Nov 15th BCH Fork: Nakamoto Consensus will FINALLY be tested!

Nakamoto Consensus is upon us! All hail!

With the first real hash vote ever to occur in Bitcoin Cash set to occur in less than 10 days, it’s time to take a step back and really take in the enormity and the significance of this event.

We are literally seeing the FIRST practical application of a mass decentralized consensus system (aka ‘vote’) that needs no administrator, no organization, no coordination, no public debate, no polling stations, nor any face to face meetings! It is Nakamoto Consensus, as Satoshi created it. It itself is a pure system. Like the evolution of life, it needs no coordinator. Nobody tells a honey bee how to build the cells in the hive. Nobody tells each ant what to do or manages its daily work schedule. Nature just figures this out by way of naturally finding the most efficient solutions. But humans are a strange creature. We like to think. We rationalize. We are a social animal, and as such, we are predisposed to rely on social consensus systems. We create rules for ourselves, and we like to negotiate these rules amongst ourselves so that everyone concerned feels like their individual needs were considered, for a common sense of enfranchisement.

But Nakamoto Consensus doesn’t work like that. It, like mother nature, has a very simple rule: those who behave in a coordinated way that benefits the network will profit more than those that defy consensus. It’s as simple as that. The only remaining thing we need to add to that formula to make it all work is the simple assumption that people tend to want to be profitable, rather than not. With that one simple assumption, the automatic consensus system is complete, and we can rest assured that consensus will be obtained, passively, automatically, without supervision or orchestration.

Well, at least in theory. That is the idea of how it will work, but because Nakamoto Consensus is a ‘natural’ system, it is very hard to analytically work out exactly how long the consensus process will take in practice. There are just too many variables that factor into this equation to model, and much like trying to predict the market, which is the sum aggregation of millions of independent decisions being made by individuals, it is not trivial. That is what makes what will happen on Nov 15th very interesting to those of us who have been in Bitcoin for years, but have never been able to witness how well it holds up in defending against competing protocol changes via a hash vote.

As is the case for most natural phenomena which have yet to be well understood, there is no lack of theories concocted by pundits on all sides on whose votes actually count in such a hash vote. Their arguments generally fall into one of the following categories:

Individual Nodes decide

This is the belief that a majority of the nodes in the network (ones run by individuals like you or I) collectively decide what the network will accept as protocol changes. This is of course, a fallacy, because it is only in the extreme case where all nodes of the whole network were controlled by a collective power would all the nodes be able to rob the dissenting miners of the value of the rewards that they mine. This is of course an impossible situation on premise alone as the assumption is that the nodes are individually controlled. If we had a system that could coordinate the collective behavior of all the individual nodes in the network, then we would have no need for a decentralized consensus system in the first place. This misguided belief was the origin of the “UASF” movement, which was a grass-roots lobbist group which tried to convince the market that the node population (the common man) had enough power to influence network changes. They were never given a chance to be proven wrong, unfortunately, as after the NY Agreement, the supporters of big blocks conceded to split off into BCH instead of forcing the fork.

The ineffectiveness of individual nodes and their irrelevance to the network was later demonstrated when researchers confirmed that the Bitcoin network was a small world network, (one in which the number of average hops between any given 2 nodes was less than 3) and that most important connections exist between mining pool nodes. If individual nodes wish to partition themselves from the network it would not affect anyone else but themselves.

Economically Significant Nodes decide

This is the idea that nodes of exchange businesses, wallets or otherwise ‘economically significant’ players in the community have a vote in the decision. This believe isn’t too far-fetched. In reality, exchanges have some influence as the decision of whether or not to trade a split coin is in the hands of each individual exchange, and the decision to support a given upgrade fork of a blockchain is made by every wallet service provider.

The belief though that their opinions influence a hash vote, however, is less grounded in reality. In truth, although they are well within their rights to provide whatever service they wish to the public, using this support (or threat of withdrawing said support) as leverage during a hash vote is nothing but posturing. Exchanges and wallet service providers are businesses. (With exchanges having to further operate under strict regulatory regimes). If the market demands a service, someone will provide it. But as they are not miners themselves, they will have no way to provide the security support needed for a minority fork chain. Without this it would be very risky for them to provide services to their customers, but it is entirely up to them.

