Crypto-Governance and the Dangers of Faction

Lessons from the 18th Century for designing a decentralized future

Buck Perley
Oct 27, 2017 · 28 min read


The motivation for this post is two-fold. The first has to do with what I view as mostly misguided if well-intentioned discussions about how to design governing mechanisms around cryptocurrencies. Most of this can be divided among three primary camps: idealistic notions of “fairness”, optimizing for efficiency, and blind-faith fundamentalism. Almost none take into account human nature in the context of groups nor the risks to liberty and self-sovereignty that can come about from poorly designed governance systems. Simply saying “Decentralization” does not make these problems go away.

The second motivation is both much simpler but in many ways more pernicious: the dangers of faction. Debate among the cryptocurrency community, especially within the Bitcoin community, has become partisan and tribalistic. This has caused debates to devolve away from reasoned and constructive discussions to an “us vs. them” mentality where anyone who disagrees automatically has evil intentions attributed to them.

This essay is an attempt to introduce into both of these areas a different perspective, one that has been battle tested and debated for centuries.

Declaration of Independence (by Trumbull) and one of the only depictions of active rebellion on a national currency

A Tale of Two Geneses

On July 4th, 1776, Thomas Jefferson wrote in the Declaration of Independence:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

What launched from this declaration was one of the most radical experiments in popular self-governance in history, and one that has endured for more than 200 years. To put the scale of this into context, since the end of the American Revolution, France has undergone two revolutions of their own, and are currently in their fifth iteration of a republic. To the north, it wasn’t until the Canada Act of 1982 that the Crown and British Parliament’s ability to pass laws over Canada finally ended. This is to say nothing of the plague of Fascist and Communist regimes that beset the world in the 20th Century as further experiments in alternative governance schemes. The American Revolution was in many ways the first, if imperfect, realization of the theories of the Enlightenment, debated in Europe for nearly a century before, and the Lockean ideals of self-sovereignty, natural rights, and private property.

On January 3rd, 2009, Satoshi Nakamoto wrote what may eventually be looked on as an equally monumental turning point in the story of human self-governance.


For those not familiar with the inner workings of Bitcoin, the above is a hash of the Genesis Block of the Bitcoin blockchain.

When decoded, there’s a lot of Bitcoin specific information embedded here, but of note is a newspaper headline from that day, encoded into the coinbase of that first block:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

This pointed reference to the greatest financial meltdown in nearly a century (along with the rest of the data in the Genesis Block), is a part of any and all full nodes that run on the Bitcoin network. This data will continue to be propagated by all participants in the network for as long as even a single machine continues to use it (a testament to the permanence of the blockchain’s immutability). The launch of the Bitcoin network set into motion an unprecedented movement of innovation and wealth creation, an event akin to the launch of the Internet, the founding of a new country, and the U.S. leaving the gold standard wrapped in one. In less than a decade, Bitcoin went from a market cap of a hard drive in someone’s garage to over $90bn, spawned hundreds of other cryptocurrencies and blockchains, and gave birth to a new, global, decentralized and non-governmental economy worth, at the time of this writing, around $200bn dollars.

While the mining of the Bitcoin Genesis Block may not quite have been the “shot heard round the world” that the American Revolution was, the challenge issued by Satoshi to the global financial system was no less ambiguous. On the one hand, in the U.S. founding you have not just the first modern attempt at self-governance, but also the first attempt to codify governance and replace a monarch with a system of laws, (negative) rights, and restrained government. On the other, you have the first attempt to literally write a system of rules governing human interaction into code run on machines, creating the first objective system of governance the world had ever seen. With the Bitcoin network, you don’t have to guess at the code’s intention or try and interpret it. It either runs or it doesn’t. By running the software and opting into the network, you are agreeing to its rules. Don’t like the rules and you’re free to leave… or free to attempt to change them if the correct mechanisms are put into place. If money is how we transfer and express value within a society, Bitcoin codified an objective rule set governing that society for the first time ever.

Governance! What is it good for?

I bring all of this up because the subject of governance has become both a vigorously debated and yet also under-explored aspect within the cryptocurrency ecosystem and I think it bears comparing with the similar debate from centuries earlier among the architects of the Constitution.

Most contemporary discussions on this topic, both within and without the cryptocurrency world, tend to focus on how to most efficiently make and execute some decision. What often gets overlooked however is the harder question that will actually enable us to create a truly enduring, inclusive, and global financial system: in a society with a diversity of opinions and interests, how do you determine what is the “right” decision to execute in the first place?

