Call it proof of chutzpah.
Chris Larsen, one of the co-founders of beleaguered crypto-payments company Ripple, has devoted a reported $5 million of his personal fortune to a public campaign seemingly aimed at making bitcoin (BTC) greener.
In partnership with Greenpeace and other organizations, Larsen is funding a series of ads over the next month calling on bitcoiners to “Change the Code, not the Climate.” The goal, according to Bloomberg, is to pressure the Bitcoin community to make a transition away from power-intensive proof-of-work mining to a proof-of-stake system that uses much less energy.
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At first glance, Larsen’s suggestion is appealing. The environmental impact of proof-of-work mining is perhaps Bitcoin’s most substantive drawback and a continuing headwind for the overall public perception of crypto. For example, the rhetoric of environmental damage has helped generate major and sometimes misplaced hostility to non-fungible tokens (NFT) in the art world.
But the reaction to Larsen’s effort among industry leaders and observers has been disbelief and suspicion. That’s in part because, however warm and fuzzy Larsen’s goal seems to be, the campaign’s recommendations are extremely risky, thoroughly impractical and perhaps even nonsensical. More importantly, Larsen’s motives for the proposal are extremely suspect: After all, as a co-founder of Ripple, he has arguably spent the last decade in competition with Bitcoin.
The incredible risks
The first problem with Larsen’s agenda is that switching Bitcoin to proof-of-stake security would involve incredible risk. The change would be so fundamental that it probably couldn’t be implemented with a conventional “hard fork,” in which some network members go to an incompatible version of the Bitcoin software. Hard forks have been used to create modified versions of Bitcoin before, most prominently with the Bitcoin Cash secession from Bitcoin in 2017.
But Bitcoin Cash and similar forks only altered technical parameters already defined within the proof-of-work system, such as block size. A proof-of-stake system operates on fundamentally different security architecture, and so rather than changing existing parameters, a proof-of-stake-based Bitcoin would likely involve a ground-up redesign. Rather than a mere “fork,” that would involve a much more complex project of migrating existing wallet balances to a new network with the “Bitcoin” name.
Ethereum’s transition from proof-of-work to proof-of-stake shows what this might look like. Ethereum 2.0 won’t be a direct continuation of the current Ethereum chain, but a managed transition to a new system. A “Beacon Chain” for the new system has been running in parallel with Ethereum 1.0 for years now, and merging the two has been carefully managed by a strong core group of Ethereum companies and developers.
There’s little chance of a similarly aligned and influential group emerging to manage such a transition for Bitcoin. One reason is persistent distrust of proof-of-stake security itself: “Proof of Stake is not only less secure, it is completely pointless and insecure,” pseudonymous bitcoin advocate Gigi argued on Twitter. “Without PoW, any system will become political, moving conflict resolution to a quorum.”
Many in the Bitcoin ecosystem also have interests and agendas that could diverge sharply once major network changes are on the table. For instance, bitcoin miners who have spent millions of dollars on specialized chips called ASICs (application-specific integrated circuits) for proof-of-work mining are radically unlikely to support a proof-of-stake transition.
Furthermore, as former CoinDesker Noelle Acheson points out, truly transitioning Bitcoin to a new model would likely require convincing all those miners to stop extending the proof-of-work chain. That would in turn require persuading exchanges worldwide to stop trading tokens from the PoW chain – a nearly impossible task.
A strong reaction
These realities help explain why Larsen’s proposal has been met not just with disagreement from bitcoiners, but with vociferous and frequently extremely personal repudiation. Bitcoin, just like Twitter or Facebook, depends significantly on “network effects” – it is more useful, the more people use it. While a proposal like Larsen’s might have zero chance of convincing every bitcoiner to switch to a new proof-of-stake system, it might sway some of them, triggering a “hard fork” in the community, if not in the network proper.
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That fragmentation could weaken Bitcoin – and Larsen’s background seems to have invited uncharitable speculation about the campaign's real intentions. Over the course of the past decade, Ripple has often seemed to argue that the XRP token created by its co-founders is a superior system to Bitcoin, and the company has sold over $1.3 billion of the token to the public despite relatively little success in its plan to create an interbank transfer system.
That has led to a massive, ongoing battle with the U.S. Securities and Exchange Commission, and left many bitcoiners with enduring hostility to Larsen and the entire Ripple organization, which many see as inherently and deeply hostile to Bitcoin.
Ryan Selkis, founder of Messari, a crypto data provider, responded to news of Larsen’s campaign by declaring that “The Ripple execs are scum.” Matt Walsh of Castle Island Ventures, a broadly BTC-aligned venture firm, Tuesday morning alluded to Larsen as making “billions dumping unregistered securities that look like fidget spinners on retail investors then [using] the proceeds to lecture actual entrepreneurs on their bitcoin businesses.” (Ripple’s logo resembles the popular toy.)
For his part, Larsen told Bloomberg, “If I was concerned about Bitcoin as a competitor, probably the best thing I could do is let it continue on this path … This is just an unsustainable path.”
The debate about Bitcoin and energy is still very much a live one, and Larsen’s doomsday warnings could well prove correct. But he’s clearly not the right messenger.
UPDATE (MARCH 29, 2022 – 19:55 UTC): Corrects quote attribution.