A Dangerous Path Ahead.

We are a victim of our own success, and I fear that the pressures brought about from bitcoins growth are rushing us headlong into one manufactured crisis after another, that may lead to more centralization.

Already, we may be setting a dangerous precedent of pushing through a contentious hard fork with a low limit, something that has never been done before.   Peter Todd makes a reasoned case why Soft-forking with a high threshold, should be the standard, because it is the safer approach and insures that the entire network upgrades at its own pace, not via threat.

It’s clear that raising the block limit is contentious, and galvanizes Bitcoiners on both sides of the debate. A contentious fork combined with a low threshold creates a real risk that this can cause problems for the network during the reorganization.   One has to ask, at what threshold is a contentious hard fork not viewed as an attack on the network?

Advocates for raising the limit argue that it is strangling Bitcoin’s growth. That hitting the limit has the potential to cause an economic change in Bitcoin with rising transaction fees and that this arbitrary limit implies central planning or artificial scarcity.  However raising the limit places a greater resource burden on the network, particularly on node operators who receive no compensation for running nodes.  The concerns are that raising the block limit will lead to greater centralization.

In many ways we already see a divergent bitcoin system, one with actual participants, that run nodes, hold keys, and one where the participants have ceded their votes and trust to third parties, where they face all the same rules, regulations and loss of privacy that come with the current system.  These third parties in effect have pooled the votes of hundreds of thousands if not millions of participants under  the banner the “economic majority”.  However is this how Bitcoin was intended, while Satoshi advocated SPV wallets, the keys where retained with the user, and theoretically acted as independent users. The idea of trusted third parties holding they keys of hundreds of thousands if not millions of user and making decision on their behalf begs the question, is Bitcoin already too centralized?

Despite the headlines, Bitcoin is not broken, it works.  Bitcoin rejects no one, there is no account subscription limit, we have not run out of invitations.  Instead we have half-truths being pushed by some who don’t like the current development process, and by some whose business model is based on a walled Bitcoin economy.   Is their sense of urgency driven because bitcoin is not delivering the right growth numbers or because of the perceived competition from a Paper Tiger Consortium?

The only chance Bitcoin has of achieving Satoshi’s goals, is of thoughtful moderate growth, where Decentralization is put first, and then growth.  It’s not up to anyone to decide when Bitcoin will achieve the target of global dominance, or even a 100 million users. That is up to Bitcoin, but if we keep it free and de-centralized it will market itself and it will get there.

When Satoshi was challenged, that cryptography could not achieve political goals, he responded with a realist view, but one grounded in cypherpunk ideals:

“You will not find a solution to political problems in cryptography.”

Yes, but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.


This response made clear what Satoshi’s intentions for Bitcoin were.  Satoshi did not create Bitcoin merely as a tool for speculation, to make people wealthy, or to fund new companies.  Bitcoin was built to liberate, to establish a new frontier for those who believed in individual liberty.

I am not arguing for or against the block limit.  Personally I believe it needs to go up and it will in time, but I leave the debate to those who know.

54 developers signed a road map that has actual code, that was deliberate, thoughtful, and balanced the risks; of a bitcoin that is strangled by technical limits vs one that grows at the expense of decentralization.  But sadly, due to recent events some have abandoned the road map.

What we should all be against, is artificial timelines, manufactured threats, and propaganda campaigns which takes a process that should be a deliberate and thoughtful, guided by science, math and empiricism and turn into next quarter’s deliverable.

Satoshi always offered a balanced view, they recognized that some micro transactions, would not be processed, and at the same time eventually data farms may evolve to process bitcoin transactions.  But these were things to evolve over time as Bitcoin emerged as a dominant system and the risk of it being co-opted by internal and external forces were lessened.   Satoshi never set specific timelines, though they did make a prediction early on that some form of E-cash could be in use within 10 years,

I would be surprised if 10 years from now we’re not using
electronic currency in some way, now that we know a way to do it that won’t inevitably get dumbed down when the trusted third party gets cold feet.

However predictions aside, one may presume that based on Satoshi’s own actions, their vision was to unfold over decades, not mere years.

Satoshi worked on Bitcoin privately for years before going public,  they set the distribution of Bitcoins  to occur over 100 years, they envisioned that 100,000 independent nodes would support the bitcoin network.

Only 7 years in and many in this community have espoused unrealistic expectations that bitcoin would take over the world like the latest social media app. This short sighted view does an extreme disservice to what Bitcoin’s original intent was.   In fact, Satoshi themselves, advocated against rapid expansion of bitcoin

“No, don’t ‘bring it on.’ The project needs to grow gradually so the software can be strengthened along the way. I make this appeal to WikiLeaks not to try to use bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.

This was not a one-time appeal, this was in-line with Satoshi’s development process from day one, from the gentleman’s agreement to keep GPU mining at bay, to implement the 1mb limit, and then their rejection of early appeals to lift the limit, because it was bad marketing.

Think about that, someone proposed that a technical decision be made in order to meet a marketing goal? Sound familiar?   Developers should be careful about driving technical decisions based off marketing appeal, or even what the “competition” maybe doing.  If Bitcoin owns the decentralized currency space, it will never need to worry about marketing.

Satoshi’s actions and continued in-action point to a person that had long term views and may have even appeared to have sacrificed personal gains in order to serve Bitcoin’s growth.

Time and again, Satoshi made technical decisions, driven by keeping bitcoin decentralized, not by political decisions or artificial goals.

