I’ve written quite a lot about the misconceptions and deliberate misdirection that some proponents in the Bitcoin community choose to spread around in order to shape the public perception of what makes Bitcoin valuable, and as a result change the fundamental value proposition of Bitcoin. As you all should know by now, “Value does not exist outside the consciousness of Man” – Carl Menger. So changing people’s consciousness by way of affecting their ideas, affects the value of Bitcoin. Thus it is important that we re-evaluate our notions of why Bitcoin is valuable every so often with a huge dose of skepticism.
In today’s article, I’d like to review what the fundamental security model of Bitcoin is, as intended by its mysterious creator, Satoshi Nakamoto, (at least in my interpretation of it) why that model is the best we can possibly hope for, and why any further attempts at adding extra layers of ‘security’ on top of this model just ends up making it less secure by making it more centralized.
I’ll just say it. Small blockers are elitists who want to censor out Bitcoin users who cannot afford to transact on mainchain. I’ve lost count of how many times I’ve heard the old argument that scaling onchain damages decentralization, which in turn may damage the censorship resistance of Bitcoin.
Free as in Free speech and Free beer!
It is important to realize the hypocrisy in this line of reasoning. It is subtle, so I bet most of the proponents don’t even know that they are guilty of it.
Simply put, the fee market is a form of censorship. If you cannot pay for a bullet proof car in Mexico city, then you and your family is at risk. If you cannot afford to install a home alarm system, then you have been prevented, indirectly, from keeping your property safe from burglars. If you cannot afford insurance, then you are at risk of a fire, or an accident etc. Similarly, if you cannot afford to pay for the privilege of transacting when you wish in the Bitcoin network, then you must be delegated to 2nd layer networks like Lightning to do your payments. Which will have centralized payment hubs to service you and collect fees from you. How is this any different from the current banking system that we have now? Isn’t this form of slavery to debt one of the exact reason why Bitcoin was created in the first place to solve? Why then should Bitcoin treat those of means different from those without? Shouldn’t all the underserved be equal in the eyes of Bitcoin? Continue reading →
We have all heard about the big problem of mining centralization in Bitcoin. The deep set fears that somehow, if left unchecked, the miners will collude to defraud the network, and sabotage the whole system, all in order to satiate their own lust for profit.
This is often used as a reason to employ [central planned policy here] or to change the protocol to incentivize some other (more acceptable) form of behaviour. Of all the ‘decentralization myths’ this one is the toughest to dispel; not because it is any more true than the other myths but because people have an inbuilt selection bias in that they often believe that a system not serving them directly must mean that system is broken, instead of realizing that they way they are interacting with the system may be at fault. Mining has always been a very liquid market in Bitcoin, and has gone through several phases or generations, and as each new era came to an end there were very loud proponents in the industry that wailed and warned that this new change would mark the end of the network and everything would break. Detractors said the same thing when mining moved from single CPUs to GPUs and experienced a 1000x increase in efficiency, then again when mining moved to FPGAs, and finally to custom ASICs. The industry has seen hashrates go from MH/s, to GH/s, to TH/s. That is a million times increase in just 7 years. Every time, the complainers were the ones that had some entrenched interest in the current model and stood to lose money or competitiveness. Maybe they had just bought 10 new Intel Xeon servers just to mine Bitcoins when some genius had the idea to move mining to GPUs. Or maybe they had just bought $200,000 of GPUs when the first ASICs were released, and were caught holding the bag. Needless to say, you can always identify the people who stand to lose something given a change by how loud they complain about it. (Hint: take note on which miners complain about mining centralization the most)
Easter weekend. Family reunions, liturgical services, fasting for some, feasting for others, a time for renewal, time to dispel some crypto myths!
Everyone talks about “going to the moon” in crypto but few if any really knows what that means. Cypherpunks care about privacy and censorship resistance, libertarians care about political ideology and businesses care about making money. But how many of them actually think through how to get there?
I don’t mean in a metaphoric sense, I mean pragmatically. What is the adoption roadmap? What do we mean by ‘moon’? Price? Resistance to government usurpation? Censorship resistance? Self sustaining system without any oversight?
True, most people who say “To the moon!” are just pumpers or speculators trying to incite a windfall profit from the penny stock altcoin that they purchased for the express purpose of dumping it for a profit on unsuspecting suckers. But let’s consider a moment the goal of Bitcoin –becoming a widely accepted alternate money to fiat currencies– how does Bitcoin get to there from where it is today? What challenges and obstacles must it overcome? What different stages of development and growth must it evolve through?
I have often observed that disagreements between smart people inevitably devolve into a difference of opinions based on assumptions which are either ignored by one or both sides or insufficiently proven, which leads to the construction of a belief system built on top of nothing more than reasonable guesses. Because of this, it takes a long time before one can peel away the layers of conditional truths before you reach the core assumptions over which the principle disagreement is erected upon. (one needs to look no further than the renewed flat earth movement to see how you can rewrite your entire belief system to support your theory). Over the last month as I have debated with the decentralists on the foundations of their “decentralization is the most important thing about Bitcoin”* argument, I believe I have finally discovered the crux of the dispute, the mistaken assumption, upon which all other conclusions are derived upon, the genesis block of the debate, if you will.
The problem comes from the fact that the term decentralization has been overloaded to mean so many different things. From topological point of view the old graphic from Paul Baran (1964) (inset right) may seem to provide a good enough definition but only from the perspective of a network topology which is certainly not the common usage of the term today. More recently some folks have improved upon the definition to more clearly indicate that it is the notion of control (the little puppet master hands in the diagram) of the network nodes that make them more or less decentralized.