In much of the conversations on governance, I’ve noticed a lot of hand waving about fairness, the 99 vs. 1%, “democratized” decision making, what “the community” wants, and protections against “special interests”. Questions of whether Code is Law or what Satoshi’s “original vision” for Bitcoin was or what constitutes the “real” or “true” version of Bitcoin litter social media and message boards. Arguments that more closely resemble religious fundamentalism or Marxist-Leninist propaganda have become stand-ins for reasoned debate. New cryptocurrencies have been developed to create “digital commonwealths” and to allow for direct voting on protocol changes. Some people even claim that systems governing human interaction can exist without governance at all. Incredible research is taking place to explore more efficient rule enforcement mechanisms, such as Proof of Stake vs. Bitcoin’s Proof of Work, but even these spend more time discussing how to more efficiently punish bad actors than the mechanisms that decide what constitutes a “bad actor” in the first place. This is like debating the most efficient way to put criminals in jail before discussing how to define what makes someone a criminal in the first place.

To say that governance isn’t necessary at all, or that even wanting governance represents a kind of power play, seems to me to naively misunderstand the nature of humanity. Even in a system governed by code, this viewpoint assumes there exist objective, final truths. The problem though is that we all live in our own subjective worlds with subjective values all of varying degrees of validity. Distribution of information isn’t perfect, and distrust among groups is a natural byproduct. Further, to believe this is to ignore that, unlike gold which is physical and immutable, a cryptocurrency is comprised of code that can be improved and innovated on in an infinite number of ways, and from this underestimates the power and scope of that innovation while ignoring its capacity, in a subjective world, to create controversy.

This is something the U.S. founders were keenly aware of in the framing of a constitution- the capacity for humanity to evolve in unpredictable ways. So they created, however imperfectly practiced, a system based on universal and timeless values. In the words of Calvin Coolidge:

About the Declaration there is a finality that is exceedingly restful… If all men are created equal, that is final. If governments derive their just powers from the consent of the governed, that is final. No advance, no progress can be made beyond these propositions. If anyone wishes to deny their truth or their soundness, the only direction in which he can proceed historically is not forward, but backward toward the time when there was no equality, no rights of the individual, no rule of the people.

Because of these immutable laws of nature, not only is some form of governance necessary but it is also inevitable. To ignore these facts, especially in a system as complex and disruptive as cryptocurrency, is not only naive but, as I’ll elaborate below, also dangerous.

What is “Good Governance”?

If we can agree on this then the next question is if some form of governance will emerge, how do we build a system that can most benefit those it is meant to serve and ultimately protect itself from tyranny? This is where I think the quality of dialogue in the cryptocurrency community has most fallen short. The problem in my opinion stems from the areas of expertise that our leaders come from. Whereas the leaders of the Enlightenment ranged from philosophers to lawyers to statesmen to religious leaders to economists to landholders and even at least one entrepreneur/scientists (Benjamin Franklin), most cryptocurrency designers and influencers today are either primarily engineers or entrepreneurs. Where the former were concerned primarily with philosophical and objective questions such as the nature of mankind, the preservation of liberty, and the nature of discourse and compromise, the latter are, justifiably in their respective spheres, most interested in the far more subjective world of unilateral decision making for the good of their project or business. They are those who want to execute the most efficient and effective solution possible given a particular problem, an altogether subjective exercise.

“Put not your trust in princes” — Psalms 146:3

While the signing of the Declaration of Independence is what most captures our attention today, it is often overlooked how much work, thought, and iteration actually went into designing a government of, by, and for the people. The process encompassed the Albany Congress in 1754, three Continental Congresses including the passing of the Articles of Confederation, and finally to the Constitutional Convention and the ratification of the United States Constitution (which superseded the, by then, bankrupt and dysfunctional government under the Articles of Confederation). None of this even touches on the contributions made over the previous century by Enlightenment philosophers including Smith, Locke, Hume, Rousseau, Kant, Bacon, and many more.

One of the most contentious parts of the debate among the founders of the United States was centered around how best to preserve the liberty of the individual from any would-be attackers (both internal and external) while at the same time enabling the government to carry out its duties, i.e governance.

