Crypto-Governance and the Dangers of Faction

Lessons from the 18th Century for designing a decentralized future


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.

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:

“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.

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.

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.

“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.

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. 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.

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.

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.

  • 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.

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

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.

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.”

“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.

Software engineer working in #Bitcoin since 2016, 6yr former China expat, author of “The Great Ride of China”, Conservatarian, Guinness Record holder.

Software engineer working in #Bitcoin since 2016, 6yr former China expat, author of “The Great Ride of China”, Conservatarian, Guinness Record holder.