The disagreements between the ‘big blockers’ and the ‘small blockers’ in Bitcoin are heating up. Bitcoin Classic is poised to release its first client to compete with Bitcoin Core, and Bitcoin Unlimited has had its first vote on its new feature set. It is a time of peril in the galaxy…
Now as the credits fade into the star field background picture a big wedge shaped Star Destroyer with the banner reading “Decentralization” filling the screen. This word is really the Battle Cry of most crypto-currencies, and as I have written in the past, it is so poorly understood.
Everyone wants it, but few know what it is
It is a repurposed term, that simply describes a quality of network topology, transformed into a rallying call of rebellion. The problem is that almost everyone that I read or encounter in the industry uses this term as a panacea for all the problems that they see in the world today, without actually knowing what it truly means. They believe it because of faith from authority, and through basic reasoning, that it is good and thus must be fought for without actually knowing why. This is dangerous, as this is how cults start. The Cult of Decentralization.
I ask you, dear reader, please forgive me. I am going to break from my normal “impartial observer” commentary on the Bitcoin space and speak personally about a project that I am involved in, because I believe it matters.
There is an election going on in Bitcoin space. At least this is what the media is going to call it very shortly (perhaps in a months time, after it is all settled, as mainstream media is apt to do… always late to the party). This election, like any, is political. It is a battle of wills, of differing philosophies, of ways of thinking. But like all elections, I believe that the will of the people, the majority, will determine the results.
Bitcoin Classic, is an implementation headed by Gavin Andreson, Jeff Garzik, Jonathan Toomim and others, which aims to deliver an alternative implementation of Bitcoin, aimed at addressing the demands of the users and businesses in Bitcoin.
In this 2-part article, I have decided to address some of the very commonly spread myths in Bitcoin space, namely that of mining centralization, and its effects on the BTC price valuation. At the end of reading this I hope that you will have a better understanding of the complicated topic of decentralization in terms of economic factors, and also how everything is perfectly reflected in the BTC price. Also, I hope that you would have a new found appreciation that BTC price is going to continue to fluctuate wildly and even may go to zero, under certain certain scenarios.
But first, to the often repeated, and universally unsubstantiated claim: That Bitcoin is suffering from miner centralization. First off, I want to stave off all the thoughts that the proponents of this opinion are thinking now: “You must not have heard of this thing called the Great Firewall of China!”, “You must not understand what the propagation delays are and its affect on orphan rate!”, “You must not know about the mining relay network!”, or my favourite, “Maybe you haven’t heard, but they have this corrupt oppressive government over in China!”. Rest assured, I know, I have heard all the arguments, and I have well connected business associates in China.
Nature is full of self-organizing, self-optimizing structures
There has been a lot of chatter recently on coat-tails of Bitcoin core’s 2016 Roadmap which was disappointing for a lot of people in the industry who were expecting to see a more immediate capacity increase via a non-contentious hard fork. This has brought the debate back to the issue of Bitcoin governance and our current lack of consensus on how Bitcoin should be governed. I had previously written a proposal about creating a meta-protocol above the technical protocols of Bitcoin itself, which would be a basis for competing ideas, goals and principles to be proposed and agreed upon, much in the same way the BIP is a process by which competing enhancements or features are proposed for the protocol itself. In the prevailing months, I have come to realize that a free market solution has manifested which makes such a rule system unnecessary: one of Emergent Consensus. (a sort of self-organizing property)
This is a completely new idea, and not one that we are accustomed to understanding, given that all organizations and political systems in present times rely on a notion of democracy where the general public (lacking sufficient time, knowledge, or rigor) delegate their rights to a representative, whom they vote into power, who in turn should make decisions on their behalf for a designated period of time. They do this for no visible reward, and the cost of failing at their task is losing the vote the next time around. In such a system, we are basically basing the entire security of the system on the premise that we will be able to find enough of these altruistic ‘saints’ who will consistently put the good of the many above their own desires. Of course, as we all know, supply of these saintly people are in hard supply, and thus corruption is born, inherent to the system itself. (Remember politicians are not supposed to be rewarded proportionally for the services that they perform) Bribing politicians is how the free market reacts to this inequality. This talks to the root of the problem with Proof-of-Stake systems, which serve to enrich the rich (those with more stake) proportionately more than the poor. This is also the base of consensus systems which rely on weak subjectivity* instead of objective consensus**, all of which are still theoretical and have not been shown to work in practice at scale. Our current democratic system of politicians and government is a weak subjectivity system. We must trust that there is a critical majority of politicians that are not corrupt, as well as trusting one specific honest politician to tell us what is in our best interest, in order for the system to work for us. I will leave you to ponder on whether or not it is an inherently stable system in the long run.
It seems the row between the Bitcoin conservatives and the Bitcoin progressives are widening much as you would expect Liberals to disagree with Conservatives, Democrats against Republicans.
I am a pragmatist first and foremost. The only thing that I am vehemently against is fanatics and zealots. Unfortunately you will find them in either camp in spades. I suppose that is the curse of politics. It is the science of influence and manipulation after all (if I may be excused in dirtying the word ‘science’ in that manner for but one illustrative instance).
I will be upfront. I really didn’t like XT. I thought Gavin was a bit cheeky in the way he just left the table and tried to convince many exchanges and wallets providers to support Mike Hearn’s upstart rebellious XT fork of Bitcoin. It seemed rash, unwarranted, and generally an attempt to ‘rock the boat’.