Who governs the Bitcoin network? There are three main contenders:
- Miners who mint new bitcoins
- Developers who write the Bitcoin software
- Users who run the Bitcoin nodes
In this post, we review the role of each of these participants in the Bitcoin network and explore how much control each of them has over the network. As an added bonus, I present my satirical take on an emerging new class of Bitcoiners.
In the introduction to the Bitcoin whitepaper, Satoshi wrote the following famous words:
In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU proof-of-worker than any cooperating group of attacker nodes.
The proof of work, as the solution to the problem of “double-spending” in a pure P2P network, is the key innovation in Bitcoin, and so it is not surprising that we think so highly of the miners, who are in charge of running the proof of work algorithm. As mentioned in the white paper, the nodes would follow the longest chain, the one with “the most proof of work”. As long as there’s more honest hash rate than the dishonest hash rate of a rogue miner, this design works well. But this design, in theory, would allow a rogue miner with an unlimited hash power to double-spend a transaction even after several confirmations. This is no longer the case today.
Now there is a generally accepted rule that 6+ confirmations on Bitcoin are as good as final, and any attempt to reorg will cause the node operators to step in and flag the resulting split-chain as invalid. We are yet to see this play out directly in the context of double-spending, as reversing a 6-confirmation transaction requires nearly an impossible amount of hash-rate, but last year, we have seen an example of a longer chain (“Bitcoin Cash”) getting discarded by fully validating nodes operated by users in favor of the shorter chain the users are in agreement with.
So, the miners today can’t reverse your transaction as long as you wait for sufficient confirmations. Miners also can’t steal your funds; the cryptography in Bitcoin prevents that. The miners can’t dictate which rules the network will follow, but rather must follow the rules of the network themselves for their mined blocks to be deemed valid. As a consequence, the miners are the most irrelevant participants when it comes to having any influence on the Bitcoin network.
The role of the miners in the Bitcoin network today is limited to solving the hash function to find the next block of Bitcoin so that they can collect the block rewards and the transaction fees embedded in the block. This ensures “fair access” and “fair distribution” of bitcoins, as long as Bitcoin mining remains a competitive process with a low barrier to entry.
The mining is also what gives Bitcoin a psychological price point. We burn earth’s resources to mine Bitcoin. Therefore the bitcoins must be worth at least as much as the resources burnt, otherwise, it’d be foolish to mine. During bear markets, when the profit margins dip to negative territories, it is therefore common to see miners stopping their gears and hash rates to go down.
Aside from bitcoin production and distribution, the miners perform no other critical function. Not only do the miners have no say in Bitcoin governance, but they are also the most dispensable in the Bitcoin ecosystem. They make a living at the mercy of the users. With one minor software update to change the proof of work algorithm, the Bitcoin users can turn the billions of dollars of hardware equipment into bricks and put the entire mining industry out of business.
The developers perform the role of writing, improving and optimizing the Bitcoin software, so it seems like an influential role. After all, Bitcoin is a software protocol and the developers are the ones who are building it.
The role of the developers is certainly an important one, but when it comes to governance, it’s limited to suggesting proposals to the users. The developers can’t enforce any rule. It is up to the users to decide whether to accept or reject the suggested software updates.
What if the developers try to sneak in an update the users don’t want? What if consensus-critical bugs are introduced in a software patch, intentionally, or unintentionally? It could potentially cause a temporary coordination problem, but the users running the economic nodes will detect any anomaly and quickly switch to a different version of the software to undo the bugs. At worst, the developers can cause minor temporary chaos in the Bitcoin network, and the issue will be resolved before most users even notice it.
As of now, “Bitcoin Core” is by far the most popular software client used by the Bitcoin users. The project is open source and anyone can contribute to it. The maintainers are independently funded and most contributors are volunteers. The project keeps attracting talented developers, so there hasn’t been a serious need to build other implementations. However, alternatives do exist and are gaining traction. If for any reason, the developers of Bitcoin Core stopped working in the best interest of the users, the community can fork the repository and effectively fire the developers.
A great example of this was witnessed in 2017 when a number of Bitcoin activists grew tired of the conservative stance of the Bitcoin Core developers in enforcing SegWit, a software upgrade that would fix transaction malleability and make room for second-layer technologies such as Lightning. The Core developers insisted on relying on the miners to activate SegWit via a soft-fork, but the miners were taking too long to activate it, resulting in a deadlock for months. A grassroots movement was soon started by the users, and an alternative Bitcoin client was proposed that would activate SegWit with a soft-fork by the users.
The proposal gained widespread support from the users, and out of a fear of a chain split scenario, the miners immediately activated SegWit, keeping the users happy, and managing to protect their jobs as miners and the jobs of the developers.
As should be clear by now, the users are the most important stakeholders in Bitcoin. They have the ultimate control over the network and the way it’s governed. The miners and the developers work for the users; the users can hire or fire them.
The way the users govern the network is by running a full node. A full node validates and relays all transactions on the network, ensures that the rules of the network are being followed as agreed to by all participants, and eliminates the need to trust any third party with the state of the network. Despite not having any direct financial reward to run a full-node, the requirement to eliminate trust on third parties in a hostile network is enough incentive for the economically relevant users, such as exchanges, wallet operators, merchants, traders, and other important participants to run full nodes.
Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.
— Satoshi, Cryptograpy Mailing List, Nov 2008
Bitcoin was designed as a pure “peer to peer” network. The full nodes preserve this P2P nature of Bitcoin. Bitcoin only works as intended as long as each user independently runs and verifies their transactions without trusting third parties.
If you don’t run a full node, you don’t have any influence on the Bitcoin network. You are delegating your rights to participate in Bitcoin governance to third parties. If enough people do this, then Bitcoin is neither trustless nor decentralized. It becomes a plutocracy.
The Rise of the Non-Playing Characters
In the Bitcoin ecosystem, we have recently seen the emergence of a new class of participants. This new group has delegated their thinking and decision-making process to internet thought leaders.
The most accurate way to describe them is to use the term “NPC”. If you engage in debate on crypto Twitter, you have surely come across them. They rely on the Bitcoin podcasters, YouTubers, Twitter accounts to tell them what to think, what to do, what to eat, how to dress, what hobbies to take on.
The Bitcoin NPC swears by Austrian economics but doesn’t understand any of it. Pretends to be a carnivore but eats cake in real life. Loves the gun culture but never shot a gun. The NPC can’t code, can’t have a nuanced discussion, can’t write, can’t express an original thought. The NPC is terrible at trading, invests in bad businesses and speculates without skin in the game.
Most importantly, the NPC doesn’t run a full node.