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. 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.
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)
Sitting at the airport in Milan, I have a chance to reflect upon how fractured (and self deluded) the Bitcoin community has become. First off, I’d like to state for the record that I believe that many if not all of the people I had a chance to meet with this weekend honestly are doing what they feel is best for Bitcoin. But articles from media sites like CoinDesk such as this paint a very different picture from reality. They would have you believe that the world is in consensus and its time to put this block limit debate behind us. I cannot blame them for their pieces. They are indeed, a subsidiary of the Digital Currency Group, which is also a large investor in Blockstream after all. So my goal here is to paint the other side of the story, the side seen from the viewpoint of the ‘Free Speech, Free Bitcoin’ party.
Lightning network has been heralded as the way to scale Bitcoin into the future, but as it is starting to become apparent that two very separate camps with differing opinions on how to scale Bitcoin are starting to draw lines in the sand, it’s worth taking a pragmatic look at this technology, seeing as it seems to be shaping up that once adopted, it will be very difficult to back out¹
First off, I want to say that Lightning as a concept is pretty interesting. I think that it will have many uses in the world of Bitcoin. Yes, I have read the white paper (both long and short version) and I believe I have pretty good understanding of how it works. A disclaimer, as most of the development is happening behind closed doors via BifFury, it’s hard to comment on any of the new yet unreleased progress, such as developments on the routing algorithm.
Let’s examine the pros and cons of the Lightning overlay network.
- Unlimited txn/s
- Secure from double spends
- Requires Bitcoin to use
Ethereum made crypto-history this week by being the first PoW blockchain to execute a hard fork. They claimed it was done after getting unanimous consensus from the community through stake voting which many have criticised as being nothing more than a farce, as less that a total of 13% of the coin population bothered to turn up to vote, and some sources say it was even possibly less than 2%. Nevertheless, the hard fork was devised and coded, hastily tested, and released, and when the fateful day arrived when it was pre-programmed to activate, July 21st 2016, the network indeed split into two. Quietly, smoothly, without much fanfare.
A week before a group of developers and supporters who opposed the hard fork on ethical principles formed a movement called Ethereum Classic, and pledged to reject the new fork which would see the seizure and confiscation of the ETH that the DAO attacker had acquired during his raid. This movement also saw the defection of about 5% of the mining power in the ethereum network.
What happened after the fork block made history. Contrary to what the ETH developers said, the fork did not remerge and the minority chain persisted. At first the block rate was a fraction of the majority chain. But now after 2 days the block rate has stabilized and the minor chain is mining blocks at about the same rate as before the fork. In addition, the difficulty of the mining is only 1% of the majority chain, which adds an economic incentive for miners to mine on the minor chain in order to make more rewards. This second chain represents the split-fork scenario that many Bitcoin core devs have been warning the community that would cause chaos and destroy both systems. Only, it didn’t. At least not yet.
Many people will talk about ponzi schemes without actually thinking about what that actually means. They say that Ethereum will fail because it was founded on and funded by lies. But when it comes down to it, how are these different from that of the current central banking debt based fiat money system?
Fund first, ask questions later
Ethereum was a project funded with 18m USD of value mostly in BTC. After writing a whitepaper and creating a proof of concept prototype, they hired developers to write it. Most of them were loaned money and worked for free but were promised exorbitant 20% bonuses after the crowd-sale. They made a windfall after selling ETH before the blockchain was even in operation in what is called an initial coin offering or ICO to the public. Once the money was raised they patted themselves on the back, and all the developers who were promised pay in stock options (ETH) simultaneously breathed a sigh of relief and cheered.
The Decentralization Parody
Every so often in crypto, another data point emerges in the wild that supports or disproves a previous theory or fundamental school of thought. The recent fiasco with Ethereum and its crown jewel proof of concept project, The DAO, was such a data point that made me want to revisit some past debates about decentralization and its misconceptions. The fact that Ethereum was supposed to be decentralized (some argue more than Bitcoin by measures of node operation cost), yet, how the community could be considering supporting a hard fork to break the coin fungibility of its system, in the name of ‘justice’ and making victims whole, stands in the face of everything a good monetary system should be.
Big news for ETH supporters as the DAO finally launched and have their token traded for the first time. After a day of trading, it seems the DAO tokens closed trading under par. (ETH value). What went wrong?
If you ask me, the DAO is an ambitious project. It makes Macbeth look like Ben Carson by comparison. In order to understand it to any degree, first you will need to gather some things:
- A bottle of Jack Daniels
- The DAO whitepaper
- 10 cans of Red Bull
- 12 hours of free time, preferably in the dark
- some psychedelics
- 1 towel
Lock yourself into that dark place, and let nature take its course. If you need to, use the towel. After the elapsed time, you may emerge understanding DAO well enough to maybe want to put some money into it, or pray to it. At which point you really should stop what you are doing, and go to sleep (because let’s be frank here, you are probably drunk and hallucinating) and pick up again in a couple days time.
Slides for the seminar that I gave at BlockchainHub on March 11th
Presentation slides for the Bloomberg talk I made on Feb 24th