Bitcoin’s resistance to change is a feature, not a bug.
Over the past year, political turmoil in bitcoin along with its growing price has been in news headline after news headline. Many pundits in the blockchain space claim that the political stalemate in Bitcoin’s community has set the stage for the rise of alternative cryptocurrencies such as Ethereum. In this article, I seek to show how Bitcoin’s resistance to change is a feature, and not a bug and how resistance to change is one of the most important characteristics of a Blockchain.
There’s a book called the Starfish and the Spider which I think anyone who is involved with Blockchain technology in any capacity should read. The book talks about centralized nervous systems and how they contrast to decentralized nervous systems. If you cut a spider’s head off, it dies. When you cut the leg of a starfish off, it will grow back. The point is that when an organization or system is decentralized, there is no central point of failure. It becomes very difficult to attack or change a decentralized system.
Where many see Bitcoin’s inability to change as a flaw, I see a remarkable feature. The main efficiency of a blockchain is censorship resistance or decentralization. A centralized blockchain is no different than a central bank. In other words, it’s nothing new.
Bitcoin is difficult to change because of its high level of decentralization. There is no one entity or person that controls Bitcoin. In fact, many people who are new to Bitcoin assume there is a leader or a someone who is in charge. There’s no Central Bank. There’s no Government or CEO of Bitcoin. Businesses that use or deal Bitcoin may be regulated, but Bitcoin as a decentralized peer to peer value transfer network cannot be regulated.
Bitcoin’s future is determined by a constant struggle for consensus between businesses, exchanges, miners, nodes, developers and users.
Without a super majority consensus of the entire network, Bitcoin will have trouble changing. It may even require a hard fork to settle disagreements in Bitcoin.
I like to analogize this to the United States Constitution. The founding fathers purposely made the Constitution difficult to change by requiring a super majority consensus of Congress or States to ratify an amendment. They did this for a reason.
If a small group of people could easily change the Constitution, we could end up like Venezuela. Satoshi designed Bitcoin to be as decentralized as he could because he knew that if it wasn’t, it would never serve as a tool to allow users to store their wealth outside the purview of any government or central bank.
The Rebuttal
Other cryptocurrencies such as Ethereum embrace change. For instance, a small group of powerful people can get together and change Ethereum's blockchain when they deem necessary.
In the Summer of 2016, the Slock.it team created a Decentralized Autonomous Organization also known as “the DAO”. The DAO’s purpose was to act as a venture capital firm and invest on behalf of those who sent the ether in exchange for DAO tokens. The DAO was the largest online crowd fund in history with 168 million dollars of ether invested. Within weeks, a hacker found a loophole in the DAO’s smart contract. As a result, over 60% of the ether in the DAO was withdrawn by the hacker.
There was a public out-cry for restitution of the ether immediately after the DAO hack. The pressure was too great to ignore. A small group of influential Ethereum developers “rolled back” the blockchain to a moment in time before the hack. The majority of Ethereum community rejoiced and celebrated the hard fork as a historic day for Ethereum.
But when the dust settled, there was a main take away from the hard fork:
If a small group of developers can hard fork Ethereum when it’s convenient for others, is it censorship resistant?
Short Answer: No.
Many who defend Ethereum’s hard fork claim that Ethereum’s ability to change easily is a feature, not a bug and should be applauded. I’m not so sure that I agree.
When a blockchain is not decentralized enough, it‘s subject to hostile take over. This could result in a bailout, demonetization and even confiscation. Is that any different than a central bank? I guess we could ask those in India, Venezuela, Russia, Zimbabwe, Argentina, etc. The list goes on. If the money supply can be controlled, it will be controlled.
One would think that the return of the funds to those who lost them from a hack is a good thing. Yet it came with a price. Ethereum’s central point of attack became exposed.
If I’m a malicious actor, I’m now aware of the developers who I need to coerce, manipulate or threaten to change Ethereum how I see fit. I guess ignorance is bliss. If you lost millions by the hack, I’m sure you’d turn a blind eye to the bigger issue.
As a user, it really only matters what blockchain I believe in. But as the co-owner of a financial institution, I look for security, decentralization and censorship resistance. Why build on quicksand when you can build on concrete?
Some great reads that inspired this post:
Who controls Bitcoin? by Daniel Krawisz at the Satoshi Nakamoto Institute.
Starfish and the Spider by Ori Brafman and Rod Beckstrom