Developers decide

This is the biggest misconception in the industry. It is the myth that the developers that maintain the blockchain client code are the ones that control or influence the decisions to be made on the network. This is the model that most of the legacy bitcoin (BTC) developers operate under, (even though they will deny it themselves). Developers see themselves as the defacto ‘stewards’ of the system, and thus, their opinions should matter the most in guiding what the market and community should expect in terms of features or changes to the network. They use security and network integrity concerns as a basis for this claim, in which they convince the community to ‘leave it to them’ as they know what’s best for everyone. It is very much the nanny-state mentality, or a technocracy. The idea is that this does not devolve into an abusive dictatorship so long as no contentious changes can ever be approved by all developers. Unfortunately, it also ensures that needed changes or upgrades can never make it in either, as there will always be at least one developer to veto (perhaps maliciously) any change request.

Notable personalities decide

This is a slight variation on the case above, where the notable ‘luminaries’ or visionaries, are seen to hold more influence over the system direction than others. This is the model seen in Ethereum presently where Vitalik Buterin (one of the original founders of the project) is seen to have undue influence over what changes are allowed into the project. The power of such leaders was demonstrated when the DAO roll back hard fork was initiated and which produced Ethereum Classic (ETC). The dangers of this system of course is that it can easily devolve into a dictatorship, albeit a benevolent one.

Mining Pools decide

Most people make the mistake of thinking that the mining pools count in the hashpower vote, and this is an understandable mistake. That is because when people ‘see’ the miners of a blockchain, what they are actually seeing are the mining pools. The mining pools are actually just service providers. They run networks and server nodes and they maintain the ‘miner network’ that most people think of when they imagine the backbone of the blockchain. Indeed, it is between these pools that the small world network that has been much talked about actually exist. When blocks are found, they are found by the mining pools, and they are communicated the quickest among the pools. However, these companies, are not the ones that have a vote when it comes to a hashpower vote. If the power to vote belongs to ‘citizens’ of a country, then the mining pools are the companies in a country. They only provide the infrastructure of the network so that the true citizens of the Bitcoin ecosystem can participate in the network. It is true that without them, there would be no way for the network to operate, but if they were to act in a way that defraud the network’s constituents, or if they are not faithful to the wishes of the hashpower constituents, then hashpower will leave them and they would be out of business.

Hashpower decide

Hashpower is the true decider in a hashpower vote. That is to say, those that own the hashpower production assets are the only ones that have a vote in a hashpower election. They decide which mining pool to build blocks for, therefore they effectively decide which chain in a fork to build upon. They have the most skin in the game (collectively) because they are the ones that have committed 100% risk capital to the success of the blockchain and the appreciation of the coin. Data centres can be re-purposed, servers can be re-sold, coins can be dumped for others, but the only thing that becomes worthless scrap if the blockchain fails is the ASIC mining assets. They cannot be repurposed, and therefore they must be written off as losses. As it is, the industry writes down mining assets to zero after just 2 years of depreciation. If they don’t make back their value in 2 years or less, then the business may as well have thrown their money into a bonfire. That is the fundamental reason why hashpower are the only ones that you can be assured of to care the most about the long-term value proposition of the blockchain that they are mining, and the reason why they are the ones that can be trusted to make the best decisions for it. Their vote is weighted in proportion to the amount of hashpower that they own. The larger the portion, the bigger vote they have and the more influential they are. (and subsequently, the more invested they are in ensuring the maximal value be realized on the blockchain).

At present, the only (known) mining pools that own their own hashpower at present are:

Coingeek

BMG

BTC.top

The other mining pools that are listed at sites such as coin.dance are actually mostly hosting businesses and the hashpower that they host are actually their clients. Whenever you have clients, you are answerable to them.

I hope this illustrates why the fork on Nov 15th will be very interesting to watch. We already have plenty of ‘noise’ posturing by companies announcing their support for one fork or the other. At the end of the day, unless the company owns hashpower they actually don’t matter at all and they are only declaring their disregard for their clients if they promote one chain vs the other for ideological or political reasons. The only constituents that have the right to be political are hashpower owners. They paid for the right to vote. They paid for their opinions to be counted. (in proportion to their investment).

