BTC, BCH, and the Origins of Money:
Historical Underpinnings of the Bitcoin Civil War
Disclaimer: I own neither BTC nor BCH.
The past couple of weeks saw the eruption of what has been cheekily coined* the “Bitcoin Civil War”; a sharp and ongoing competition for market share and hashing power between Bitcoin and one of its forked networks, Bitcoin Cash. Theories and accusations have flown like bullets at the OK Corral. Implications of state actor involvement, indicators of market-priming through wash trading, and the impact of oncoming Bitcoin derivatives are set alongside deep philosophical debates about the purpose of the underlying blockchain network. The debate in question extends well beyond just the Bitcoin protocol, and speaks to a fundamentally divisive issue at the heart of the cryptocurrency world.
I’m neither a market analyst nor network developer, and an attempt to comprehensively analyze the causes and implications of these events is well outside of the scope of this article. Instead, let’s examine this underlying philosophical debate, and see if we can understand why it is so historically important.
To *dramatically* oversimplify the argument, the question is whether Bitcoin (and by extension the functionality of its underlying network protocol) should prioritize faster transaction speed and utility as a payment system over a longer-term focus on security, immutability, and resistance to censorship. Should Bitcoin be more like gold, or a modern cash transaction system?
Gold became a store of value and mechanism for trade millenia before the first coinage — “modern” money — emerged. Gold was widely accepted as as store and mechanism for transferring value because of gold’s “network protocol” — its limited supply, and unusual physical malleability compared to other similar metals. The value of the first is obvious; it preserves against inflation.
Crucial to the value of gold, however, was the fact that anyone could verify its validity. You simply had to bite down on the gold! Pure gold bends easily under the pressure human jaw muscles can generate; adulterated alloys would be harder, and resist indentation under human-generated oral cavity pressure.
We might call this the “original proof of work.”
Of course, putting dents in golden objets d’art is hardly ideal, and the other verification option— manually weighing the gold against some weight of known gold — was both clunky and required possession of pre-verified gold stocks for comparison.
At some point around the 8th century BCE, a Lydian ruler** in what is now Turkey had the bright idea of simplifying commerce by pre-verifying the validity of a given gold ‘token’. The royal mint would create them out of pre-verified gold reserves, and stamp them to prove that they had been validated as to their purity and weight.
This was the moment is history when the world first truly shifted to third-party trusted verification.
All of our collective societies’ financial development and foundations were predicated on this moment in time, when we came to rely upon a powerful third party to verify the value of economic transactions.
Since then, we have discovered enormous benefits to this system. From the explosive growth of commercial networks in the Roman and Han empires, to the emergence of the late-20th-century global trade and finance system, much of the infrastructure behind wealth generation has depended upon the liquidity and flexibility brought by the expansion of third-party verification and government-backed currency. Despite all that, the tension between ‘fiat’ currency and gold — between pure faith and something you could verify yourself — has flared time and again, most recently in the final abandonment of the gold standard during the 20th century.
It may be that the true driver of growth in distributed network technology, the increasing adoption of the children of Satoshi Nakamoto, reflects a reality in which the complexity and sheer flow of data in the modern financial world has finally surpassed the ability of this ancient system of third-party trust to cope. If so, in the world of crypto, we are back in 2800 BC, replaying historical debates and choices that came to define our societies for the next three thousand years.
“History doesn’t repeat itself, but it often rhymes.”*** At the root of the BTC/BCH conflict is a fundamental tension between efficiency of commerce and the means by which we ensure that assets and transactions are real. It behooves the crypto community to take a step back from the trenches, and contemplate the weight and consequences of the choices we make now. They might just shape the next three thousand years, too.
- *Yes, I know, very punny. I couldn’t help myself, it’s just a ‘token’ of my affection to the readers.
- **This is where the story of King Midas comes from. If you hate fiat government currency, blame him.
- ***Tip of the hat to old Mark Twain.