This is an op-ed by Buck O Perley, a software engineer at Unchained Capital who helps build bitcoin-native financial services.
This is the second part of a two-part set of articles describing crypto government and the dangers of factions. The first part can be found here.
What Does All Of This Have To Do With Cryptocurrency?
Most of this discussion so far has been theoretical. Much of this has been about the nature of humanity and how it should be considered when designing governance schemes. This may interest you : France’s Macron appoints former health minister as spokesman – BFM TV. However, what I would like to do is try to link this to cryptocurrency as it is currently thought of and implemented (or should be), and I would like to address this in two respects.
The first is how I think the structure of the Bitcoin ecosystem, including much of its political divisions, reflects the ideas and concerns outlined above by US founders and other Enlightenment thinkers, and how this is one of their greatest strengths.
Second, I’ll discuss the current block size and hard fork debate that has raged over the past two years.*
*Editor’s Note: The first part of the series details that this article was originally written in 2017.
I am not claiming that Bitcoin is a perfect implementation of human governance in code or that I am a Bitcoin maximalist. I am simply making a comparison between the two systems and how the parallels lend themselves to the strengths of Bitcoin.
Bitcoin’s Checks And Balances
Comparing Bitcoin to the United States system of government is not a new idea, but I think it bears repeating in the context of the philosophy that gave birth to that system as described above. Read also : Amazon Prime Video Adding NFL Black Friday Game in 2023.
First of all, the remarkable number of parallels between the contexts in which they arose. Nor was it the first attempt at a radically different vision of human freedom (non-government digital currencies had been in the works for decades before the advent of Bitcoin), and thus reflect many decades of work, research, and thought. Both were launched in response to what their respective creators saw as overreaching by prevailing systems that they would later seek to subvert, and both arose in conflicting circumstances, so that every contingency had to be taken into account to ensure their respective survivals.
The Declaration of Independence was an airing of grievances against the crown and a declaration of intent by the colonies for self-government. Similarly, in Satoshi’s original white paper, the shortcomings of our legacy payment systems are exposed and a proposal for rectification is presented.
Just as the Constitution and the Bill of Rights were the realization of the vision presented in the Declaration, the open source reference implementation of Bitcoin was also the realization of the ideas of the Nakamoto white paper. In another parallel, neither remained in its original form with both subject to necessary changes (Amendments for one, Bitcoin Improvement Proposals, or BIPs, for the other).
Over the last 20 or 30 years, we’ve gotten used to thinking of code as a product. Even open source projects are often run as if they were proprietary, only with more transparency. The maintainers decide the roadmaps, choose which changes are incorporated and which are not, and address (or ignore) user issues at their discretion. Code, like law, can be changed, and as code increasingly takes on responsibilities previously handled by law (read Nick Szabo’s writing on “wet” code vs. “hard” code for more). information about this), it is important to consider how changes can and should be affected.
So how does this work in a distributed network where a code change is often not as simple as an automatic update to your iPhone? How do you explain a system designed to take into account a diversity of opinions and priorities, in which it is not clear who has the “correct” answer and how it coordinates changes in which, if the network does not unanimously agree, it suffers a division that can cause real financial damage?
Just as the Founding Fathers of the United States devised mechanisms to enable change in a system without an absolute ruler, Satoshi Nakamoto also had this problem in mind:
“Proof of work also solves the problem of determining representation in majority decision making. If the majority were based on one IP address, one vote, it could be subverted by anyone capable of assigning many IP addresses. Proof of work is essentially one CPU, one vote. The majority decision is represented by the longest chain, which has the most proof-of-work effort invested in it.
Proprietary code = absolute dictatorship.
Open source projects for non-distributed systems = parliamentary monarchy.
Decentralized consensus networks (like Bitcoin) = constitutional republic (or people’s democracy depending on the implementation).
“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. — James Madison, Federalist No. 51
The Branches Of Governance
The system of checks and balances devised by the founders represented an important mechanism both to enable governability and to inhibit overreach by any of the competing branches of government. This may interest you : The United States is Behind the Curve in Blockchain.
In Bitcoin, full nodes are those “participants” in the network that contain the entire history of the blockchain and the set of verified unspent transaction outputs (UTXOs) that are needed to verify transactions. Like the executive branch of the US government, it’s your job to “faithfully execute” the rules of the underlying protocol and “to the best of your ability, preserve, protect, and defend” the network.