It seemed clear to them that attacks could come from anywhere. First and foremost they needed to protect themselves from foreign invaders and domestic insurrection (vulnerabilities cryptocurrencies also suffer no shortage of). This would take a certain amount of coordination among and between the states and their citizens. With a government so-enabled to repel these threats, the next priority was how to assemble such a body while at the same time preventing it from infringing on the very freedoms for which it was created to protect in the first place. As Thomas Jefferson said:

“The natural progress of things is for liberty to yield and government to gain ground.”

Now while you certainly could make a defensible claim that the American experiment has failed in the second aim (I would argue that the central failing in present-day America has been a lack of education, particularly decentralized education, which had been one of its defining strengths as noted by Tocqueville in Democracy in America, but that’s a subject for another post!), the point is that a great deal of thought and debate, going back to John Locke in the 17th Century, went into creating a system of governance that began from the assumption that power was corruptible. It was designed with the acknowledgement that good governance was necessary (and in its absence tyrannical governance would fill the void), that it would need the capacity to change and adapt, and that it was not just possible but likely that wrong decisions could be made (even by the right people) and that the structure of power in any form should always start from an assumption of mistrust.

One of the best places to get insight into the content of this debate is in the Federalist Papers. A collection of 85 essays written primarily by Alexander Hamilton with contributions from James Madison and John Jay published between 1787–88, the Federalist papers represent one of the most thorough public defenses of the design of the United States Constitution available. The questions addressed that I think are most relevant to the world of cryptocurrency governance relate to the nature of power and the influence of faction.

The list of their concerns included:

Misguided faith that power would be in the hands of those with good intentions

It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm
- James Madison, Federalist #10: “The Utility of the Union as a Safeguard Against Domestic Faction and Insurrection”

The tyranny of the majority

The majority, having such coexistent passion or interest, must be rendered, by their number and local situation, unable to concert and carry into effect schemes of oppression.
- Madison, Federalist #10

It has been observed that a pure democracy if it were practicable would be the most perfect government. Experience has proved that no position is more false than this. The ancient democracies in which the people themselves deliberated never possessed one good feature of government. Their very character was tyranny; their figure deformity.
- Hamilton, Speech in New York (21 June 1788)


By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community.


Men of factious tempers, of local prejudices, or of sinister designs, may, by intrigue, by corruption, or by other means, first obtain the suffrages, and then betray the interests, of the people
- Madison, Federalist #10

Those in power

“The truth is that all men having power ought to be mistrusted.”
- James Madison

And the most notable warning to my mind because of our natural human tendency to fall victim to the allure of paternalism-

Those in positions of power who already have the trust of the people

“For it is a truth, which the experience of ages has attested, that the people are always most in danger when the means of injuring their rights are in the possession of those of whom they entertain the least suspicion.”
- Alexander Hamilton (The Federalist Papers #25)

What ties all of these points together is they all underscore a distrust of power in any form, even though many of these same people would soon be in a position to wield the power they were at present handicapping (five of the founding fathers would later become presidents). They distrusted power in the hands of a selfish tyrant and in those of one with altruistic intentions. They distrusted rule of the majority and of the minority. They distrusted factions and they distrusted philosopher kings.

Accept Compromise, Appreciate Gridlock

If we acknowledge that the point of a cryptocurrency, or at least the point of one whose goal is to be a global and distributed payment system (or world computer), is to create some system that encompasses peoples of a wide range of motivations and differing interests, and if we further acknowledge that engineering often involves the subjective practice of measuring trade-offs, security vs. speed, memory vs. performance, depth vs. breadth of adoption, etc., then you need to take into account that a governing system needs to exist to unite these varying and usually all justifiable interests to push the entire ecosystem further.

“Early in my career as an engineer, I’d learned that all decisions were objective until the first line of code was written. After that, all decisions were emotional.”

― Ben Horowitz, The Hard Thing About Hard Things

This is all to say that if you create a system that will encompass different viewpoints and subjective interests, two things need to be taken into account:

  1. Making a change should be very difficult
  2. Change to the system must be possible and under the assumption that it is entirely reasonable to expect positive (or at least non-negative) change to come from a faction with whom you disagree. I.e. trust the system more than your own judgment.

How these points manifest is in a system that should reward compromise with incremental but sustainable progress in order to encompass and promote the most diverse set of opinions and interests, while also punishing strong-arming with gridlock, even if the “pure” progress being proposed may appear to be the best way forward.

