a significant part of the team and influencers are talking about the ossification of the Bitcoin protocol. The second camp is also strong, calling for solutions to urgent problems and innovations of the first layer.

To expand our context, let's look to the past. Bitcoin, Cardano, and other blockchains are basically just protocols. So let's look at the oldest one.

History of TCP/IP

TCP/IP is an example of a protocol that has become ossified over time, due to its widespread adoption and compatibility requirements.

TCP/IP was designed in the 1970s and has been the foundation of the Internet ever since. The adoption of TCP/IP by other networks and organizations increased gradually in the following years, especially after the introduction of the Domain Name System (DNS) in 1984.

By the early 1990s, TCP/IP had become the dominant protocol for the Internet, as well as for many local and wide networks (LANs and WANs). The growth of the World Wide Web, which used TCP/IP as its underlying protocol, further accelerated the adoption of TCP/IP by millions of users and organizations around the world.

In the 2000s and 2010s, TCP/IP continued to be the most widely used protocol suite for data communication, despite some challenges and limitations, such as security issues, congestion problems, and address exhaustion.

The adoption rate of TCP/IP was very low in the 1970s and early 1980s, moderate in the late 1980s and early 1990s, high in the mid-1990s and early 2000s, and very high in the late 2000s and 2010s.

There is no definitive answer to the question of in which year TCP/IP became ossified, as ossification is not a binary or sudden phenomenon, but rather a gradual and continuous process that depends on various factors and perspectives.

We can argue that ossification could have occurred in the year when TCP/IP became the dominant protocol suite for the Internet, and when most other competing or alternative protocols were either abandoned or marginalized. This happened somewhere between the 1990s and 2000s when the growth of the World Wide Web accelerated the adoption of TCP/IP by millions of users and organizations around the world.

We can also look at it in a way that the ossification process started in 1995 and lasted until 2010 with increasing adoption. However, it is important to note that TCP/IP is not completely ossified or immutable, as it still evolves and adapts to some extent over time.

TCP/IP succeeded because it had several advantages over the competition.

It was designed to be robust and adaptable to different types of networks and devices, using a layered architecture and a modular approach. TCP/IP allowed interoperability and compatibility between different vendors and platforms because it was based on an open and standardized set of protocols.

TCP/IP enabled the development and deployment of various applications and services, such as email, web, file transfer, remote access, and streaming. The adoption of these services (protocols) supported the adoption of TCP/IP. By the way, this is a bit reminiscent of SC platforms that allow building DeFi protocols.

When is the Right Time for the Ossification of Blockchain Protocol?

From my point of view, the ossification of the blockchain protocol can occur at a stage when its technological parameters do not prevent mass adoption. Adoption can thus grow according to the needs of the market and is not limited by the protocol in any way.

TCP/IP succeeded because it was scalable enough for people to adopt it. TCP/IP had to be adaptable to different types of networks and devices, it had to enable interoperability and there had to be compatibility between different vendors and platforms.

TCP/IP was the best available solution on the market in terms of the expected features.

Cryptocurrency protocol differs from TCP/IP in many ways. Scalability, adaptability, and interoperability (and others) may not be key features.

What are the key features that should make it beat the competition? From my point of view, it is mainly decentralization, the immutability of monetary policy, scalability, and long-term economic sustainability (security budget). It is important to note that these may be different features for other people.

Blockchain networks, including Bitcoin, have not been around long enough to say they are mature and in an optimal state.

I believe that all teams must continue to improve and innovate blockchain protocols. The market is at a stage where it is not decided at all what features people expect from blockchain and what they value most.

Let's ask ourselves a few simple questions.

Do people want or need a unique and only digital store of value in the form of Bitcoin, or DeFi running on many SC platforms? Can DeFi emerge in the Bitcoin ecosystem and be better than on other SC platforms? Will the cryptocurrency that scales the most or has the best DeFi become the store of value? Does a protocol that is perceived as a store of value need to scale well? Will people value decentralization or scalability more?

This way we could ask many more questions.

I dare say that no one knows the exact answers at the moment. All those who claim to know the future and know exactly what people want are deliberately lying or just guessing. We will only know the answers when blockchain becomes mainstream.

In my view, it makes no sense to talk about the ossification of a protocol that does not allow adoption due to low scalability, it has a problem with decreasing decentralization or it is not certain that it is economically sustainable in the long term.