The next step is the proof-of-work security provided by the miners. While they don’t set the rules, much like the American judiciary, the miners enforce the rules of the network and ensure its continued smooth operation. Without the security that miners bring to the transmission of transactions, the value of the underlying token (for example, bitcoin) decreases, thus decreasing the value of the rewards they receive for providing the security in the first place. This is a dual incentive relationship that underpins much of the game theory for most stakeholders in the system.
Finally, we come to the third branch of a constitutional republic: the legislature. As in the US system, this has become a two-pronged and sometimes competing structure. In the role of the House of Representatives are entrepreneurs, companies, infrastructure developers (wallets, graphical interfaces) and investors. Like their government counterparts in the US, these will tend to be the most “democratic” of the branches representing the widest diversity of viewpoints, as they are in the most regular and direct contact with day-to-day Internet users. the coin. Some conflicts may arise in the area of short-term profits versus the long-term health of the system, but in general, companies provide long-term viability to the network by providing services such as exchanges, marketplaces, wallets, and accessible security and the most profit the more useful the currency becomes in the long run.
The final arm of the legislature in the US system is the Senate, a role played by developers in Bitcoin. As originally envisioned by the founders, this house was meant to be one step further from the people than the House of Representatives, since they were elected by state legislatures (until the very misguided 17th Amendment that transitioned to direct popular election of Senators and is probably a huge contributor to our current growing partisanship and misguided populist movements). Similarly, developers can be supported by companies in the ecosystem or can contribute from their own free time. Much of his authority comes from his experience in the industry.
A very rough and simplistic diagram of the Bitcoin governance model.
Developer incentives, however, are less straightforward than those of the other “branches.” The value to them is derived from two main sources: first, any holdings of the cryptocurrency token (bitcoin) they already have, and will consequently be worth more as the utility of the token and demand increases, and second, the power and influence that comes with being a lead developer for a project worth billions of dollars.
This comes with three areas of asymmetric incentives.
First, developers are the only economic stakeholders (aside from full nodes who play a purely passive role in the system) who do not earn more from the underlying token they are backing. This skews the incentives for holders to be more conservative (which is not necessarily a bad thing, especially as it can counteract any short-term tendencies of companies) as they benefit from the increased value of their holdings, something that can be manipulated with the perception of value. — instead of increased utility. This can result in your own narrower, short-term way of thinking.
Second, it incentivizes crowding out new developers from entering the space, as the bias is towards incumbents. Developers are drawn to interesting projects and welcoming environments, and in fact, new developers can earn more in the short term by moving to newer projects where the potential short-term profit from launching a new cryptocurrency token is much. elderly. Incumbent developers, meanwhile, have incentives to get their proposals prioritized and also to increase complexity, further raising the barrier to entry for new and competing developers entering the space (thereby further increasing the value of your experience). ).
The final risk of this incentive scheme is the potential to foster cults of personality. As experience becomes more concentrated and scarcer, there may be a tendency to put trust in the hands of those we believe to be the most altruistic, doing things longer for the good of the system. However, the problem, in the words of C.S. Lewis is:
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims can be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty can sometimes sleep, his greed can sometime be sated; but those who torment us for our own good will torment us endlessly because they do so with the approval of their own conscience.”
This comes with the additional risk that it makes the “citizens” of that system dangerously complacent toward leaders they agree with, and more antagonistic and partisan toward those they disagree with, further dividing the nation. community by rewarding and promoting the loudest, and generally most extreme voices (something the United States and much of the world are currently experiencing as well).
Again, the lesson of America’s founders is that all power should be distrusted, no matter how good the motives. On the contrary, divergent opinions should be welcomed or at least understood as inevitable and not necessarily for malicious reasons.
The last piece of this comparison has to do with the shift mechanisms. As noted above, it should be difficult to make changes to a system of government. In the words (again) of Calvin Coolidge: “It is much more important to kill bad bills than to pass good ones.” In Bitcoin, these mechanisms take two forms: first, they are forks (both soft and hard forks) to implement changes, and second, proof-of-work difficulty adjustment to make any contentious changes costly.
