CORRECTION August 11 06:54 UTC: This post has been updated to say that block rewards will significantly diminish in 2024, not disappear in 2021.
Who controls Bitcoin?
A hint: It’s not you. And it’s a far cry from the decentralized utopia many claim it to be. Systems of power are rapidly asserting control over Bitcoin. And their incentives are not your incentives. As an industry, we’re at a critical juncture, and we have to choose. We either demand that the properties of user ownership and censorship resistance pioneered by Bitcoin persist. Or, we accept the facade of false-decentralization that has been erected by a centralized regime. Our revolution is being stolen, but it’s not too late to take it back.
First, let's take a look at who controls the Bitcoin blockchain. Sixty-five percent of its hashrate is in one country: China. Globally, about 10 different organizations control 90% of the hashpower. The big pools are all linked together with dedicated networking connections. If I described to you a council of 10 companies dictating the future of a product, and more than half are in China and beholden to a centralized government, would you call that decentralized? No, but that's the state of Bitcoin today.
See also: Justin S. Wales - Why Bitcoin Is Protected by the First Amendment
Maybe you don't care. Maybe you say, "even a 51% attack would be fine by me, because they are still economically aligned in the best interest of the protocol." You'd be very wrong, but you wouldn’t be the first person to assume that a centralized power could represent your interests well. There are countless examples in history of misplaced trust in a centralized authority. Some of those authorities were beloved revolutionaries, leaders, countrymen and members of their community. Everyone thought, "They love their country, they won’t do anything to cause it harm."
Robert Mugabe, the former dictator of Zimbabwe for 30 years, started his career as a beloved political revolutionary. He was instrumental in gaining independence from colonial rule. At the time, it would have been hard to think of someone who loved his country more. But that was at the beginning, before he amassed centralized authority. He ended his career causing mass starvation and social upheaval because of brutal, misinformed and, ultimately, failed social and monetary policies.
The problem is never just a single leader, it’s the system in which they are operating. Without checks against centralized power, what remains is to trust it will all be ok. And it never is. So, why would this time be any different? Because Bitcoin is somehow inherently different? Because the person, or people, who created it had revolutionary ideas? Come on.
The analog of social and monetary policies for cryptocurrency is the rules of the protocol. When discussion turns to updating (or not updating) these rules, control suddenly becomes very important. Important decisions, such as whether to scale the network as congestion gets increasingly worse, or to update the inflation schedule when block rewards will significantly diminish in 2024, will be left to a small council of miners.
In turn, they can use those opportunities to make decisions in their favor, to consolidate power, to siphon more value off the network, to gain favor of local governments, or any other number of things people in positions of power do to maintain their advantage. Perhaps their intentions are good. Maybe they don't even want to be in that position? We have no way of knowing. And that’s the problem.
When you're one of 10 players who meets regularly to determine the future of gold 2.0 – and you are de facto controlled by the Chinese government – maybe you won't be the unbiased party you aspire to be. We have no option but to trust that everything will work out OK. So, after over a decade of Herculean efforts, billions of dollars invested and the hopes of an entire generation of developers and technologists, we’re essentially back in the same place we started at before cryptocurrency.
The other half of the puzzle is that even outside of centralizing consensus, you are rarely, if ever, as sovereign as you think. Institutions oversee every step. When you make a bitcoin transaction on Coinbase or Binance, you don't make the actual transaction. Coinbase and Binance does. You don't directly "use" crypto anymore than you own your own data on Facebook. You're a customer of a new breed of big tech.
See also: Nic Carter - Bitcoin’s Patronage System Is an Unheralded Strength
This isn’t Coinbase, Binance or any other exchanges’ fault. They have provided a level of access to millions of users that would be impossible otherwise. This is how it has to be right now, because crypto is so hard to actually use. Connecting to the network is completely inaccessible to anyone without access to server hardware and deep technical knowledge. Access to this revolutionary technology is locked behind some heavy and high gates.
Until we can remove these barriers, big tech exchanges are the only option. You may not be a customer of Goldman Sachs or Bank of America (yet), but you’re dealing with the same type of players with a different face, setting the rules to maximize profit from you for their shareholders, and collecting every mouse click and transaction. Crypto was supposed to protect us from this, but instead it’s given us new names with the same misaligned incentives.
Crypto wasn’t supposed to be like this. We wanted a permissionless system where users set the rules. We wanted a revolution. We got a new financial toy for a small handful of wealthy companies and individuals.
Some may say that's exciting. But I say crypto can be more. If this is the peak of crypto impact, we're in for a sad reality when we wake up and realize that all we did was transfer financial power from an old guard of centralized institutions, to a new guard playing the same game. This revolution isn’t over, but we urgently need to steal it back.