Bitcoin is at last having its ‘Tyranny’ moment

Carl Packman
Jul 25, 2017 · 5 min read

I have, at best, a minor interest in bitcoin and other cryptocurrencies. Where I have had conversations and debates about their existence I’ve typically related them to social welfare (e.g. how would the arrival of cryptocurrencies help people in poverty?), household debt (e.g. can cryptocurrencies expand the supply of responsible credit?) and their cohabitation with other payments instruments (e.g. what do cryptocurrency enthusiasts think of other payments methods, such as cash or cheque, that some people feel more comfortable with?).

As you can imagine any conversation either just falls to typical conversations on social welfare, household debt, and payments, or the cryptocurrency enthusiast refuses the challenge to relate his subject to mine. Which is fine.

That being said I’ve taken a rather active interest in the so-called “bitcoin scalability dispute” for other reasons: it proves a point I’ve held for a long time about decentralised activities.

I’m not going to go into what the dispute is in great detail. There is plenty of other material to read on the “block size debate”. See for example:

— Bitcoin Block Size Debate Causing Investors to Switch to Altcoins https://cointelegraph.com/news/bitcoin-block-size-debate-causing-investors-to-switch-to-altcoins

— The Latest Twist to the Block Size Debate Is Called a “UASF” [user activated soft fork] https://bitcoinmagazine.com/articles/latest-twist-block-size-debate-called-uasf/

Olivier Janssens pithily boils down the debate into two parts:

  • Concerns about not increasing the block size limit, because it makes transactions get stuck, creates artificially high fees and forces people to run third party solutions such as the Lightning Network (which hasn’t been implemented yet and still needs to prove itself). It also risks moving all transactions outside of Bitcoin, which would potentially have a disastrous impact on miner fee income. Because miners secure the network, having no fee income risks removing miner’s long term incentive because the mining rewards are becoming less and less as we move closer to the 21 million supply limit.
  • Concerns about increasing the block size limit, because it would make it harder to run full nodes, and full nodes enforce Bitcoin’s rules and keep miners in check (among other things).

I’m interested in this second part.

As bitcoinwiki expresses: “To prevent Bitcoin from temporarily or permanently splitting into separate payment networks (“altcoins”), hard forks require adoption by nearly all economically active full nodes.”

I risk losing the thrust of the argument so I’ll skip a few steps and say this has significant implications for the decentralisation of the currency.

bitcoinwiki explains why:

  • Larger blocks make full nodes more expensive to operate.
  • Therefore, larger blocks lead to less hashers running full nodes, which leads to centralized entities having more power, which makes Bitcoin require more trust, which weakens Bitcoins value proposition.
  • Bitcoin is only useful if it is decentralized because centralization requires trust. Bitcoins value proposition is trustlessness.
  • The larger the hash-rate a single miner controls, the more centralized Bitcoin becomes and the more trust using Bitcoin requires.
  • Running your own full node while mining rather than giving another entity the right to your hash-power decreases the hash-rate of large miners. Those who have hash-power are able to control their own hash power if and only if they run a full node.
  • Less individuals who control hash-power will run full nodes if running one becomes more expensive

It is for this reason that in relation to the blockchain Professor Vili Lehdonvirta notes the “governance paradox” (once you’ve mastered trust in a currency you don’t need the blockchain):

“ Regardless of the model, my point is that blockchain technologies cannot escape the problem of governance. Whether they recognize it or not, they face the same governance issues as conventional third-party enforcers. You can use technologies to potentially enhance the processes of governance (eg. transparency, online deliberation, e-voting), but you can’t engineer away governance as such. All this leads me to wonder how revolutionary blockchain technologies really are. If you still rely on a Board of Directors or similar body to make it work, how much has economic organization really changed?”

Essentially bitcoin enthusiasts have found out that decentralisation inevitably leads to centralisation.

Larger blocks, in many bitcoin enthusiasts’ minds, is an idea whose time has come because it will attract more investors. But this will also lead more power to centralised entities. Inevitably that power will be gained by being the loudest or the sharpest elbowed, and then bitcoin will be just like, well, anything else.

You could establish trust and proper governance, of course, but then the question remains: if you can do this what is the point of the blockchain? As bitcoinwiki says: “Bitcoin is only useful if it is decentralized because centralization requires trust.”

But then why is this the ‘tyranny’ moment?

Because it is analogous to how Jo Freeman described how power is formulated in any horizontal decision-making structure. See for example:

Contrary to what we would like to believe, there is no such thing as a ‘structureless’ group. Any group of people of whatever nature coming together for any length of time, for any purpose, will inevitably structure itself in some fashion. The structure may be flexible, it may vary over time, it may evenly or unevenly distribute tasks, power and resources over the members of the group. But it will be formed regardless of the abilities, personalities and intentions of the people involved.

‘[S]tructurelessness’ becomes a way of masking power, and within the women’s movement it is usually most strongly advocated by those who are the most powerful (whether they are conscious of their power or not). The rules of how decisions are made are known only to a few and awareness of power is curtailed by those who know the rules, as long as the structure of the group is informal. Those who do not know the rules and are not chosen for initiation must remain in confusion, or suffer from paranoid delusions that something is happening of which they are not quite aware.

For everyone to have the opportunity to be involved in a given group and to participate in its activities the structure must be explicit, not implicit. The rules of decision-making must be open and available to everyone, and this can only happen if they are formalised.

The block size debate shows that centralisation is inevitable in decentralised activity: the difference is the centralisation that emerges from decentralised activity is harder to control and leaves the group on the backfoot. The bitcoin community, I posit, are about to find this out.

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