The difficulty setting essentially acts as Bitcoin’s barrier to getting past “Constitutional Amendments” (i.e. protocol updates) in order to pass (implement on the network). The way proof-of-work difficulty works as a disincentive is that without a large majority of mining power and an economic majority to back it, the rate of mined blocks can drop precipitously, meaning that the rate at which transactions can be confirmed also falls and thus the utility of the coin itself decreases (usually, though not necessarily, leading to the value also decreasing, which often depends on the motivation behind the i.e. forks viewed as malicious or unreliable are less likely to have a higher value). The difficulty of mining new blocks is adjusted based on the goal of mining a new block on average every 10 minutes. If there are more computers mining Bitcoin, the crypto difficulty goes up to maintain this average, and goes down if the miners leave. However, this “retargeting” only happens every 2016 blocks, which means that a fork with a significant minority of hash power could be stuck in one-hour timeouts for weeks or even months.
This makes the cost of a fork without significant involvement from more than one branch of the governance system prohibitively expensive. Several upgrade proposals, such as BitcoinXT, Bitcoin Classic, and Bitcoin Unlimited, had some acceptance from miners (never more than 40%, however), and very little from the business ecosystem or developers, and therefore never they activated. Segregated Witness was an update rolled out to the network by Bitcoin Core developers in 2016, but due to the lack of mining support (never much more than 30%), which stems from mistrust some had of developers who more supported the change. , it was a year without activation. It was eventually activated only after some “parliamentary” shenanigans, a compromise between the business community, some developers, and miners for a subsequent hard fork in exchange for activation, and threats of a “user-activated soft fork” initiated by full nodes. In the net. which promised to reject blocks from miners they do not support.
It wasn’t until Bitcoin Cash forked in August 2017 that a controversial hard fork was finally executed and it split. However, in particular, for their fork to survive, they had to change the proof-of-work retargeting so that miners could find blocks faster than the default retargeting time allowed. This resulted in some crazy price swings and price manipulations by miners jumping between chains, making the chain less trustworthy and its token less valuable. And even with the change, Bitcoin Cash miners were losing money—hundreds of thousands of dollars by some estimates—for the first two weeks by giving up mining on the main chain.
However, the most important thing to me about the Bitcoin Cash hard fork is that by making it easier for a minority of miners to break away from the majority of the ecosystem, it is therefore easier for those in the future who want to similarly break away. (which we now know with the benefit of hindsight is exactly what happened). This makes consensus essentially irrelevant and breaks one of the main governance mechanisms of Bitcoin.
If it is difficult to fork and prohibitively expensive to impose contentious changes on the network, you are more protected from making bad decisions, more likely to include differing opinions, and more able to adapt in the long term, regardless of who rules in the short term. finished. While forks can be harmful and disruptive to the network, the threat of forks is an important governance mechanism that should be respected and leveraged to create a more universal and inclusive system.
The Risks Of Factions
The final point I’d like to make about all of this is an attempt to link all of the above in regards to how viciously partisan members of the community have become, apparently to the point of religious fanaticism. Debating what Satoshi Nakamoto’s “original vision” for Bitcoin was or whether Real Bitcoin™ is supported by some subset of the more well-known developers completely ignores the fairly effective and frankly proven governance system that has been put in place.
Reasonable people can disagree while still having the best intentions for the network as a whole. Character kills do nothing but divide the community to the point where when you feel like you have nothing in common, the community decides it’s better to split up than come to common ground. It makes no sense, on the one hand, to say that Real Bitcoin™ will be imposed by the economic majority and then, at the same time, to say that you will leave the community and sell all the holdings if the economic majority chose a path that you did not. in accordance with. Price, utility, public perception, and checks and balances involving disagreement and lack of 100% consensus are demonstrably integrated into the governance mechanism.
If there is no way to deviate from a path that you can agree with but that the economic majority sees as harmful to the network, then, conversely, there is no mechanism to defend against bad actors that it does see as harmful. These mechanisms must be targeted to the extent that your side is equally capable of being targeted by them. Anyone who thinks the experiment failed because their side lost is being dogmatic and ultimately exposes themselves to tyranny. Instead, you should make your case to the best of your ability, and after that, just trust the system.
If you don’t trust the system, then we’ve already lost.
Jameson Lopp wrote a great article earlier this year about how no one can really claim to know what Real Bitcoin™ is. See these tweets that seem to be inspired by said post, “No one understands Bitcoin (and that’s fine).”
Link to embedded Tweet one and two.
One Final Observation:
Satoshi Nakamoto Is Our George Washington
It is often taken for granted today how revolutionary it was at the time for George Washington to resign as head of the US government. When the news reached Britain, Rufus King quotes King George III as saying that the resignation “placed him in a more distinguished position than any living man, and that he considered him the greatest personage of the age”.
