Allen Farrington & Big Al recently released “Only the Strong Survive,” a report claiming that Decentralized Finance (DeFi) is neither De(centralized) nor Fi(nance). According to them, non-Bitcoin blockchains (that they call “crypto”) such as Ethereum are less censorship-resistant than Bitcoin, and yields in crypto “yield farming” aren’t generated by economically productive assets over time but by speculative pricing across non-productive assets.
Several people answered that the market will eventually choose the best blockchain and that so far, non-Bitcoin crypto applications have colossal market capitalizations and thousands of users. In contrast, Bitcoin currently has no global product-market fit beyond its “digital gold”/“store of value” use-case.1
The authors acknowledge that the “development on Bitcoin is (literally) years behind its crypto peers.” Still, they believe that “the alleged promise of crypto will be fulfilled on Bitcoin sooner or later.” For them, Bitcoin’s layered architecture is more robust and will enable an extension of functionality in due course. On the other hand, the approach adopted by most Bitcoin competitors to put “all the features […] into the mainchain […] introduce[s] unknowable attack vectors and hence holistic fragility. The naïve view is that this compounds the utility of every functionality. The mature view is that it compounds only the vulnerabilities.”2
The authors compare Bitcoin to the internet protocol (TCP/IP), organized into four abstraction layers. We all know how successful the internet became. But the internet also had a more centralized competitor: the Minitel.3
Unless you’re French and more than 25yo, you probably have never heard about the Minitel. Launched in 1982 (15 years before Google!), the Minitel was an online service accessible through telephone lines. During the 80s and the early 90s, there were more services, users, and money on the Minitel—operating in France only—than on the internet!
In 1997, French President Jacques Chirac even boasted: “Today a baker in Aubervilliers knows perfectly how to check his bank account on the Minitel. Can the same be said of the baker in New York?”
Indeed, according to The Atlantic, Minitel hosted “25,000 online services long before the world wide web had even been invented”. Users could make online purchases, book trains, check stock prices and weather reports, manage their bank accounts, search the telephone directory, read the news, engage in interactive gaming, have a mailbox, date, and access the state administration.
But the Minitel wasn’t an open platform and only provided Minitel services. Even though the internet developed slowly, its open, layered, and modular architecture finally won. TCP/IP was developed in the 70s, the first email was sent in 1971, the World Wide Web was invented in 1989, Amazon launched in 1995, Google in 1997, and by the end of the 90s, the Minitel was effectively dead.
Even though I find Bitcoin’s layered architecture aesthetically beautiful, and even though I like its “slowly but surely” approach, I don’t know if Allen Farrington & Big Al are right. No one truly knows. And the Minitel precedent is a good reminder that progress is not linear and that “Past performance is no guarantee of future results.” It also reminds us that the first-mover advantage may not hold, even with strong network effects: the Minitel didn’t resist the internet that was 10x better in terms of UX, speed, architecture, and ecosystem. So will the financial infrastructure of the future be built on Bitcoin? On Ethereum? On a new chain? Or will it stay as it is?
What do you think?
The Lightning Network is making Bitcoin a viable medium of exchange, but it’s too early to call it a massive global success.