No blockchain is currently ready for mass adoption. None are sufficiently adopted by a critical mass of users. I believe it is premature to talk about the ossification of Bitcoin. The inability to improve its features and solve urgent problems is rather a disadvantage in the context of future adoption.

A key feature of blockchain protocols is to enable interaction between users at a distance. This is based on the properties of TCP/IP, which enabled the exchange of information and later also the exchange of value (Internet banking and cryptocurrencies).

Let's see if Bitcoin is well-prepared in terms of scalability.

At the time of writing, there are about 550K transactions waiting to be cleared in the Bitcoin mem-pool. This is despite the fact that there is a Lightning Network (LN). The usage of LN is down -84% since last year. The capacity has plummeted by 15% over the last 3 months. Apparently, people don't use LN for some reason. Bitcoin was launched in 2009 and scalability is still an unsolved problem. Experts agree that it may take another 5-10 years to solve the fundamental problems of LN. However, it is not at all certain that people will use LN.

It may be necessary to start working on another second layer and maybe it will require some major changes in the Bitcoin protocol. If you think about other technological problems of Bitcoin, you will find that it is definitely not the right time for ossification.

Innovation is Essential for Success

In the early phase of the existence of blockchain protocols, it is advantageous if they are flexible and can adapt to new conditions and market expectations. It is important to achieve the best properties of the protocol before ossification actually occurs.

I dare say that the Bitcoin protocol will change and problems will be addressed. This will happen despite current narratives.

Cardano, and many other projects where teams work daily on improvements and innovations, are on the right track. Technological development is what moves this industry forward and what will enable mass adoption in the final phase.

Digital scarcity is not a unique ability of Bitcoin, but one of the properties of blockchain technology. Bitcoin will have 21M of BTC coins. Cardano will have 45B of ADA coins. Digital scarcity is essentially the same. What is fundamentally different is the demand for coins. The demand can mainly depend on speculation (or belief) or utility. Furthermore, the ability of the protocol to maintain digital scarcity in the long term (security budget) and ensure immutability (decentralization).

The crypto industry is currently influenced mainly by speculation and belief. I expect utilities to play an increasingly important role in the future. The quality and utility of blockchain protocols will grow due to technological innovation and advancement.

The narrative of the store of value is treacherous as it may seem that innovation and more useful features (DeFi) are not necessary for success. I believe this is a false narrative. If two projects offer similar digital scarcity and one is significantly more useful than the other, there is a good chance that the latter will be more successful.

Beliefs and narratives can result in a high network effect. But can a network effect based on narratives outperform a network effect based on direct digital interaction between users? We know from history that the direct network effect is behind the success of companies such as Amazon, Facebook, X (formerly Twitter), and Google. These companies are more successful today than many national governments or religions.

Cardano is based on innovation and technological progress, which is necessary for the growth of the direct network effect. All the current obstacles that prevent the greater adoption of blockchain will sooner or later be overcome. DeFi is definitely a relevant industry useful for hundreds of millions of people not only in Western countries but mainly in developing ones.

The biggest obstacle in the adoption of cryptocurrencies is not only scalability, but also a high frequency of hacks, high volatility, low privacy, and high consumption, especially of PoW networks. These are all technologically solvable problems.

Many factors will affect the success of blockchain protocols. Not only narratives and technology but also initial coin distribution, community, regulation, network effect, and many other things.

Bitcoin has been around for a very long time and we could ask if its current adoption is low or could have been higher. It would probably depend on whether we are optimists or pessimists. Realistically, however, what is important is the potential for further growth. Not in the sense of faith, i.e. in the number of HODLers, but in the sense of users, i.e. those who will send each other BTC over the network. In this case, I dare say that the adoption is still very low in the context of the number of payment transactions.

Conclusion

TCP/IP has defeated all competitors and is the dominant infrastructure for transferring information and value over the Internet. All blockchain protocols use the Internet, they are essentially just another (application) layer above TCP/IP. I believe that no blockchain has a chance to establish a dominant position in the market like TCP/IP, neither as the global digital money of the future nor as a financial infrastructure. It's like if you wanted only Google to exist for searching information and only PayPal for transferring value. TCP/IP allows competing protocols to emerge, and that's a good thing. It will be innovations that will decide success. We will have to wait several decades for the ossification of blockchain protocols.

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