Bitcoin Cash, what are the limits to economic freedom?
Abstract: This is an opinionated article exploring the limits of inflation resistance, censorship resistance and privacy, and how culture and governance in relation to these limits will play a key role in the success of Bitcoin Cash.
A fast, cheap and reliable payment service provided by Bitcoin Cash is not a particularly attractive feature. It is actually a pre-requisite prior to even considering competing with fiat payment processors. The competitive advantage of Bitcoin Cash is economic freedom. More specifically, inflation resistance, censorship resistance, and privacy.
Bitcoin Cash was designed for the purpose of circumventing the existing financial system and its ills of inflation and censorship, by installing a decentralised system, with a programmed and finite number of coins to ever exist (21 million to be specific), and no trusted central third party who could censor transactions at will.
The decentralised nature of the blockchain makes it extraordinarily difficult, if not impossible to alter. Miners simply follow a set of protocol rules to their own benefit, and the protocol rules by design do not cater for any inflation beyond the 21 million coins, or any censorship of transactions. Notwithstanding, the rules of the game, i.e. the protocol, can be altered, and has been ever since it was first written by Satoshi Nakamoto. Interestingly, the original codebase has almost been completely re-written with a host of non-contentious protocol changes, bug fixes etc. The fact that the protocol can be altered means that inflation can theoretically go beyond 21 million coins and transactions can theoretically be censored.
The inflation and censorship resistant features of Bitcoin Cash is derived from the contentious nature of such changes, and that no one entity has ultimate authority over the codebase. But what are the limits to this resistance? An easy answer is to hold that there is no limit, with the assertion that Bitcoin Cash provides complete economic freedom and anything short of this is antithetical. This approach, however, is detached from reality and will result in the demise of Bitcoin Cash. Although it is almost inevitable that mass adoption of cryptocurrencies will someday eventuate, there is no timeframe for when this will happen. Bitcoin Cash currently has the best chance for bringing us economic freedom, but one should not be under the illusion that it cannot fail — it could very well fail. As such, exploring the real limits of inflation/censorship resistance will better define Bitcoin Cash and its purpose, in order to properly formulate solutions for the foreseeable threats and to build a future of freedom and liberty.
Bitcoin Cash is inflation resistant, not inflation proof
The evils of inflation are profound, and in history has proven to end in the same way — debasement and hyperinflation. Nations generally try to control inflation at low single digits, which on its surface seems fairly harmless. Although the hidden cost is not so apparent, which is debt driven economies with bubbles typically in housing and the stock market, and uncontrolled fiscal debt. The currency always underwrites these debt driven economies, whereby the crash of the debt driven economy is never willingly permitted, and therefore the only solution is to inflate the problem away. This inevitably results in currency debasement and eventual currency collapse. The creation of Bitcoin Cash was meant to prevent this kind of reckless inflation from ever happening again. However a new concern has arisen, which is the prospect of no inflation at all.
Bitcoin Cash needs to be maintained by a 24/7 network of miners running the protocol. Miners have enormous capital and energy costs that is ultimately paid for by the community of users. Satoshi Nakamoto’s solution for covering the costs was an arbitrary inflation schedule, that would eventually be replaced by transaction fees. It is evident however, that there are debilitating assumptions and limitations with this implementation, including:
- The assumption that there will be a sufficient number of transactions for a timely transition away from the inflation schedule. This has proven to be not the case, with the upcoming halving predicted to be particularly severe for miners. Hoping or praying for the BCH price to rise is an unwise strategy.
- The assumption that transaction fees alone will sufficiently cover network security costs. Even with full blocks, it may eventuate that minimum transaction fees continually rise, in order to cover network security costs, to the detriment of utility. There is a total dependence on a ‘means of exchange’ utility fee, without any ‘store of value’ utility fee (i.e. inflation).
