The Bitcoin Constitution

Bitcoin might be based on code and mathematics, and it might promise empowerment through decentralization, but fulfillment of its potential will have to be a social and political endeavor.

This task will have to address three challenges. In ‘Bitcoin is centralizing’ I suggest that centralization in Bitcoin is already well under way. In ‘Purists and Puritans’ I look at the difficulties within the community seen from the outside looking in. In ‘Anarchists and Anarchism’ I illustrate how frustration with government positions can misdirect attention.

I don’t suggest that a constitution is feasible or that it is a silver bullet. Nevertheless, one that is developed and curated collectively can conceivably help to guide Bitcoin’s evolution as an open and inclusive system. In so doing, it can provide a basis for interaction among the wide variety of people and institutions who want to play a part.

The Bitcoin embryo

Bitcoin today is closer to being an embryo than an ecosystem.

It has its own unique genetic code. It is a tiny and fragile multi-cellular organism that could easily fail to reach term.

In his ‘Bitcoin Balance of Power Poster’, Audun Gulbrands details a range of actors active in and around Bitcoin. They include the following:

  1. Developers
  2. Miners (including hashers and mine operators)
  3. Wallet providers
  4. Node operators
  5. Exchanges
  6. Merchants
  7. Users (including holders and traders)

For the purpose of this article, I add:

8. Entrepreneurs

Venture Scanner has identified 897 blockchain-related enterprises around the world. These are organized into four groups: (a) heavyweights; (b) established; (c) disruptors; and (d) pioneers.

There are probably more, and the list does not contain blockchain projects led by governments, central banks or international organizations.

Helpful as these resources are, we have to go further to understand what it will take to create a healthy distribution of power that mirrors Bitcoin’s main intent.

Bitcoin is centralizing

Centralization is a natural tendency. Incumbent power draws anything small and new into its orbit.

Just eight years old, the first four or five groups listed above consume much of the oxygen.

The limbs of this embryo — merchants and users — aren’t fully formed.

In the meantime, large capital market interests have moved in, curious about the settlement layer of the blockchain, and experimenting with different approaches to solving decades-old inefficiencies.

Central banks may also venture into the fold, as I discuss here.

This interest is having an affect on the culture and content of debate on distributed ledger technologies in general, including to some extent on Bitcoin.

Big money dominates airtime and the narrative, as we have seen with the “blockchain minus bitcoin” distractions of the past 18 months.

Big money also means big entrance fees if you want to be heard.

It can cost more than US$1,500 to attend trade events dedicated to work in this arena. Or how about US$20,000 per table for an fund-raising dinner?

To be fair, these are industry fora, and industry does as industry must.

But let’s not overlook their effect. Moneyed interests tug at public perception and tilt the debate.

These moneyed interests can also be conspicuously white (in the western hemisphere) and overwhelmingly male (pretty much everywhere).

This isn’t a cheap point. It reflects inherited privilege and access.

As a result, a classic imbalance of power is emerging in Bitcoin: institutional, demographic and economic: people with assets and influence are crowding the space.

As a result, the poorest countries, markets and communities already run the risk of being left behind as attention focuses on developed and emerging market opportunities.

They are the objects of speculation in developed markets: apparently currency volatility and remittance demands in [insert countries] will drive Bitcoin adoption.

Perhaps, but so far we are hearing too little from people in the poorest settings.

If and when Bitcoin’s societal influence grows, we can hope that this balance will change.

This would and should be entirely normal as different voices assume a role, exert their own presence and seek representation.

Hope, however, does not become expectation by itself. And expectation is not realized unless it is acted upon.

The network effect of Bitcoin can be powerful too, and evasive, but it can also be splintered by centralized power.

Elite capture is a real and present possibility.

This is the first issue that must be addressed.

Purists and puritans

Bitcoin isn’t intuitive enough yet for it to be widely accessible, although with initiatives such as Abra and Mobi this may change.

In the meantime, debates inside the tent aren’t exactly helping.

One of the least attractive aspects of Bitcoin right now is the debate on scaling, in particular its tone.

The details are available elsewhere.

For the uninitiated, imagine walking into a back office and observing tech support bickering over something to do with code. You can see that it is probably important but so incomprehensible and so unpleasant you are put off by it.

It gets worse. Try to encourage moderation and the reaction can be alarming.

When we hear things like “code is king” and “mathematics uber alles,” you might be inclined to recall people who are driven to extremes of behavior by a fanatical loyalty to the revealed word.

“The block size has to increase and it has to increase now. It’s what Satoshi would have wanted.”

“No it doesn’t.”

“Yes it does.”

And so it goes on.

Then, on Bitcoin’s transformative potential:

“You don’t understand. We don’t need legacy institutions.”

“Banks will be wiped out. The legal profession will be dis-intermediated.”

And so on and so forth.

History presents us with a long catalogue of disruption of the wrong kind when it is motivated by dogma.

Bitcoin puritans exhibit the same tendencies of secular or theological extremists down the ages. And yes, there is even communal hatred.

What is alarming is the de-socialized nature of this behavior. It is as though the revelation of mathematical immutability means that we can say goodbye to society as the place where we find common cause and resolve differences.

Puritans begin, as the rest of us do, by seeing the light. Then they are blinded by it.

There is probably general support for reducing the influence of an extractive rentier class of institutions and individuals from our lives. If Bitcoin can help, let’s make it happen.

