Nozomi Hayase PhD, is a writer covering issues of freedom of speech, transparency and decentralized movements. In this article, she looks at the continuing block size debate, bitcoin governance and why they are both so important.
Bitcoin has exploded into prominence as technology capable of disrupting global finance. Massive investment money has been poured into its infrastructure and major banking industries are now joining forces to incorporate aspects of this technology.
Figures like Blythe Masters, a former JP Morgan executive known for inventing the credit-default swap, have begun working on the blockchain's potential to upend finance in favor of banks.
Yet, efforts to control this breakthrough in computer science are not limited to incumbent industries. One of the biggest challenges that the bitcoin community has ever faced emerged with the implementation of BIP 101 in Bitcoin XT.
This hard fork, launched by chief scientist at the Bitcoin Foundation Gavin Andresen and Mike Hearn, a former Google engineer, triggered intense reactions. Some called it a takeover of the bitcoin protocol by the few at the engineering level.
This move toward increasing block size from the current 1MB to 8MB was criticized by some core developers as bypassing the consensus of the technical majority. Legal scholar and respected cryptographer, Nick Szabo even depicted the XT hard fork as a civil war, technologically equivalent to a 51% attack.
On the surface, this push for much bigger blocks appears to be purely technical. In fact, Andresen has claimed technical neutrality, free of political agendas. Yet, a closer look at XT reveals how commercial interests are increasingly pulling bitcoin's development into a particular vision. Peter Todd, who contributed to bitcoin's core software and is a strong critic of BIP 101, pointed out how many of the big-block supporters are large payment and wallet providers that are themselves highly centralized and regulated.
This brings a question about the promise of incorruptible mathematics. Can bitcoin maintain its ethos of decentralization with all this external and internal pressure, or will it be co-opted?
Tug of war over the Internet
Pressure toward commercialization of technology is nothing new. The Internet has gone through its own versions of centralization. In his 2012 book Cypherpunks: Freedom and the Future of the Internet, WikiLeaks founder Julian Assange depicts the militarization of cyberspace through NSA surveillance and censorship, remarking:
"The Internet, our greatest tool for emancipation, has been transformed into the most dangerous facilitator of totalitarianism we have ever seen."
Assange warns how tech companies like Google are now leading this trend, pointing to deep ties with the US State Department and the firm's active role in the NSA surveillance, which came to light after the Snowden revelations.
Assange's book, When Google Met WikiLeaks, unveiled radically opposing visions of the Internet's future. For Assange, the power of the Internet lies in its statelessness and freedom. For Google chair Eric Schmidt, it is a governance model aligned with US foreign policy and "the civilizing power of enlightened transnational corporations" to shape the world according to the better judgment of the "benevolent superpower".
As a further evolution of the Cypherpunks, bitcoin carries on this battle for the Internet. The challenge to achieve consensus over block-size limits appears to be a natural progression of this clash of visions.
In the article, The Decentralist Perspective, or Why Bitcoin Might Need Small Blocks, it was noted how developers who are true to Satoshi's vision of creating purely peer-to-peer electronic cash based on cryptographic proof see XT implementation as a trade-off of bitcoin's core features.
While XT developers focus on optimization of transactions per second and view bitcoin's success as dependant on accessibility and low cost, many prominent decentralists see the value in censorship resistance and don't want it to end up becoming a PayPal 2.0.
Security vs performance
This divergent vision of what bitcoin should be is the real issue behind the block-size debate. Security is the way to ensure the integrity of the coders' vision. Depending on priorities, the approach to security can be different. Decentralists are not against the idea of a block-size increase. The primary questions are 'How big is too big?' and 'What are the security ramifications of moving too fast?'.
Achieving monetary sovereignty requires removing single points of failure in the system that can be easily commandeered by state and other regulatory forces. For this, maintaining decentralization is necessary.
Seen this way, large blocks favoring bigger miners bring further centralization of mining and of full nodes, (more analysis here). This brings a huge security risk and so more balanced, incremental approaches have been suggested, such as 2MB now, 4MB in two years and 8MB in four years, combined with the use of technical innovations such as the Lightning Network and pegged sidechains.
These security concerns are not shared by those who represent XT. Andresen said he thought the best way to get technical consensus was to just release the code and encourage people to vote with their feet. In short, 'let's make the economic majority decide'.
Miners are inclined to choose versions that their economic incentives are aligned with. Any changes that could alter the incentive structure, if not done in consideration of the greater security, will degrade the very foundation of bitcoin. As the controversy was heating up, Szabo remarked:
"If bitcoin's security comes to be based on bureaucrats rather than protocol, it will no longer be a seamless global system."
Just as Google's ambition of a global reach with their central servers blinds them to their role in enabling strategic interception, economic incentives for the sake of profit at any cost can easily blind one to control points quietly being injected.
Quickly going for a maximum volume of transactions at the potential cost of centralization inadvertently jeopardizes security. Any such trend can recapitulate the Goldman Sachs-style takeover of the current system, opening doors to policy risks such as QE hyperinflation, Cyprus-like bail-ins and financial blockades.
A few months since the introduction of XT, developers gathered in Montreal for a Scaling Bitcoin Workshop. People are moving toward finding a solution together. So what is the lesson in all of this? The contentious hard fork provided an opportunity for the larger community to learn how the development process works and most importantly, why we should all care about where bitcoin is going.
“Empowered by mathematics, we now have an opportunity to create a network that no amount of coercion or violence can break.”
At a recent panel on bitcoin governance, Andresen shared his view on the role of developers. By stressing the importance of distinguishing governance of the protocol and of open source software projects, he noted that he supports a "benevolent dictator" model, saying he believes there needs to be a leader who can make final decisions.
Peter Todd, who also participated in this panel, countered this model, saying how "bitcoin is not under the control of any one group of people" and bitcoin core developers have been very careful not to make changes that do not have a consensus of the wider community. After all, if miners go against this consensus, they will be left mining empty blocks. Thus, in bitcoin governance, power ultimately lies in the hands of the users.
Bitcoin as the Internet of money joins the struggle for Internet freedom. Its development could play a decisive role in determining not only the future of the Internet, but of civilization itself. The question now is which Internet will bitcoin belong to and which future will we choose? Do we want the world free from censorship and surveillance or a Prism-style prison of totalitarian control?
Peer-to-peer networks cannot be delivered from top down by selected officials or, in this case, developers and big players like investors and exchanges. Distributed systems demand informed participants who understand their value and uphold the ideals enshrined in the code.
Empowered by mathematics, we now have an opportunity to create a network that no amount of coercion or violence can break. Whether the outcome of this battle will be decided by a few or by the collective will of the people depends on all of us.