Jimmy Song is a bitcoin developer, an instructor for Dev++ and the owner-operator of his own in-depth technical bitcoin seminar called Programming Blockchain.
The following article is an exclusive contribution to CoinDesk’s 2017 in Review.
As bitcoin approaches $20,000, continuing to create new millionaires along the way, it’s easy to deceive ourselves and think that we could all see this coming. It’s hard to remember now, but the mood entering 2017 was a far cry from the optimism that we see in the bitcoin community after something like a 20x price rise.
SegWit had not yet activated. The New York Agreement, UASF, bitcoin cash, let alone bitcoin gold, were not in existence. The community was very much struggling to figure out a way forward on its technical roadmap and many people were arguing about what to do and complaining about the toxic atmosphere. OK, maybe some things haven’t changed, but still, the community at the beginning of the year was very different than where we are now.
In this review of 2017, I’ll be focusing on what we learned about bitcoin, how we got to the euphoria that we have now and what this all means going forward.
Phase 1 – Uncertainty
The year began with a lot of uncertainty. Only about 30 percent of miners were signaling for SegWit, while Bitcoin Unlimited, a rival software program attracted 35 percent support. Nothing looked imminent regarding scaling. Many developers, users and businesses were getting frustrated at the lack of progress, and there were dire warnings about how a fork like Bitcoin Unlimited would completely ruin bitcoin.
Yet despite all that, bitcoin entered the year on an upswing. Bitcoin passed $1,000 for the first time since 2013, and there was a real sense that the bear market had turned the corner.
This would not be the first time that uncertainty and price rises would coincide in 2017, and indeed the two being correlated is a major learning for the community this year.
The uncertainty kicked into high gear as “extension blocks,” UASF and NYA all made their way to the stage in the first half of the year. There was a cat-and-mouse game of different bitcoin factions making threats, some credible, some not, to get what they wanted. The first half of the year was a time of crazy new developments almost on a daily basis.
Would Bitcoin split? Could bitcoin possibly survive a hard fork? Are people going to be scared off from buying bitcoin?
Instead of a price decline, we saw during the Jan-June time frame that the price actually rose 3x despite the threats of forks and “agreements” made for the benefit of those who signed it.
We saw during this period that bitcoin was not like other assets. Uncertainty around a company typically depresses its price. Uncertainty around bitcoin seemed to increase it. What was happening? Why was uncertainty correlated to a higher price?
Phase 2 – Fear
The New York Agreement at the end of May and the subsequent 3 months leading up to August 1st were a time of a lot of fear in the bitcoin community. Many, including myself, were concerned that bitcoin would die from brand confusion, split communities and decreased network effect. Many saw the inevitable divorce between the “big blockers” and “small blockers” as a mortal blow waiting to be delivered.
There was some relief when the NYA managed to lock in Segwit on the network through BIP91. The community was soon blindsided by Bitcoin Cash, though, which announced its intentions to fork very soon after. August 1st would become the day that bitcoin would change forever.
Going into August 1st, many thought that a hard fork would be a terrible thing for bitcoin in general. There would be two different bitcoins, two different communities, a split network effect and many other things. Many were expecting price to adjust to those realities and crater to much lower levels. Instead, what we saw was the start of a bull run, the likes of which we haven’t seen since 2013.
The price the day before the hard fork was around $2,700. The next week, bitcoin rose to $3,700 and bitcoin cash surprisingly had value that wasn’t zero. What was going on? How did both forks end up greater than the sum before the fork? Such math seems self-evident now, but this was not the predicted outcome and most thought that forks would reduce the overall value, not gain.
Again, we saw during this period that bitcoin was not like other assets. Bitcoin gained from social/technical/economic disorder. In other words, bitcoin is anti-fragile.
Phase 3 – Confidence
Despite the relative peacefulness of the hard fork on August 1, there was another fork ahead that was sure to be more contentious – the Segwit2x hard fork scheduled for three months after Segwit activation. The community had learned a bit about hard forks by then and there was less consternation about the harm a split there would cause.
But, Segwit2x turned out to be a disaster and the backers of the agreement ended up abandoning the effort a week before its scheduled fork. The code that was to create the split didn’t work, and it was obvious that the effort simply lacked the requisite development power to make it a success.
We discovered this year that developers give the bitcoin network technological anti-fragility. Every time there is a disordering event like the bitcoin cash hard fork, developers in the entire Bitcoin ecosystem are forced to deal with it. More software is written, more attack cases are handled, the software gets better. As a result, the entire bitcoin ecosystem, not just the part the developer is working on, gets better.
Bitcoin is technologically anti-fragile because the developers have the ability to react and strengthen the network anytime vulnerabilities are found.
We also discovered this year that HODLers give the bitcoin network economic anti-fragility. HODLers will hold through the fear and uncertainty. There is no panic selling with this group. They’ve been through a three-year bear market. It’s not easy to shake their confidence in what bitcoin can do. The mainstream media can warn us about bubbles, the technologists can warn us about how it can’t scale, even core developers can warn us about how we’re doomed.
Holders. Don’t. Care. They believe in bitcoin. They aren’t shaken by a few warnings and rely on bitcoin as sound money.
Lastly, we discovered this year that the bitcoin community gives the bitcoin network social anti-fragility. The community will not bow to the interests of businesses. The community will punish people and businesses that it thinks are acting not in its interest. Many people and companies have been punished and have suffered as a result of the community’s enforcement of what it thinks is good for bitcoin.
The adversarial network has developed a moral standard for what good behavior is and bad behavior is punished and prevented.
Bitcoin continues to grow and increase in price for a reason. 2017 was the year that people started to see real evidence that bitcoin is not something that can be stopped. Many other reviewers seem to be disappointed at how bitcoin didn’t do X, Y or Z. I see the fact that it not just survived, but thrived as evidence that their pet feature or development isn’t that important.
So what does this mean for 2018? We can expect more fear and uncertainty going forward. Certainly, the people HODLing now are probably pretty different in composition than earlier this year. Perhaps the community has fragilized a bit through all these noobs that haven’t been through a bear market or a 70 percent correction.
What’s certain is that bitcoin is unpredictable and bitcoin will grow in unexpected ways. I can only hope that as much fear and uncertainty await us in 2018.
Chain in the sky via Shutterstock