- The assumption that total miner income will be proportionate to the security threat landscape. The income received from transaction fees are unpredictable and are dependent mostly on supply and demand for block space, and the price of BCH. As such, there is a disconnection between the total miner income requirements, and the needs for network security and protocol efficacy.
No inflation is clearly detrimental to the success of Bitcoin Cash, as there is complete dependence on transaction fees. But fortunately, Bitcoin Cash is inflation resistant, not inflation proof. In view of this, two inflation components should be implemented — the base rate and the variable rate.
The first component, the base rate, is essentially what is current — a block reward of a fixed amount of coins that is awarded to the discoverer. Unlike the current block reward, the base rate is adjustable through community consensus. The base rate has the purpose of providing sufficient miner incentive for block discovery and therefore network security. It can be raised, or lowered in response to the perceived threat level. The base rate is under continual review by community consensus on factors such as BCH, BTC, USD prices, hash rates, frequency and severity of block reorgs, known hostilities etc.
The second component, the variable rate, is a programmatic and dynamic rate of inflation for the purpose of incentivising miners to behave in a manner consistent with user and protocol expectations, and to refrain from greed-driven subversions. For example, the variable rate can be used as a means to reward miners for including ample transactions in a block, to keep transaction fees low, and to prioritise or de-prioritise certain types of transactions.
Inflation provides an incredibly powerful tool to counter both external and internal threats. These threats may be of an external attack to destroy the network, or by an internal subversions for selfish gain, and anything in between. The inflation rates are adjustable and dynamic so that the community can appropriately respond to such threats. The first action Bitcoin Cash should make in relation to inflation, is to remove all future block reward halving events, which in effect would implement the base rate. The variable rate should also be implemented to boost use, with particular reference to transaction count.
Bitcoin Cash is censorship resistant, not censorship proof
The evils of censorship are profound. Censorship excludes billions of people from participating in trade. This expunges prosperity from those who are censored, but also decreases the prosperity of the world. Censorship too commonly is used as a form of control, such as banking oligopolies needlessly charging exorbitant fees, and over-regulation with the scrutiny of all transactions. These controls prohibitively raises the costs of all transactions, effectively censoring billions of people from global trade. Bully nations collectively punish by widespread geographical censorship under the justification of starving the political elites, even though it is clear that empowering people and promoting freedom is the most effective way to instigate change. Political opponents and media whistleblowers are censored in order to eliminate any checks and balances on power. Overall, censorship has diminished freedom and liberty around the world, where it is used by the established powers to choose who will, and who will not, participate in trade.
Bitcoin Cash was created in order to bypass the widespread censorship of the established global financial system, by empowering people to conduct peer-to-peer transactions without central control and censorship. However, it is vital that Bitcoin Cash has some censorship take place for any possibility of global adoption and threat mitigation. Fortunately Bitcoin Cash is censorship resistant, not censorship proof. Although there are many instances where censorship is warranted, the discussion here will focus on the most pressing cases to highlight the need for some narrowly scoped censorship.
Clear cases for the need of Bitcoin Cash to censor is for the ability to respond to the most heinous crimes and abhorrent acts against humanity, such as child pornography, sex trafficking, torture, etc. Bitcoin Cash requires a mechanism to censor known addresses that are directly facilitating these activities. If it cannot, then Bitcoin Cash will remain on the fringes, or die off — more likely the latter. The case for economic freedom will not be a justification for the enslavement and torture of any peoples. Nations, societies and the global community at large will not tolerate it, so Bitcoin Cash had better understand this now in order to adequately prepare itself.
Bitcoin Cash is currently not a threat to any nations given its tiny stature. However, if mass adoption ensues, governments will be highly adversarial to protect the undermining of their ability to project power through their currencies. Their most effective line of attack will be any inability by Bitcoin Cash to censor. Competitors like Libra will clearly benefit, where they are only too happy to comply. This is not to say that Bitcoin Cash should censor willy nilly, as this would defeat its purpose of being a censorship resistant medium of exchange. But rather, to have focused censorship of matters that are universally condemned. Aside from the ethics, this will effectively diffuse both internal and external threats for gaining sufficient political will in order to mobilise resources to the detriment of Bitcoin Cash.
