Ten Years of Bitcoin
12 Sep 2018This post was originally written for an opinion series marking ten years since the announcement of Bitcoin. It was not published at the time but appears here, without change, in the form it was written in late-2018. It was originally published in Dec, 2022 and has been backdated.
Reflecting back on my almost-8-years of working on Bitcoin, I’m very proud of his far we’ve come in answering some of the biggest questions around viability of trustless financial technologies. We’ve gone from a niche technology valued by only a small handful of geeks to something discussed and debated in international financial publications. Bitcoin itself has moved on from a single software project maintained by one individual to a large ecosystem of startups, projects, and individuals the world over. Still, we must not allow our progress to make us think that we’re guaranteed success, however that may be defined. Cryptocurrency’s many detractors, more often than not, raise legitimate issues, and the space as a whole has some serious soul-searching to do when it comes to the types of projects we prioritize.
The broader cryptocurrency community seems to get mired in so many debates on technical minutia that it becomes easy to lose sight of the bigger picture. After all, cryptocurrency will never compete with systems that more directly utilize the efficiencies that trusted parties provide. Even the costs involved in slightly reducing trust in single third parties introduce massive engineering and user experience tradeoffs that almost always make such systems simply uncompetitive. And yet, the cryptocurrency ecosystem seems hell-bent on compromising its trustless origins to eek out a few multiples in performance or “scalability,” all while remaining orders of magnitude away from the user experience of systems with similar trust models. There are simply no use-cases for a financial system in which three entities must cooperate to seize or freeze assets instead of one, especially when that seizure is ordered by a western government with cross-jurisdictional financial reach.
Instead of attempting to compete with centralized alternatives in the broader market, the cryptocurrency community should focus on places where there simply is no competition. After all, no one outside of cryptocurrency has managed to design a similar financial product without a trusted third party despite over 30 years of trying. If we can execute on this vision, those facing financial censorship or collapsing financial infrastructure at home could finally have an alternative to go to for financial services. Sure, that alternative will never significantly improve on the user experience of more centralized alternatives for most use-cases, but by focusing on markets where trustlessness provides genuine value we can generate real adoption that doesn’t come and go with the latest investment bubble, and broader adoption can come in its own time.
Of course utilizing “blockchain technology” to create fictional decentralization can provide all the features we want to get out of Bitcoin’s decentralization with few of the tradeoffs for quite some time, but the benefits of such regulatory arbitrage are dubious, at best. Regulators have a tendency to move slowly, and it can often take tens of years for them to fully understand the contours of their powers and utilize them to shut down behavior they dislike. However, if a system can be controlled by a handful of entities, it eventually will, and no amount of claims about the value of “decentralization” or jurisdiction hopping will stop that.
In order to focus on adoption, however, we need to move on from asking “how” we can make a blockchain go faster, to asking “why” such a system will likely provide long-term benefits for its users that cannot be more efficiently and better replicated with more centralized alternatives. What is the point of building a “better blockchain” that “scales” by replacing the attempt at decentralized ledger-keeping that Bitcoin’s Proof of Work represents with something that clearly will never be more than a handful of companies or individuals confirming transactions? Ultimately, as capital centralizes in a few hands as it has through all of human history, does a Proof of Stake blockchain provide any value for its users that a cluster of high-performance databases run by the inevitable few entities with the vast majority of the capital couldn’t? Do cats really need to be on a blockchain, or can we instead keep them on a server somewhere that provides an identical public interface so anyone who wishes to display or trade them can build their own application to do so?
It is very easy to be swayed by an argument that, because Bitcoin’s Proof of Work is currently fairly centralized, an alternative system need only be equivalent to be worth consideration. This, however, misses the obvious point that if Bitcoin’s Proof of Work were never going to become more distributed and control-resistant than it is today that we may want to start rethinking the viability of cryptocurrency as a whole. Luckily, we have lots of room left to shift the needle on the control-resistance of Bitcoin’s mining system, but the effectiveness and adoption of such proposals remains one of my the biggest long-term concerns for Bitcoin’s (and cryptocurrency’s) future.
As much as building a future we want to see requires focus, we should obviously also take this opportunity to celebrate how far we’ve come in demonstrating Bitcoin’s resilience. What was once a system endeavoring to be “trustless” while its rules were changed by its founder with little outside input or review, the consensus rules of Bitcoin today are not subject to the whim of any one group alone. Prior to the events of 2017, one might have reasonably concluded that any one of a number of different groups had outright control over the rules which govern all Bitcoin users, be it the diverse community of developers working on key Bitcoin software, Bitcoin’s many miners and pool operators, or the largest cryptocurrency businesses. However, despite the outward chaos that was the activation of Segregated Witness, the failure of each individual group in succession to make changes to the rules without the agreement of others showed a resilience that will be critical to any future in which no group of third parties need be trusted to use Bitcoin.
While the originally-proposed release of SegWit saw strong support from across the development community and Bitcoin’s most vocal users, it was met with apathy from the business community and outright hostility from many miners. Thus, despite the best efforts of many to advocate for the benefits and relative few drawbacks of such a change, the original activation method went largely nowhere. A vocally frustrated group of users pushed for the forced activation of SegWit in the form of BIP 148, despite condemnation from most developers for its hasty nature, further inflaming tensions. Finally, the backroom dealing between miners and businesses that led to Segwit2X turned what was a roaring dumpsterfire into a full-fledged emergency. Only when the design of Segwit2X was amended to be compatible with BIP 148 did the two efforts converge and lead to the activation of SegWit, again in spite of the condemnation of the timeline and lack of consensus of both efforts by much of the development community.
Still, with both developers and vocal users shown to not have unilateral control over Bitcoin, one might have reasonably concluded that a group of business leaders may yet be able to exert control. However, with the failure of the second half of Segwit2X thanks to user, developer, and market pressure it become clear that, at least as of 2017, many diverse groups have the ability to veto changes to the rules that govern all Bitcoin users, and no such group can make changes unilaterally.
While the events of 2017 were in no question formative to the fledgeling governance process of Bitcoin’s consensus rules, even the solace we take in each groups’ failure must not be taken for granted. After all, a large number of new users entered the Bitcoin community after the Twitter brawls that characterized the mid-2017 Bitcoin community. We must ensure that the lessons we all took from the many key events in Bitcoin’s history not be forgotten and be accurately communicated to each new generation of Bitcoin users.
Despite the many headwinds and challenges of focus the cryptocurrency community faces over the coming years, the diversity of interests and maturity that has developed in the community over the past ten years, not to mention its explosive growth, gives me great hope that, as long as we define it correctly, the next ten years may be one of cryptocurrency’s success.