How much individual freedom are you willing to give up for the benefit of the group? How about if with every rule that you didn’t like, you could create an exact duplicate of the community with that particular rule changed? Would we be left with the perfect society for everyone or the perfect cocoon for anyone?
Versions of this individual vs community debate even forms a foundational pillar in the theory of evolution with many organisms learning to work in groups to ensure their own survival which in turn strengthens their species. In fact, the large part of human history has been a pendulum between the predecessors of modern day authoritarianism and anarchy as we struggle between surviving and the domestication of our individualistic tendencies. The difference now is that this debate is slowly starting to move away from one where the winner takes all through threat of violence or whole-scale rebellion. For the first time in our history, the threat of succession from a system cannot be easily assumed away as blockchain technology significantly lowers such costs via its ability to hardfork.
Prior to hardforks, individuals who were at odds with those in power had no easy way to coordinate amongst themselves as there was no simple way to duplicate their shared history prior to the disagreement. Whichever group was in power had the ability to dictate the rules and build upon this history which for all practical purposes was taken as the truth for that particular community. Essentially, the history of established systems formed a significant barrier as any group choosing to secede in such a system had to essentially start from scratch. Consequently, when it comes to any sort of community, network effects mean that the first mover always gains a significant advantage due to natural monopolistic effects whereby the barriers to entry grows in line with the expansion of the larger community. Now that we have a tool which is able to counteract such tendencies, would this lead to a more cohesive or fractured society?
This is why hardforks are a double-edged sword: it is both one of the most promising aspects of blockchain technology and simultaneously one of the largest hurdles to adoption. Promising as it is a form of governance which finally provides individuals the option to establish an alternative system rather than being stuck in one where they feel disenfranchised. A hurdle as society and businesses will incur significant disruption and costs if a contentious hard fork does occur. If those in power are trying to censor another group, the group could choose not to adopt the changes and instead continue following their own rules while still building upon the shared history before the contentious rule change. However, rather than the fairy tale ending that hardforks promise, reality will always find a way to mess up such ideal theoretical scenarios.
Intersection of reality and digital
At its core, I would argue that blockchains are the next stage in the evolution of governance systems as it sidesteps the tyranny of the majority (or more accurately, tyranny of the empowered) by enabling separate versions of a shared truth. It ensures that no single viewpoint can overrule any of the other as long as there is still sufficient support for such alternative views. While this means that any significant minority that feels strongly against any governance changes can set up their own community, it also means a doubling of complexity (remember the chain is now duplicated into two versions) at a significant cost to society. If the minority group cannot be forced to stay, we would then be left with two smaller independent but weaker networks which would just result in stalling future growth. The disruption to daily life can’t be overlooked especially when the fact is that the large majority of people just want something that works and are therefore generally indifferent to technical changes.
In reality, any technical changes made via a contentious hardfork on a blockchain system will inevitably lead to the following problems:
- All stakeholders in the blockchain will have to move over to a chain with new rules, be it the main chain or alternative one. Although not a serious issue for users of the blockchain who choose to remain on the main chain, all other participants running nodes will have to go though the process of updating them.
- For stakeholders who feel strongly against the issue which caused the hard fork, they will need to split their own holdings and modify their hardware to run the rules of the alternative chain.
- For users who are indifferent, they will have to maintain two accounts after the fork exposing themselves to risks which they did not sign up for in the first place. This includes the doubling of responsibilities to maintain an additional account as well as the almost guaranteed volatility during the transition period as both coalitions fight to establish dominance.
- Throughout this transition, almost all transactions on both chains will cease in order to ensure that no double-spends occur. This means that business will be put on hold during this period as businesses scramble to determine their next steps as the fork plays out.
Even when consensus can be obtained prior to the fork, such consensus will always only be a poll as the outcome of the fork will ultimately be determined by the actions that network participants take during the fork itself. This is especially so in public blockchains where participants are usually pseudonymous. From a technical standpoint, a hardfork can happen anytime but it only really comes at a significant cost to the network if it gains a a significant following else it could be safely ignored. This is similar to current society where fringe societies can usually be ignored until they start to have sufficient influence.
It is important to note that forks are a fundamental part of blockchains and open-source software as it is how the protocol is upgraded. In fact, it is this very ability to provide users with a choice which forms the core narrative of blockchain’s value proposition. However, every fork has the potential to become controversial which could easily end up in stalemates where both parties form blocking coalitions as neither are willing to compromise. Without any mechanism to establish consensus prior to the fork, blockchain’s potential will be severely limited as contentious forks affects the ability of such systems to maintain a stable and predictable operating platform. Such predictability is indispensable when it comes to conducting business, especially since blockchain technology is supposed to enable businesses to better focus on their core products.
