Bitcoin has had many trials in the nearly ten years it has existed. The “Bitcoin is Dead” rhetoric that made its way around the internet is now a running joke with its own website to catalog the now obviously fallacious stories.
Over the last several years, this ecosystem has been a rollercoaster ride of the market: its rapid expansion, the hacks, and – of course – sensational headlines. On this wild ride, it has been easy to lose sight of what Bitcoin means and what it represents fundamentally.
Core and Cash
Recently, we have been flung into fundamental debates about what Bitcoin is, was, or ought to be. For the past year, Bitcoin has been plagued by high fees and long confirmation times due to the one megabyte limit on each chunk of transactions it processes approximately every ten minutes.
A cup of coffee will have the same very small transaction fee as buying a million dollar home with Bitcoin. How to fix this problem and allow Bitcoin to scale has been a debate lasting for years now. Here in the 11th hour, enthusiasts are debating furiously, reaching for The Book of Satoshi and changing their twitter handles to reflect their stance on the now imminent doubling of the block size and the contentious hard fork it represents.
The core developers see Bitcoin as only a settlement layer on a larger ecosystem. So Bitcoin will only be used for infrequent high-value transactions. Smaller transactions will be handled by side chains which are linked to Bitcoin in the same manner that your city streets can onramp onto major highways. All the commerce happens on Main St. but when you need to truck goods cross country, you onramp to the interstate.
“Segwit2X” will allow Bitcoin to double its transaction bandwidth pretty much immediately by doubling the space within each block. The transaction fees should fall greatly, at least for the time being.
Bitcoin Cash, which forked off from Bitcoin on August 1st, 2017, increased their block size to eight megabytes and that, along with lower transaction volumes than Bitcoin, has lead to transactions fees that are a fraction of a penny.
These expanded bandwidth solutions allow Bitcoin to be practical for all forms of payments without the urgent need for side chains and other more complex solutions. A cup of coffee will have the same very small transaction fee as buying a million dollar home with Bitcoin.
Bitcoin's emerging use as a store of value is rooted primarily in one fact: So long as you control your private keys, your Bitcoin will be there. You don't need to pay a storage fee or trust anyone but yourself and it will be there.
Bitcoin is now secured by the largest computer processing network in the world. Its cryptographic roots ensure, for the time being, that no entity, no matter how powerful, can violate your control over those Bitcoins if you have used best practices to secure them.
As time has gone on, and multitudes of exploits have been patched or rebuffed by the network, confidence in the technology has grown. And growing confidence in the ongoing proof of concept also grows its value.
Of course, Bitcoin does not stop there in its abilities.
The Original Superpower
Forgive this slightly arcane quote:
“What is the value of 15° 17'41.32" N 121° 57' 0.55" E?”
The transactions see no borders, no middlemen, and no caps. For those long-time cypherpunks, you may recognize this quote from Neal Stephenson's Cryptonomicon. Spoiler alert: in the novel, it represents the location of a HUGE stash of gold. The catch? Basically, whoever finds it has no hope of ever being able to remove it, giving rise to a more famous quote from the novel that, “Gold is the corpse of value.”
In other words, what’s good about a store of value if you cannot transfer it to other parties in exchange for something? Here again, Bitcoin delivers big time. Not only can you send to anyone in the world for an acceptable or unacceptable fee (depending on who you ask) no one can stop or censor that transaction or intercept the funds.
The transactions see no borders, no middlemen, and no caps. A non-confiscatable, immutable store of value that can be sent around the world in any amount to anybody in minutes, if you so desire.
Despite this superpower being the worst nightmare to states such as China and others, there are now over 200 billion reasons for any hacker or other entity to crack Bitcoin's core security. It would seem that up to the point of this writing, the technology is very secure. But are there other threats to Bitcoin which could undermine it?
This leads me to a thought I had years ago: the technology is sound but it can be changed. These changes are done by humans, and, unlike Bitcoin's cryptography, humans can be compromised.
The Greatest Threat to Bitcoin is the Bitcoin Foundation
At my very first Bitcoin Conference in Atlanta, Georgia, the then-chairman and co-founder Charlie Shrem was speaking about the the Bitcoin Foundation. Bitcoin was very new then and I was more skeptical and more inquisitive about its vulnerabilities. This entity was founded to promote Bitcoin and make more-perfect the Bitcoin Core Code.
