BIP 148 is a non-starter, (and ham-handedly redefines what bitcoin is) Part 1

This article is a response to Core dev Luke-Jr’s recent article, “BIP148 and the risks it entails…” His proposal is revolutionary, although not in a positive way.

Since 2009, Bitcoin has “gotten taller” or pushed ahead, thanks to the efforts of greedy miners. When bitcoin started, anyone with a halfway decent computer could solve a puzzle, specifically, a double sha256 puzzle, to get a reward. Every 10 minutes, there is a new puzzle, with a new reward. Very early on in this process, people started building ASICs, basically computers that could solve these puzzles.

Behind this greed has always lied the security of bitcoin. As a student of economics, I know that systems, be they methods of distributing bread, or distributed blockchain networks, live and die due the incentives that underlie them. This is why breadlines in communist countries has been proven to be a less-than-optimal distribution method (supply often can’t meet demand), but where people are free to bake and sell bread freely, there always seems to be bread available.

Any market depends on greed. As the demand for bread goes up, more people are greedily willing to go out and bake bread. If the price of bread goes high enough, doctors, lawyers and fund managers will all take time out of their busy day to bake bread, because they know they can make money to support doing the things they love.

The same thing happens with bitcoin. Tomorrow is “Bitcoin Pizza Day”, when the first documented economic use of bitcoin occurred, and a user in one country traded 10,000 bitcoin for a pizza he purchased using his credit card for a person in another country. At that time, bitcoin was valued at less than 1 cent, and there were no ASICs for bitcoin. People used their computers, inefficiently using their GPUs to try and figure out the puzzle.

As the demand for bitcoin grew, people tried coming up with new ways to solve the puzzle faster, and that’s how the world got bitcoin ASICs. People were not motivated by altruism to do this. Just like someone who opens a hamburger shop, people built ASICs in the hopes of making money.

BIP 148 changes all this, by taking power away from miners, and handing to a vaguely defined ‘node-operators’. Node-operators are essentially the same as miners, but they choose to not do any work, instead only relaying messages on the bitcoin network. The cost of setting up and maintaining a node, while non-0, is orders of magnitude less than setting up a mining operation, and more importantly, there is no accurate way to “prove work”. By solving that puzzle, miners prove they used intense computing resources and burned electricity to solve it. There is no corollary with setting up a full node. In addition, non-mining nodes only contribute trivially to the security of the network.

The ostensible reason for this change is due to an ill-defined ‘tyranny of the miners’. In fact, the bitcoin core slack channel has a room dedicated to ‘trolling’ major miners who are understandably against this shift, filled with insults and ad-hominim attacks. But this is a false narrative, akin to calling market for bread a ‘tyranny of the bakers’. Just because the world needs bread, it doesn’t follow that we should force the bakers to do things they don’t want. And just because the world needs bitcoin, it doesn’t mean we should try to force the miners to do what they don’t want.

If one needs proof of why it’s bad to force businesses to do things they don’t want, one only needs to travel to Venezuela and try to buy toilet paper. Economic systems that rely on coercion do not have very good track record in modern history. Coercion hasn’t been a good model at least since the abolition of slavery, and most would agree that’s a good thing.

Since miners are now effectively blackballed from the bitcoin core development pipeline, urgent action will soon be needed. In my next article, I outline what I think needs to be done to prevent this dangerous realignment of incentives.