While Madison does indeed warn against the perniciousness of faction, in fact, Federalist #10 is mostly dedicated to this warning, at the heart of his argument is an acknowledgment that the vices of faction are a necessary evil when governing large and diverse groups of people:

Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency.

This is to say that disagreement needs to be accepted as a reality of life and thus a proper governing system must have built into it an understanding that factions will arise and that its effects must be absorbed if the system is to endure. Indeed, Madison begins this section by pointing out that “[t]here are two methods of curing the mischiefs of faction: the one, by removing its causes; the other, by controlling its effects” later only to explain that the first cure is “unwise” while the latter is “impracticable” for the promotion of liberty. Madison continues (emphasis my own):

As long as the reason of man continues fallible and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other

What does all of this have to do with Cryptocurrency?

Most of this discussion so far has been theoretical. A lot about the nature of humanity and how that should be considered when devising governance schemes. What I’d like to do though is to try and tie this into cryptocurrency as it is presently thought about and implemented (or should be), and I’d like to touch on this in two respects. The first is how I believe the structure of the Bitcoin ecosystem, including much of its political divisions, reflect the ideas and concerns outlined above by the U.S. founders and other Enlightenment thinkers, and how this is one of its greatest strengths. Second, I will look at the ongoing block size and hard fork debate that has been raging for the past two years.

I make no claims to Bitcoin being a perfect implementation of human governance in code or for being a Bitcoin maximalist. I am simply making a comparison between the two systems and how the parallels lend themselves to Bitcoin’s strengths.

Bitcoin’s Checks and Balances

Comparing Bitcoin to the United State’s system of government is not a new idea, but I think it bears repeating in the context of the philosophy that gave birth to that system as outlined above.

First are the remarkable number of parallels between the contexts in which they came about. Neither was the first attempt at a radically different view of human liberty (non-governmental, digital currencies had been being worked on for decades prior to the advent of Bitcoin) and thus reflect many decades of work, research, and thought. Both were launched in response to what their respective creators viewed as overreaches of the prevailing systems they would later seek to subvert and both came about in adversarial circumstances such that every contingency had to be taken into account in order assure their respective survivals.

The Declaration of Independence was an airing of grievances against the crown and a declaration of intention of the colonies for self-governance. Similarly, in Satoshi’s original white paper, the inadequacy of our legacy payment systems are laid out and a proposal for rectification put forward.

Just as the Constitution and Bill of Rights were the realizations of the vision put forward in the Declaration, so too was the open source reference implementation of Bitcoin written by Satoshi the ideas from his white paper put to practice. In another parallel, neither remained in their original form with both subject to needed change (Amendments for one, Bitcoin Improvement Proposals, or BIPs, for the other).

For the past 20–30 years we have been used to thinking of code as a product. Even open source projects are run as if it is propriety, just with more transparency. Maintainers decide the road maps, choose which changes do and don’t get incorporated, and address (or ignore) the issues of the users at their discretion. Code, like laws, can be changed and as code increasingly comes to take on more of the responsibilities previously handled by laws (read Nick Szabo’s writing on “wet” vs. “hard” code for more on this) it is important to consider how changes can and should be affected.

So how does this work in a distributed network where a code change often isn’t as simple as an automatic upgrade to your iPhone? How do you account for a system meant to take a diversity of opinions and priorities into account and how do you coordinate changes where if the network isn’t in unanimous agreement it suffers a split that can cause real financial harm?

Just as the founders devised mechanisms to allow for change in a system absent an absolute ruler, so too did Satoshi take this problem into account:

The proof-of-work also solves the problem of determining representation in majority decision making. If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it.

The analogy would be:

  • proprietary code = absolute dictatorship
  • open source projects for non-distributed systems = parliamentary monarchy
  • decentralized consensus networks (like Bitcoin) = constitutional republic (or popular democracy depending on the implementation)

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary

— James Madison, Federalist #51

The Branches of Governance

The system of checks and balances devised by the founders represented an important mechanism to both enable governance while also inhibiting overreach from any of the competing branches of government.

In Bitcoin, Full Nodes are those “participants” in the network that contain the full history of the blockchain and the UTXO set (Unspent Transaction Outputs) that are needed to verify transactions. Like the executive branch of the U.S. government, it is their job to “faithfully execute” the rules of the underlying protocol and “to the best of [their] Ability, preserve, protect and defend” the network.