Founded in 2012 by a group of diehard early adopters, developers, and businessmen, it has done fantastic work in executing its mission. I want to make clear that my above statement may sound like an attack on all of those current directors, employees, and volunteers of the foundation, but it is not. I am speaking conceptually that the idea of the Bitcoin Foundation is currently Bitcoin's greatest vulnerability.
Legal entities known as foundations as they exist today are, generally speaking, designed to do one very specific thing. They are designed to pass wealth from one generation to the next.They are designed to outlive their founders. Philanthropy is a built-in societal toll for the tax haven status they enjoy (501(c)(3)) and is ostensibly the role they are most known for in the public.
I am saying that they are most certainly corruptible, and if not now, then someday. However, it is no coincidence that the legislation which created the modern tax-exempt foundation was passed the same year the IRS was formed — 1917. By law, these foundation's funds and activities are controlled by a board of directors. During the lifetime or tenure of the founders, they will likely have great sway over who is on the board and what it does. After they move on, however, many of these non-profit organizations and the wealth they control is infiltrated by other board members — the same members who eventually direct the legacy of the founders into activities or ventures that would stray from, or be even antithetical to, the founder's desires.
In the case of the Bitcoin Foundation, while there may be funds present (ever growing in value), its main charitable work and legacy is the maintenance of Bitcoin Core Client. The creation of the foundation was controversial as many claimed it could have a centralizing effect on the ecosystem. If its legacy were to be redirected in a negative way, the long-term consequences could be dire for the budding cryptocurrency. At the same conference I referenced above, another group of sharp young men announced they were also forming an organization, The Satoshi Nakamoto Foundation, to compete with the Bitcoin Foundation. I don't really know whatever happened to that idea.
A foundation's legal status as a non-profit leaves it open to regulatory scrutiny, audits, and other potentially coercive activities by central authorities. Of the original founders of the Bitcoin Foundation, none are left on the board.
Some left in disgrace as their Bitcoin companies failed or they were arrested and made an example of. Others who have left are currently at war with the current core developers. Some are still backing the foundation. I think it's safe to say that since the founders have left, some of the foundation's goals are antithetical to those of some of the founders.
Countless other examples are available from history. This should be of great concern considering the amount of resources/incentives by states or other interests which could be brought to bear to move the needle on the core developers.
In short, I am not saying that the foundation and core have been corrupted. I am saying that they are most certainly corruptible, and if not now, then someday. So what's to be done if that day should come to pass?
As Mayer Amschel Bauer Rothschild famously said:
"Give me control of a nation's money and I care not who makes its laws.”
When You Come to a Fork, Take It
In our current financial systems, the monetary units of the many nations are governed largely by hybrid public-private partnerships between the state and the large banking interests. There is indeed enormous power in the hands of these financial governors. The result has been the vast expansion of the state and the banking sector at the expense of the debasement of the currency becoming a default mode of life around the world.
No matter what party is put in control by the people, the central bankers remain. These power centers are so entrenched in our system that to remove them is about as close to impossible as you can get without blood in the streets. So what does this mean for Bitcoin if it hopes to fulfill its manifest destiny to become the first truly global decentralized currency?
Our current situation in Bitcoin is one of a contentious hard fork. Lord Acton tells us that power corrupts. But I find that it's more nuanced than that. It is the fear of the loss of power which truly corrupts.
Having “arrived” and maintaining that arrival are two completely different challenges. When a person has obtained a certain position in life, moving back down the ladder is a bitter pill that will be fought off at almost any expense.
The aggregate of all people clinging to their particular power center creates extreme political inertia in many governance systems. Bitcoin is no exception. It means that Bitcoin, in addition to its existing superpowers, will have to reinvent monetary governance. As we've seen in the block size debate, Bitcoin may need to adapt itself to survive and grow. Who decides which path to growth is best, though? Well, it's complicated. Up until now, the open source Bitcoin Core Client has been largely maintained by core developers under the mantle of the Bitcoin Foundation.