Privacy has largely been omitted from this discussion, as it is apparent that Bitcoin Cash is a public ledger with limited privacy. Increased privacy is technically feasible, and currently in development, however these implementations are largely based on obfuscation and are not absolutely secret. Notwithstanding, and like censorship resistance, privacy is a fundamental requirement for economic freedom, and any privacy breaches will be deterred by the high costs of such procedures.
How does Bitcoin Cash effectively govern itself to balance these resistance limits?
The main governance mechanisms that enforces balanced level of inflation and censorship resistance are a culture of intolerance, decentralisation of power, chain splits and formalised governance. Bitcoin Cash has most of these mechanisms in place, however there are serious challenges that need to be addressed for a properly functioning decision making process, starting with its culture of intolerance.
Culture of intolerance
A culture of intolerance is required to have inflation/censorship resistance, and the Bitcoin Cash community has no shortage of intolerance, and for good reason. However, it is imperative that this intolerance is based on reasonable grounds, otherwise Bitcoin Cash will face paralysis and death. The first and most important step is to discard any preconceived notions that some parts of the Bitcoin Cash codebase are holy scripture and cannot be altered. As an example, 21 million is not a holy number and never will be. The community needs to be courageous and tackle these notions head on with sound reason and debate.
A properly functioning culture of intolerance is one where community members have independent well-thought values on what is, and what is not, tolerated. In such a culture, decisions on inflation or censorship are always narrow in scope. For example, the scope may allow for a limited level of continuous inflation for security of the Bitcoin Cash network, and would reject inflation for the purposes of funding endless wars in the middle east. The scope may allow for a censorship of known addresses of a pedophile ring, and would reject censorship of known addresses of political entities.
How is the scope defined and how does Bitcoin Cash ensure decisions passed are narrow in scope? This is where the decentralisation of power and consensus-based decision making bears its fruition.
Decentralisation of power
Decentralisation of power is vital for the scope of inflation and censorship decisions to remain narrow in focus. The narrowness of scope is enforced by the difficulty in achieving the required community consensus for decisions to be passed. Moreover, decentralised decision making involves deliberations and scrutiny that are unbiased and largely resistant to external coercion, thus the focus remains on community interests alone.
As alluded to, a narrow scope of decision making is one where only the best interest for the community is served, for example decisions made for the continuation of service. As such, consensus decisions are within reach on these issues. A narrow scoped example would be the censorship of abhorrent acts. It would be relatively easy to make a community consensus decision because, a) the service providers find it abhorrent, the users find is abhorrent, the political base of external adversaries find it abhorrent. Thus it is very easy to find consensus and is therefore well within scope. Conversely, a broadly scoped example would be sanctions on political groups for in response to external pressure. Service providers do not want to lose money from servicing people within those groups, most users do not particularly care other than the minority affected by the sanctions, and the political base of external adversaries are not passionate about the issue. As such, community consensus would be almost impossible to achieve on broadly scoped issues such as the censorship of political groups.
It is apparent though that with increased decentralisation of power, there will be segregation of community values in relation to the culture of intolerance. With each consensus decision, or lack thereof, parts of the community will be dissatisfied. The ultimate insurance policy against poor decisions made is the contentious split, of both the protocol and the community.
Chain splits
Chain splits are the last resort due to the high risks associated. They can be avoided through dialogue, community consultation, debate and communication. The risks can also be mitigated by proper preparations. Sometimes though, they are completely unavoidable when it is clear that paralysis is occurring by a lack of consensus, or when community consensus is heading in the wrong direction. It is worth noting that consensus rarely ever means unanimity, a consensus decision is often a begrudging compromise agreement.