Next up is the Proof of Work security provided by miners. Similar to the American judiciary, it is the job of miners to enforce the rules of the network and ensure its continued smooth operation. Without the security brought by miners to the transmission of transactions, the value of the underlying token (e.g. Bitcoin) decreases thus decreasing the value of the rewards they receive for bringing the security in the first place. This is a dual incentive relationship that undergirds much of the game theory for most stakeholders in the system.

Finally, we get to the third branch of a constitutional republic- the legislature. Much as in the U.S. system, this has evolved into a two-pronged, and sometimes competing, structure. Playing the role of the House of Representatives are the entrepreneurs, businesses, infrastructure developers (wallets, graphical interfaces, etc.), and investors. Like their governmental counterparts in the U.S., these will tend to be the most “democratic” of the branches representing the widest diversity of viewpoints as they are in more regular and direct contact with everyday users of the currency. Some conflicts may arise in the area of short-term profits vs. long-term health of the system, but, overall, businesses both bring long-term viability to the network by providing services such as exchanges, marketplaces, wallets, and accessible security and most benefit the more useful the currency becomes in the long term.

The final arm of the legislature in the U.S. system is the Senate, a role played in Bitcoin by the developers. As originally envisioned by the founders this chamber was meant to be one more step removed from the people than the House of Representatives as they were elected by the state legislatures (until the very misguided 17th Amendment which transitioned to direct popular election of Senators and is likely a large contributor to our present increased partisanship and misguided populist movements). Similarly, developers can be supported by companies in the ecosystem or can contribute from their own free time. Much of their authority comes from their experience in the space.

A very rough and simplistic diagram of Bitcoin’s governance model

The incentives of developers, however, is less straightforward than the other “branches”. Value for them is derived from two primary sources- first are any holdings of the crypto token which they already hold and will correspondingly be worth more as the utility of the token and demand for it increase and second is the power and influence that comes with being a lead developer for a project worth $100bn.

This comes with three areas of asymmetric incentives.

First is that developers are the only economic stakeholders (aside from Full Nodes which play a purely passive role in the system) that do not earn more of the underlying token that they are supporting. This skews incentives towards incumbents being more conservative (not necessarily a bad thing! especially as it can counter-balance any tendency towards short-termism of businesses) as they benefit from the value of their holdings increasing (something that can be manipulated with the perception of value) rather than increased utility. This can result in its own form of more narrow, short-term thinking.

Second is it incentivizes the crowding out of new developers from entering the space as the bias is towards incumbents. Developers are attracted by interesting projects and welcoming environments and, in fact, more short-term profits can be realized by new developers who move to newer projects where the potential short-term gain from the launch of a new cryptocurrency token is much higher. Incumbent developers meanwhile are incentivized to have their proposals take precedence while also incentivized to increase complexity which further increases the barrier to entry of competing and newer developers entering the space (thus further increasing the value of their expertise).

The final risk of this incentive scheme is the potential to foster cults of personality. As experience becomes more concentrated and more scarce, there can be a tendency to put trust in the hands of those who we believe are the most altruistic, doing things for the longest time for the good of the system. The problem though, in the words of C.S. Lewis, is…

Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.

This comes with the added risk in that it makes the “citizens” of that system dangerously complacent towards leaders with whom they agree, and more antagonistic and partisan towards those with whom they disagree, dividing the community further by rewarding and promoting the loudest, and usually more extreme voices (something the U.S. and much of the world is currently experiencing as well).

Again, the lesson of the U.S. founders is that all power must be distrusted, no matter how good the motives. Conversely, differing opinions should be welcome or at least understood to be inevitable and do not necessarily come from malicious motives.

The last piece of this comparison has to do with the mechanisms for change. As outlined earlier, it should be hard to make changes in a governing system. In the words (again) of Calvin Coolidge: “It is much more important to kill bad bills than to pass good ones.” In Bitcoin these mechanisms take two forms- first are forks (both soft and hard forks) for implementing changes and second is the Proof of Work difficulty adjustment for making any contentious change expensive. The difficulty adjustment essentially acts as Bitcoin’s barrier to overcome for “Constitutional Amendments” (i.e. protocol updates) in order to be passed (i.e. deployed to the network). The way Proof of Work difficulty works as a disincentive is that without a supermajority of mining power and an economic majority backing it, the rate of blocks mined can drop precipitously which means that the rate at which transactions can be confirmed also drops and thus the utility of the coin itself goes down (usually though not necessarily leading to the value also decreasing, which often depends on the motivation behind the fork, i.e. malicious or untrustworthy forks are less likely to hold higher value). The difficulty for mining new blocks adjusts based on a target of a new block being mined on average every 10 minutes. If there are more computers mining Bitcoin, the cryptographic difficulty goes up in order to maintain this average, and down if miners leave. This “re-targeting” only happens every 2,016 blocks though, which means that a fork with a significant minority of hash power could be stuck at hour-long wait times for weeks or even months.

