Bitcoin, Blockchain, and Distributed Ledgers: Between Hype and Reality

In recent years the distributed ledger technology (‘DLT’) has been presented as potentially disruptive for financial market applications. Since no reference implementation of such technology has emerged yet, it is not even clear how different it would be from the blockchain technology underlying bitcoin. Blockchain is a sub-optimal data structure if not associated to a virtual currency, i.e. to a native digital asset used to provide the economic incentive to reach distributed consensus on a transaction history. Since the interest for virtual currencies in the financial markets has remained marginal so far, most of the interest for DLT seems to boil down to the cryptographic enhancements of coupling secure messaging with shared databases. Such an evolutionary approach might be relevant, but hardly disruptive; instead, it is the availability for the first time ever in digital realm of a scarce asset, transferable but not replicable, to be groundbreaking. Bitcoin could prove to be digital gold as relevant as physical gold has been in the human history and the development of finance: it has already realized a permissionless transaction network and could play a crucial role in the history of money.