Few will argue with the benefits of bringing down the cost, increasing the speed, and guaranteeing the authenticity of identity for settlements. If Bitcoin or something like it can achieve this, we would all applaud it.

For any or all of this to happen, we need patience, engagement and compromise.

Anne Pettifor, Director of Prime Economics has come in for some criticism for her views on Bitcoin. She is an eloquent supporter of the state theory of money. I disagree with her on both counts.

However, she correctly joins a long line of sociologists and anthropologists who remind us that money (i.e. one Bitcoin’s many uses) is a social construct.

Its success depends on it acquiring social capital. In other words, recognition as a basis for acceptance.

Revolutionary as the revealed word of Bitcoin is, it will only become revolutionary in practice through mature engagement as much as on practical demonstration of value.

Tone is important.

If it doesn’t acquire social acceptance, mathematics or scaling won’t matter much at all. Bitcoin will disappear the way that so many thousands of religions and currencies have before.

The puritans in Bitcoin should pay heed to the lessons of history rather than imagine that they have escaped it.

This is the second issue that needs to be addressed.

Anarchists and anarchism

Some Bitcoin enthusiasts are critical of the State. But what does this mean, exactly?

The recent decision of the Securities and Exchanges Commission (in the U.S.) to decline a proposal for a Bitcoin exchange traded fund prompted this reaction from Eric Voorhees, the dynamic and productive chief executive officer of ShapeShift:

“The SEC’s decision on Bitcoin ETF will become the poster child of regulators killing innovation. No clearer example.”

There are a few things to note here.

First, an exchange traded fund is not an innovation.

We must ask if acceptance of a conventional financial instrument based on an unconventional technology is a good thing.

Second, this particular exchange traded fund would have introduced brokerages and large institutional players into a small market.

This would have had the effect of further tilting influence away from small-scale traders and users.

As I have noted above, there is already a risk of big capital squeezing out an untapped majority before it has realized its potential.

Third, the primary function of the SEC is investor protection. This is not a bad thing. Reflecting on the 2008–2009 financial crisis, one could argue that the SEC hasn’t protected investors enough.

On this occasion, it concluded that the instrument (the ETF), rather than the underlying asset (Bitcoin) was not ready for public issue. Is this such a blow?

Reactions by anarchists and libertarians to government decisions such as this are fundamentally misplaced, and here’s why.

They treat the State as the ultimate lightning rod: the cause of all evil in society, and the main enemy of innovation and entrepreneurship.

Yet the real threat does not come from the State per se. It comes from the concentration of assets and, therefore, of power.

Left to its own devices, capital will accumulate and markets will be captured. This is the world we live in today.

In western political culture, this power is now disproportionately corporatist.

Elsewhere around the world, concentrations of power take their own forms. Some are overtly statist, while others are little more than robber-baron ‘private sector’ rackets enforced by hired militia and a compliant media.

Most societies are living struggles between the public good and concentrated interests.

In all cases we see power grabs that involve the manufacture of public sentiment and manipulation of markets.

In other words, irrespective of jurisdiction, power is concentrated within and between a narrow span of interests. It’s not just the State. In some cases, it’s not the State at all.

Public policy making and regulation are gradually becoming functions of this merged interest.

All institutions — public or private — must serve our interests as citizens and as consumers. We can delegate to them our sovereign rights so long as they deliver.

We should likewise be ready to withdraw those delegations when they fail us.

The simple claim of anarchism is nothing other than an appeal for responsive and inclusive democracy, with institutions that work, that are accountable, and that should be replaced when they fail.

On 11 March 2017 the Securities and Exchanges Commission served the public good. For now, that’s a job well done.

The relationship between the supporters of Bitcoin varies. But knee-jerk reaction isn’t constructive and so it too needs to be addressed.

The Bitcoin Constitution, bottom up

For Bitcoin to prosper, it needs all of the actors mentioned at the start of this article to play their part.

In particular, the presence of users and merchants must come to the fore.

This goes well beyond a code of conduct that can bring some civility to current debates within the community.

It means something like a constitution.

A constitution usually applies to a government or an organization. Bitcoin is neither. So how does this work?

A constitution is nothing more than a set of principles that establishes the character of an endeavor. It can spell out the rights and responsibilities that its constituents should aim for.

It can bring some stability to the understanding of the relationship between Bitcoin and, for example, the State.

This cannot happen top down. The instinctive reaction — correctly— will be “On whose authority?”

The Global Blockchain Council? The Bitcoin Foundation?

Where is that village well where people can meet to discuss and debate such an instrument? The United Nations? The Internet Governance Forum? The International Chambers of Commerce? It’s not clear.

Lacking a figurehead of any kind, Bitcoin will need to show that the collective commons — which is a human space — can build a social layer on top of the technological protocol.

How? That’s up for debate.

Or perhaps none of this is necessary? Perhaps innovation alone can drive the change we want to see. Perhaps it can do so from the outside, overcoming internal and external obstacles along the way?

I’m skeptical of that view.

There is already too much concentration of interest, rancor in the community, and misunderstanding of the public sector.

We only have to look at the subversion of the Internet by ‘Deep State’ interests to see what can happen.

Bitcoin doesn’t need to wait for it to be over-run, as the Internet has become.

A constitution that is built from the bottom up, and that is as inclusive as possible of everyone’s rights and responsibilities, brings stability and preparedness.

It’s what this embryo need to grow.