However, a super majority of miners and full node operators must upgrade to any new software they release for it to take effect. It is this characteristic of Bitcoin which could hold another revolution, another superpower.
To date, all software updates have been adopted en mass without much controversy.
Our current situation in Bitcoin is one of a contentious hard fork. Core has one idea of the future. Segwit2X (and Bitcoin Cash, too) have theirs.
The different sides have decided that they are going to stay in their corners and let the fur fly on the day of the update to 2X. So what will Bitcoin do? It will let the market decide.
There will be plot twists and intrigue leading up to and during the fork. When the fork takes place, there will be two Bitcoin chains. It may take time, but at some point, the BTC ticker will be attached to one or the other chain. The major exchanges have laid out some metrics which they will use in deciding which chain will be assigned the crucial ticker symbol. In the famous words of The Highlander, “There can be only one.”
When that happens, nothing short of a miracle could occur. In one corner we have Core. What their plan is, exactly, no one knows yet. They have threatened to do things as drastic as an algorithm change to send a giant middle finger the SHA256 miners who are apparently largely backing 2X.
In the other corner, we have The Segwit2X team. Their plan is pretty clear, and they are just rolling forward. Both groups contain equally competent developers but they have, in many areas, divergent views on the future of Bitcoin.
There Can Be Only One
While everyone is caught up in price action, possible gains from chain splits and high transaction fees vs. low, there are much greater implications baked into this update. These greater subsurface implications are revealed in the heights of vitriol and polarization in the Bitcoin community. If Segwit2X is chosen by the market and becomes the Bitcoin, the core developers, for the time being, with all of their connections, their clout, their ambitions, will be effectively, immediately, and summarily fired. The Segwit2X team will now be the default core dev team. Just like that. No fanfare, no inaugurations, no recounts, no court battles. The network, the miners, and the overall market will have elected them (or at least fired Core) by some overwhelming majority. However, upon their “election” to be the tenders of the code, there will be something different about being a core dev before the fork. They will be on notice that if they don't serve the community and the market's desires, they will be fired and have the carpet ripped out from under them by the next team which is on point and on the pulse of the market. After this precedent is set, protecting your power won't just be digging in your heels, campaigning, and maneuvering. You'll need to actually listen, build consensus, and you'll be less likely to just back in your corner yelling, “Bring on the contentious hard fork!”
We can only speculate as everything about this is completely unprecedented. I am not saying that core has turned a deaf ear to the community and they are terrible people or anything like that. What I am saying is that they are the ones with something to lose here. It's obvious that they are really doubling down to defend their position, perhaps because they fear the loss of their power. I think that they do realize the stakes, but perhaps they feel that the momentum of being “The Real Bitcoin” will carry them though. If they are proven wrong and ousted, the game will forever be changed for Bitcoin. No more will there be a sacred brotherhood, an unbroken chain of ordained keepers of the code. The open-source decentralized network will tend to choose the most competent, innovative, and trustworthy custodians, and if at any time they begin to fall behind, they can accept their footnote in the Bitcoin experiment as their rights to carry on as the tip of the spear are abruptly and unceremoniously terminated. “The Real Bitcoin” will trend in the direction of being the best Bitcoin, not the Bitcoin with the most inertia or history or connections.
Many hypothesize that the current spike in price ahead of the current fork is based on the sentiment that this fork is going to be like the last major fork: a profitable chain split with an accompanying relief pump in price.
Perhaps this is the case, but I would caution that this fork is a completely different animal. While Bitcoin Cash (BCH) had automatic replay protection, Segwit2X does not (though it can be enabled). This means that if you spend Bitcoin on one chain there is a high probability it will spend on the competing chain as well. While there are several scenarios where the two chains coexist indefinitely, it is more likely than during the last split that after FUDy battle only one chain will survive and the other will more or less die or become labeled an “altcoin.” This process could take weeks or maybe even longer. We can only speculate as everything about this is completely unprecedented. There may be another secret of humanity waiting behind this chain split. Putting aside any opinions I may have about whether the block size should increase, I am personally much more interested to see if this contentious fork will be the point when Bitcoin can take a big step to mitigating its greatest vulnerability. Can it replace its programmers? I think it can and it will someday, perhaps only a few days from now.