Despite the risks and trade-offs, chain split are an extremely effective governance mechanism. With each split, the community culture and values become better refined and solidified. For example, Bitcoin Cash refined its culture and values to be focused on providing fast, cheap and reliable payments (2017 split). It then refined its culture and values of understanding the need for improvement, innovation and protocol upgrading, and also refined its capacity for independent thought (2018 split).
Bitcoin Cash still faces significant hurdles, primarily with its culture of intolerance being excessively strict and fearful. Fortunately however, its culture has an ability of including unpopular opinions, has good communication channels and an abundance of independent critical thinkers. As such, a chain split can be avoided with healthy discourse resulting in its culture of intolerance slightly relaxing for an eventual consensus (albeit a begrudging one) decision on lifting the 21 million supply cap — which is currently the most pressing issue facing Bitcoin Cash. Avoiding a chain split on this issue is desirable (although not essential), because the retention of the highly intolerant faction will assist Bitcoin Cash by acting as an anchor for the preservation of its culture of intolerance well into the future.
Further down the track when Bitcoin Cash has gained significant adoption, governments will undoubtedly attempt to erode the culture of intolerance (particularly censorship) for political power, where individual freedom and liberty is jeopardised. To mitigate the risk, it is essential that the community thoroughly explore, reason, resolve and continually reinforce what is, and what is not acceptable inflation and censorship. Furthermore, alliance management and chain split preparations (without monopolistic attempts) need always be in place and maintained for when the insurance policy needs to be invoked.
Even when chain splits occur, both progenitor coins could very well continue in parallel, however the cultures would differ on their level of censorship/inflation resistance. In the end, natural selection will take its course and the best solution will proliferate. As such, neither inflation nor censorship should be feared, as Bitcoin Cash is resistant to these. The fear should be of fear itself. Formalised governance will significantly enhance discourse and reduce the likelihood of unnecessary splits.
Formalised governance
History thus far has clearly demonstrated that contentious implementation proposals can very quickly evolve into positional and tribalistic warfare that is devoid of rational discourse. Such splits in the community make it almost impossible to discover and exploit any exisiting compromise solutions. Formalised governance will assist in maximising effective discourse and decision making processes, and enable the exhausting of all avenues of compromise before committing to a chain split. It will also assist any inevitable chain splits in becoming a more respectful and managed procedural event, minimising the inherent risks.
Missing from the published Bitcoin Cash Roadmap is a fourth stream for the development of formalised governance. The stream would have the purpose of seeking out and including all community stakeholder and interest groups, and facilitating discourse, decision making, implementation, and conflict resolution. Formalised governance may on its surface appear to be a centralised government and therefore a single point of failure, in reality however, the stakeholders and interest groups are independent and globally dispersed, with decisions made on a consensus basis.
Conclusion
The limits to inflation and censorship resistance are yet to be discovered by the community through discourse and consensus-based decision making. It is clear however, that inflation is required for the protocol to run securely with efficacy. Moreover, censorship is required to prevent the enslavement and defrauding of freedom from some people, in the name of economic freedom for others. Culture and governance will be key to balancing these resistance limits, and only then can Bitcoin Cash be adequately prepared to become a serious contender against government monopoly over the issuance of money.
Government power and fiat money are inextricably tied, and those that stand to lose the most from the success of Bitcoin Cash are corrupt governments. The power to print money, and underwrite debt using the currency, censor bad actors, is a monopolistic power that governments are unwilling to part with. It is like a drug for nations that fuels distorted economies, corruption, war and the like. Bitcoin Cash is intent on removing this drug for the benefit of the entire world. Doing so will remove monopolies over power, and level the playing field for sovereign individuals, organisations and governments across the globe. Proceeding forward, sovereigns will need to compete for the hearts and minds of people, compete for trust, and compete for allegiances. This type competitive environment has the selective pressure for the emergence of truly wise, just and virtuous sovereigns.