This makes the cost of a fork without significant buy-in from more than one branch of the governance system prohibitively expensive. Several upgrade proposals such as BitcoinXT, Bitcoin Classic, and Bitcoin Unlimited had some buy-in by miners (never over 40% though) and very little from the business ecosystem or developers and thus never activated. Segregated Witness was an upgrade deployed on the network by the Bitcoin Core developers in 2016, but, due to a lack of mining support (never much more than 30%) stemming from a distrust some held towards the developers most vocally in support of the change, it went a year without activation. It was finally activated only after some “parliamentary” shenanigans, a compromise between the business community, some developers, and miners for a later hard fork in exchange for activation, and threats of a “User Activated Soft Fork” initiated by Full Nodes on the network which promised to reject blocks from miners not in support.

It wasn’t until Bitcoin Cash forked in August 2017 that a contentious fork was finally executed and sustained a split. Notably though, in order for their fork to survive, they had to change Proof of Work retargeting so that miners would be able to find blocks faster than the default retargeting time would allow. This resulted in some crazy price swings and price manipulations by miners jumping between chains making the chain less reliable and its token less valuable. And even with the change, Bitcoin Cash miners were losing money, hundreds of thousands of dollars by some counts, for the first couple weeks by forgoing mining on the main chain.

Most importantly to me though about the Bitcoin Cash, and now the Bitcoin Gold, fork is that by making it easier for a minority of miners to break off from the majority of the ecosystem, it is, therefore, easier for those in the future who want to similarly break off. This makes consensus essentially irrelevant and breaks one of the primary governance mechanisms of Bitcoin. If it’s hard to fork and prohibitively expensive to impose contentious changes on the network, you are more protected from making bad decisions, more likely to be inclusive of differing opinions, and more able to adapt for the long term regardless of whoever is governing in the short term. While forks can be harmful and disruptive to the network, the threat of forks is an important governance mechanism that should be respected and leveraged to make a more universal and inclusive system.

The Risks of Factions

The final point I’d like to make on all this is an attempt to tie all of the above together with regards to how viciously partisan those in the community have become, seemingly to the point of religious fanaticism. Debating about what Satoshi’s “original vision” for Bitcoin was or that the Real Bitcoin™ is the one supported by some subset of the best known developers completely ignores the quite effective, and frankly proven, governing system that has been put into place. Reasonable people can disagree while still having the best intentions for the network as a whole at heart. Character assassinations do nothing but divide the community to the point where, when you feel you have nothing left in common, the community decides it's better off splitting rather than coming to some common ground. It makes no sense to, on the one hand, say that the Real Bitcoin™ will be enforced by the economic majority and then at the same time say you will leave the community and sell all holdings if the economic majority chose a path you did not agree with. Price, utility, public perception, and checks and balances that assume disagreement and lack of 100% consensus are provably built into the governance mechanism. If there is no way to deviate from a path that you may happen to agree with but the economic majority deems harmful to the network, then there is conversely no mechanism to defend against bad actors you do see as harmful. These mechanisms must be objective to the point where your side is equally capable of being a target of them. Anyone who thinks the experiment failed because their side lost is being dogmatic and ultimately leaves themselves open to tyranny. Instead, you should make your case as best you can and, after that, simply trust the system. If you don’t trust the system, then we’ve already lost.

Jameson Lopp wrote a great article earlier this year on how no one can truly claim to know what the Real Bitcoin™ is. From the post Nobody Understands Bitcoin (And That’s OK):

One Final Observation:

Satoshi Nakamoto is our George Washington

It is often taken for granted today how revolutionary it was at the time for George Washington to step down as the head of the U.S. government. When the news made it to Great Britain, Rufus King quoted King George III as saying that the resignation “placed him in a light the most distinguished of any man living, and that he thought him the greatest character of the age.”