So on ‘election day’ on Nov 15th, we will see the actual constituents of Bitcoinland speak, and speak with their investments. Make no mistake, if you don’t own hashpower, you don’t get a vote in this election. Some folks may tell you that you do. Some folks may say that the market decides, by way of resulting price of the coins (subject to manipulation) and they will offer you the option of participating by way of buying one fork coin while shorting the other. Do not be fooled, these are only derivatives, and carry with them all the risks that derivatives do. If an exchange offers you claims on the forked chain coins BEFORE the hash vote has determined the majority winning chain, then they are offering you a HIGHLY leveraged bet, as ANY balances in a minority chain may be unpayble if the majority chain eliminates the minority chain (when most hashpower stops mining the minority chain). All minority chain balances disappear as fast as they were created.

The right thing for exchanges to do is to withhold trading in BCH until the majority chain is determined, and then switch to that chain. As an exchange that values the integrity of their customers deposits, they should not be favoring one chain over another, and certainly not encouraging rampant speculation on assets that may not even exist by supporting one chain as a matter of principle. The only right chain, is the longest PoW chain.

In summary, unless you own hashing power, you don’t have a vote. You may think you do, you may want it to seem like you do in order to influence others, but at the end of the day, the only party that answers to nobody is those that own hashpower. Everything that everyone may say or do or proselytize about, is nothing but political posturing, amounting to nothing more than campaign commercials. In the end, only the hashpower is counted, and the hashpower should be highly incentivized to come to consensus on a majority chain, and let the remaining one expire. Than is Nakamoto Consensus.

We don’t need anything else.

Emergent Consensus: Guide to Forking Safely

Early this year, when the debate on how to manage the meta-consensus issue of hard fork management arose I wrote an article about emergent consensus.  This basically outlined the idea behind Bitcoin Unlimited‘s proposal of letting the network decide when it is collectively ready to move the block limit higher, and by what amount.  At the time, I wrote that the issue was lack of good UX tools which would be able to track network participants (whether mining node, or regular full-node) votes and show them in real time.  After all, emergent consensus can only work if there is a sufficient feedback loop so that the collective group decision making process can be facilitated, and overestimates and underestimates can be corrected.  Safe Forking!This is much like how a liquid market of bid/asks facilitates price discovery in every financial market since the beginning of human commerce.  It is only by repeated and constant dogmatization of the block size limit as a ‘sacrosanct’ part of the protocol, has the proponents of a smaller block restricted Bitcoin been able to convince everyone that the limit cannot be changed, lest the network be subject to catastrophic attacks or instability.

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Roundtables vs. Honey Badger (0-2)

As the ongoing debate in Bitcoin between the Core and the Classic camp rages on, early signs of tentative order emerging spontaneously from the un-orchestrated chaos can be seen.  For one, most of the intelligent proponents on either side finally seem to have recognized the fundamental irreconcilable differences of opinion on either side of the divide, having spent the last 3 months weeding through the army of trolls and sycophants which always seem to amass around idealogical movements.

escudo-shatoshi

The industry has started to look upon itself in a satirical way, from high profile jokers like Samson Mow, to the absurd display at the Miami Satoshi RoundTable, organized by Bitcoin Foundation Bruce Fenton, which sported such medieval artifacts as an actual suit of armour and a Bitcoin Magna Carta which would make 45 year old AD&D live roleplaying nerds giddy.  The industry has certainly reached its apogee of insanity, absurdity and self flagellation, and it can’t possibly get any worse, and thus, we should expect to see things starting to come back to reality very soon.

Several promising things have been happening recently that give me cause to be hopeful that we may yet see the end of this “Rite of Passage” in the life of Bitcoin:

  1. Core has started to consider a hard fork proposal themselves.
  2. Interest in Bitcoin has been re-kindled in the form of 2000+ (as of writing) new nodes added to the network.
  3. Mining pools have started to implement miner voting systems within their constituents.
  4. New consensus tools have emerged which help bring visibility to and encourage people get involved in, the decentralized crypto-governance process.
  5. A total of 4 past attempts at securing industry participants into binding agreements have all failed to produce consensus.

Let’s examine each in turn.

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The Decentralization Myth

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.

Network_topologiesThe 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.

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How do YOU measure Decentralization?

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.

decentralisation

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.

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Begun, this Bitcoin Clone War has!

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.  election-ahead-sign-375x250

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.

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