Comment: Infrastructure

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Infrastructure

He writes: Bitcoin, after all, cannot really be copied. True, the open-source code can be copied and the copier could release CopyCoin (indeed this is happening all the time). But, the copier cannot copy the infrastructure. The protocol layer is easily copied. The infrastructure layer is not.

I wonder what part of the bitcoin infrastructure he thinks is so hard for competitors to piggyback on? Let's review what the infrastructure consists of.

Managing the ledger (the blockchain) is done with a peer-to-peer (p2p) network. The technical aspects of this part of the infrastructure are almost trivially copied, because of how p2p networks work. It's not like, say, a social networking site (think: geocities) for which the infrastructure consists of huge server farms that cost a lot to build out, extensive bandwidth leases, etc. [[And, just as an aside here, even where the infrastructure is expensive to build, when the market is large the money will be there; there was a substantial barrier to entry for would-be geocities competitors, and the switching cost for geocities users was high, but you know what happened to them anyway. So the argument doesn't even work in that case. But now back to digital currencies.]]

The p2p network grows as the user base grows. That's part of the beauty of p2p networks. There's no further investment of money or programming effort or physical infrastructure or anything else, it just grows as the user base grows. If by "the infrastructure is not easily copied" he really means "market share is not easily taken from bitcoin" that's just groundless optimism. Market share is fickle.

Another part of the infrastructure would be the web sites for exchanges, the software for merchant solutions, the software to manage user's wallets, that sort of thing. But for all of that, the work of interacting with bitcoins is done by that p2p network we were just talking about. And since (so far, although I think this will change) most of the competing currencies either use the bitcoin blockchain definition exactly or something very close to it, if you have the software that can interact with the bitcoin p2p network it is really not a big deal to also interact with xcoin, ycoin and zcoin and whatever other blockchain-based currencies pop up later.

Even when there are new digital currencies that use something other than the bitcoin-style blockchain, the API (program interface) for interacting with those currencies is going to be similar to the API for using blockchain-based currencies. And by that time there will almost certainly be (if there isn't already) an open-source software library with an API that is currency-neutral, to make it easier for merchants and consumers to have software that supports bitcoin, litecoin, and whatever others are popular. When you're writing your killer app for digital currencies you'll link to an open-source library that lets you write your code without having to worry about the nitty-gritty details about the difference between xcoins and ycoins.

And while some of the infrastructure is being created by people with a vested interest in seeing bitcoin, and only bitcoin, succeed, in the long run there's more money to be made in supporting litecoin and all the other viable competitors too. If you're selling a merchant solution that only lets the merchant accept bitcoin, and I'm selling one that lets them accept bitcoin, litecoin and whatever others are popular, then all other things being equal whose solution are they going to buy?

What else is there in the infrastructure that he thinks will make it hard for competitors to follow the trail that bitcoin blazed? It's definitely true that, prior to bitcoin, none of that existed. But once it's in place for bitcoin then supporting new digital currencies, and allowing consumers to transfer funds easily between them, is inevitable and orders of magnitude simper than for lots of other new technologies where in spite of the barriers competition is fierce.