So many are now espousing the dangerous meme, that Bitcoin is anti-fragile and can survive any type of contentious hard fork. “Lets test it and find out”, “if Bitcoin has to rely on altruism, it will fail” have been common response to opponents of the hard fork.  Or now the idea that we need multiple Bitcoin implementations to compete.  But it’s not even clear how that would work, are forks coming quarterly now, do we try hard forks at 60%, 55%. What does that say to the stability and immutability of the network?  Does Bitcoin development devolve into a media campaign, where there is now a continuous battle to win hearts and minds on coding, something that is kind of hard to explain over twitter.

I am not claiming that Bitcoin Code is some tome to be interpreted by a council of elders, but we must be very careful how we proceed.  Immutability, and Stability are also core tenets of Bitcoin, there has always been a community agreement, that hard forks would not be done if they were contentious, because of the risk of undermining that. It is hard to argue for someone to store their life saving on a network, if this weeks 60% fork accidentally froze you out of it for 2 days. Sure Bitcoin keeps working, but is that stability?

It also says something about how centralized Bitcoin is already, when 3 developers who have had limited contribution to the code base in recent years, have now galvanized a portion of the community to attempt a hard fork in a manner that’s never been done before.

But it’s not clear how a migration to a competitive development cycle will actually work, How often are participants going to be politicked by developers to adopt their new changes, and vice versa.  How could Bitcoin function via some kind of cola war. It has always be understood that competitive forks of Bitcoin were alt-coins. Some compare it to Linux Development which has separate flavors, but that’s a false comparison since you cannot run multiple Bitcoin networks.

In a highly decentralized Bitcoin network, all these concerns are irrelevant.  Bitcoin’s anti-fragility works if the majority of the community makes rational decisions that are in their self-interest, driven presumably by bettering the network and reflected in an appreciating bitcoin price.  However what happens with a declining bitcoin price, where investments have been made and not realized, where external fiscal pressures may drive a core group of participants to make short term decisions that may be beneficial to them only, even if has the potential to damage the network in the long run.  The key to mitigating these risks is decentralization, the greater the decentralization the less likely that bad actors can coalesce and effect the entire network, or the less likely that fatal decisions can arise.

Centralization is a runaway affect, once unleashed it is impossible to contain. If I get to vote to grant myself more votes, guess what?  The only way the market can correct too much centralization in Bitcoin is by abandoning it to another system.  Clearly we don’t want to get to that point.   Some would argue that signal would pause bad actors, but that has never been the case, in fact human history shows that run away panics are self-fulfilling  cycles.   Interestingly, Ethereum price has seen a rapid rise in the past week from .99 cents USD to over $1.55, as the Bitcoin price has collapsed, are we already seeing this process play out?  Too many make the dangerous assumption that at this early stage, of the network, any decision can be made and  we will somehow be insulated from bad consequences. Clearly even Satoshi’s own actions contradicted that line of thinking.

So yes, altruism is part of Bitcoin and in fact that it is what brought us bitcoin.  Satoshi did not rush out and create “defensive” patents on bitcoin technology as some bitcoin companies have (we now rely on their altruism that they won’t abuse those patents). Satoshi, did not wall off licensing, or create a consulting model around Bitcoin code (models that are being discussed).  As far as we know they didn’t line up VC capital before releasing the code, they didn’t take pre-mine orders for preconfigured GPU’s, and then mine with those GPUs, before delivering them, they could have done all those things, and more. Some would say these things were not done because it would have affected Bitcoin’s value, but the fact is that these things have happened in Bitcoin and other networks.

The fact is that then and now, the community of Bitcoin relies on  altruism; from the Bitcoin Relay Network, to volunteer teams of developers.  The reason for this is that Bitcoin is still growing, and still a small community.

Bitcoin will only work if the majority of participants, ideally all of them, believe that a decentralized censorship-resistance system is needed. That is the experiment, if in the end, a majority decide we really don’t need the decentralization that much,  and that Satoshi was a nice person(s), but a little high minded, and instead  we vote for centralization, or mistakenly believe that somehow bitcoin can self-correct on centralization, well then then as Satoshi put it, our “ few years” are up.

It’s interesting that the very moment that world may be on the brink of another financial crisis, we are having our own crisis.  Bitcoin was created to provide a lifeboat, a way to exit the current financial system.  Yet at the very moment that the world maybe turning to our community for a way out from the madness, we are at risk of sinking the lifeboat.


3 thoughts on “A Dangerous Path Ahead.”

  1. Answer one simple question. If 100% of all payment transactions are moved to layer-2 networks or 3rd party services, how many people, not companies, but individual people, should be allowed to hold and peg value on the blockchain?

    Because, with a 1mb limit, the answer is roughly two million people.

    Personally, I am in favor of bitcoin evolving towards a settlement only network with substantially higher fees. With this caveat. No layer-2 networks capable of offloading payment transactions yet exists and, even if it did, I want a whole lot more than two million people to be able to hold value directly on the blockchain.

    1. Hi John
      I am total agreement that the block size should go up as I mentioned in my post. Also, It would be a failure of bitcoin if only 2 million people have a direct stake.

      I never discussed Layer 2 and 3, I believe that either way they are coming and in both cases they need larger blocks anyways. There is nothing to prevent layer 2 and 3 from eventually attaching to network, unless the network rejects those changes and I very much that would happen.

      The reality is that bitcoin will either by a highly centralized p2p free payment service with a low value token, eventually to prevent fees, you need to move to an inflation subsidy and lift the cap., or highly decentralized service with a high value token. Again these are economic discussions and philosophical ones.

      My preference is that bitcoin remain decentralized and the free world decides how to use bitcoin is up to them, raise the blocksize and scale the network as much as possible without sacrificing decentralization.

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