Of course, in Bitcoin, we have experienced a similar unique phenomenon when, in 2010, after having been developing and helping to run the live Bitcoin network for two years, Satoshi Nakamoto’s online accounts went black. Not only that, but as the first and only miner on the network, the Bitcoin addresses associated with Satoshi have funds worth around $20.5 billion today. Most notably, these funds have not moved since Nakamoto went silent.
It’s not clear why Nakamoto left the community or if he even volunteered, as we don’t even know who he is (although there are many theories and there have been several “unmasks”, none have been definitively proven and none have been widely accepted by the community) . But what is clear is that like George Washington, Nakamoto left the Bitcoin ecosystem in a very unique circumstance. Just as it was unique for a person who was in a position to seize supreme power to refrain from taking it (as Napoleon would later seize power in France), Bitcoin remains the only major cryptocurrency where the creator is not only unknown but retains zero influence. about community management. As described above, experienced developers have an inordinate amount of power over the direction of a cryptocurrency, and none have more experience or influence than the original developers who can affect massive changes in the market with a simple announcement.
Ray Dillinger conducted one of the first code reviews and security audits of the Bitcoin code in 2008, and he writes an incredible article reflecting on how monumental what Satoshi built and how unique what he left behind. In “If I Had Known What We Were Starting With,” he writes:
“[T]he trustless nature of Bitcoin was the main thing that convinced me that Satoshi was not scamming. He built a highway without a toll bridge. People could use Bitcoin without creating any obligation to pay you anything. He wasn’t selling coins, he was giving them away to solve hashes. He reserved nothing for himself.”
“He wasn’t trying to line his own pockets at the expense of others. In fact, I don’t think I’ve ever come across someone so completely uninterested in personal wealth. You know the old saying about being able to do a lot if you don’t care who gets the credit? Satoshi doesn’t want the credit. Two years later he walked away and left the pseudonym behind. And as hard as it is to believe, it sounds like he doesn’t even want to get paid for it. As far as we know, he mined roughly a million Bitcoins and never sold a single one of them.”
Many criticize the contentious environment that exists in Bitcoin today, but I would argue that just as the messiness of political debate in a free society can be exhausting compared to the superficial efficiency of authoritarian states, abandoning that messiness can also leave you vulnerable. . to the risks of tyranny itself, even if it is exercised for our own good. So while the lack of a uniting “supreme leader” can leave a community at odds with one another, it is also important to remember that divisions are an opportunity to grow stronger as long as we avoid the temptation to view opposition as a threat. existential and retain a sense of common purpose.
“The Mischiefs Of The Spirit Of Party” And “The Duty Of A Wise People”
This was a long series of trials. If you made it this far, congratulations and thanks for putting up with me! There are many things that I tried to address here and hopefully at least some of them were found coherent enough to add something constructive to the discussion.
Unfortunately, it seems that the political philosophy of the Enlightenment and the lessons of the founding of the USA have become increasingly niche areas of interest despite the immeasurable contribution they have made to furthering human freedom throughout the world. world. Hopefully, I was able to make a case for its relevance today, even in a space as cutting edge as Bitcoin. Indeed, as this technology ushers us into a new stage in the evolution of human self-governance, it is probably more important than ever to look back and reflect on lessons already learned but easily taken for granted.
In closing, I would like to share George Washington’s remarks in his Farewell Address on September 17, 1796. In his address, the first president spent much time in a prescient warning against the dangers of factions and offered a sobering reminder of their impact. . It’s a warning that I think resonates even today and even in the world of cryptocurrencies (and especially Bitcoin). It makes a strong and abiding indictment against the all too human temptation to put “party” before principle and the damage this can ultimately inflict on liberty.
“The alternative domination of one faction over another, sharpened by the spirit of revenge, natural to party dissension, which in different times and countries has perpetrated the most horrible atrocities, is in itself a frightening despotism. But this ultimately leads to a more formal and permanent despotism. The resulting disorders and miseries gradually incline the minds of men to seek security and repose in the absolute power of an individual; and sooner or later the chief of some prevailing faction, more capable or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, upon the ruins of Public Liberty.”
“Without expecting such an extreme (which, however, must not be altogether out of sight), the common and continual evils of party spirit are sufficient to make it the interest and duty of a wise people to discourage and contain that.”
None of this is by any means a settled debate, but I hope it can turn into a more civilized one. If you have any ideas of agreement or contention, I would love to hear your feedback and further discussion for a freer and better future!
This is a guest post by Buck O Perley. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