Of course, in Bitcoin, we have experienced a similarly unique phenomenon, when, in 2010, after having been developing and helping to run the live Bitcoin network for two years, Satoshi Nakamoto’s online accounts went black. Not only that, but as the first and only miner on the network, Bitcoin addresses associated with Satoshi have funds that are today worth around $6bn. The most remarkable thing is that these funds haven’t moved since Satoshi went silent.

It is unclear why Satoshi left the community or if it was even voluntary since we don’t even know who he/she is (while there are plenty of theories and have been several “unmaskings”, none have been definitively proven and none have been widely accepted by the community). But what is clear is that like George Washington, Satoshi left the Bitcoin ecosystem in a very unique circumstance. Just as it was unique for a person who was in a position to grab ultimate power to abstain from grabbing it (as Napoleon later would take power in France), Bitcoin remains the only cryptocurrency where the creator is not just unknown but retains zero influence over the direction of the community. As outlined above, experienced developers hold an inordinate amount of power over the direction of a cryptocurrency, and none have more experience or influence than the original developers who can affect massive swings in the market with a simple announcement.

Ray Dillinger did one of the first code reviews and security audits of the Bitcoin code back in 2008, and he writes an incredible piece reflecting on how monumental what Satoshi built was and how unique it was that he left. In “If I’d Known What We Were Starting” he writes:

[T]he Trustless nature of Bitcoin was the main thing that convinced me Satoshi wasn’t scamming. He built a highway with no toll bridge. People could use Bitcoin without creating any obligation to pay him anything ever. He wasn’t selling coins, he was giving them away for solving hashes. He reserved nothing for himself.

He wasn’t trying to line his own pockets at the expense of others. In fact I don’t think I’ve ever encountered someone so completely uninterested in personal wealth. You know the old saw about being able to get a lot done if you don’t care who gets the credit? Satoshi doesn’t want the credit. Two years later he walked away and left the pseudonym behind. And hard as this may be to believe, it looks like he doesn’t even want to be paid for it. As far as we can tell he mined approximately a million Bitcoins and has never sold a single one of them.

Many decry the fractious environment that exists in Bitcoin today, but I would argue that much like how the messiness of political debate in a free society can feel exhausting when compared to the surface efficiency of authoritarian states, to abandon that messiness can also leave you vulnerable to the risks of tyranny itself, even one exercised for our own good. So while being without a uniting “supreme leader” may leave a community at each other’s throats, it is also important to remember that divisions are an opportunity to make us stronger as long as we avoid the temptation to view opposition as an existential threat and retain a sense of common purpose.

“The Mischiefs of the Spirit of Party” and “The Duty of a Wise People”

This was… a very long essay. If you made it this far, I commend you and thank you for bearing with me! There’s plenty I tried to address in here and hopefully at least some of it came across coherently enough to add something constructive to the discussion. Unfortunately, it feels like Enlightenment political philosophy and the lessons of the founding of the U.S. have become increasingly niche areas of interest despite the immeasurable contribution they’ve made towards advancing human liberty across the world. Hopefully I was able to make the case for their relevance today even in as bleeding-edge a space as cryptocurrencies and blockchains. In fact, as this technology leads us into a new stage of the evolution of human self-governance, it’s probably more important than ever to look back and reflect on lessons already learned but easily taken for granted.

To close off, I’d like to share George Washington’s remarks from his farewell address on September 19th, 1796. In his speech, the first president devoted much time to a farsighted admonition against the dangers of faction and offers a sobering reminder of its consequences. It is a warning that I believe resonates even today and even in the crypto world (and especially in Bitcoin). It presents a strong and enduring indictment against the all too human temptation of putting “party” over principle and the damage this can ultimately inflict on liberty.

The alternate domination of one faction over another, sharpened by the spirit of revenge, natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism. The disorders and miseries which result gradually incline the minds of men to seek security and repose in the absolute power of an individual; and sooner or later the chief of some prevailing faction, more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, on the ruins of Public Liberty.

Without looking forward to an extremity of this kind (which nevertheless ought not to be entirely out of sight), the common and continual mischiefs of the spirit of party are sufficient to make it the interest and duty of a wise people to discourage and restrain it.

None of this is by any means a settled debate but hopefully it can become a more civil one. If you have any thoughts of agreement or contention I’d love to hear your comments and to further the discussion for a better and freer future!

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