Mirror, mirror on the wall
- There is no objective standard to determine which is the “real” chain;
- Only a minority of the network has a wholesome view of the implications of the fork;
- The majority of people are indifferent to the majority of changes which will happen on the chain
We will likely be left with the same problem of populism but this time any group with a strong enough support base will be able to hardfork at the expense of the main chain. Given the worrying growth of populism in recent years, it is almost guaranteed that the ease of carrying out a hard fork will result in an increasingly divided society as actors gain support through simplistic but ultimately flawed solutions to a complex system. Though this is not really within the realm of issues hardforks are supposed to solve, it is safe to say that hardforks will form an important consideration as we continue to develop promising solutions such as liquid democracy (first proposed by IOTA founder)and liberal radicalism (modified quadratic voting proposed by Buterin, Hitzig, & Wel).
Another more interesting problem which will accompany hardforks is that of speculation when governance systems itself are up for trade. The volatility which cryptocurrencies are so famous for is a perfect example of this. Although tokenomics play an indispensable function in blockchain systems, when such systems are not easily understandable and there is money to be made, fundamentals will usually take a back seat to speculation. To paraphrase one very famous moustached economist, this will lead to a situation where winners end up being selected on the basis of social expectations rather than merit (i.e, a Keynesian beauty contest).
It is also important to note that from a theoretical perspective, hard forks are supposed to be a zero-sum game:
- Miners will still have the same hardware providing the same total hash power but now that security will be split between two smaller networks
- Likewise the network value will be split between two chains albeit with one chain unable to speak to the other. Essentially, value can’t be conjured from thin air. This happens when users short the chain which they do not support in favor of the chain that they do.
Of course in reality, this is not the case as there are costs incurred from having to maintain both systems. Furthermore, looking at market cap valuations for chains which have split in the past, there have been cases where the combined market cap seems to surpass that of the chain before it was forked (‘seems’ cause its hard to tell given crypto’s volatility; e.g. ETH vs ETC & BTC vs BCH). One explanation for this might be that the market price which the forked chain settles at is based on the relatively limited liquidity as only those people who are supporting it will claim their share on the alternative chain. More importantly, given that it was an unwillingness of either party to compromise that lead to the hard fork in the first place, it would be of no surprise that either party might resort to underhanded tactics to undermine the other chain as it morphs into an ideological battle. Nevertheless, it is safe to say that there are just too many unpredictable factors when it comes to a hard fork, all of which leads to significant risks for anyone using the network.
Soft forks as a band-aid
Given the issues discussed above, hard forks seem like a dead end when it comes to mainstream adoption. This is especially so since consensus becomes increasingly hard to achieve the larger the network grows. Those more familiar with such technologies might propose soft forks as a solution as it enables a much more gradual deployment mechanism that does not require all nodes to update at once while having more mitigation mechanisms to avoid chain splits. While this is true when everyone in the network is cooperative, this isn’t the case when one party forms a blocking coalition as is likely to happen as views continue to diverge with network growth.
These two articles by Mike Hearn and Eric Lombrozo provides quite a good overview of the intricacies of forks in the blockchain environment. Essentially, a protocol change via a soft fork is carefully constructed to trick old nodes into believing that something is valid when it actually might not be. Old nodes will continue to accept the new blocks as all the validation checks will still pass. However, the soft fork will introduce new validation checks meaning that blocks which pass the validation checks of older software might fail on the newer software. Critically, as long as the majority of hash power enforces the new rules, all nodes will continue to converge on the single chain. Consequently, users can choose whether to verify the new rule but the only thing that not verifying does is reduce their own security.
As such, if the divergence of interest is significant, going with a soft fork is just delaying the inevitable chain split. Of course, the smoother roll out of the new rules does mitigate many of the problems with protocol upgrading and should therefore definitely be the tool of choice if all parties are willing to be rational and compromise for the greater good. However, given the current political climate which seems to be growing increasingly divisive on simplistic issues, such cooperation seems to be a moonshot especially when such tools make it easier for secession.
Brave New World
At the end of the day, the forking mechanism is a powerful tool that opens up many new and promising possibilities for society to organize themselves in the future. It forms an effective solution to unchecked power but also brings with it the chaos and unpredictability that necessarily accompanies any major changes. This is why although the points made above might seem to point towards an unfavorable outlook for such technologies, I am actually very much positive that distributed ledger technologies are the next stage in the evolution of our governance systems because:
- As a form of rebellion, I would argue that it is at most as costly and disruptive as the physical rebellions that we are experiencing now such as the Yellow Vest movement in France. Again, this is a strong argument in favor of such technologies as it offers an alternative to violence which for much of history always ended up being the ultimate trump card.
- The mere threat of a fork and the accompanying costs serves as a strong signal which grows in line with the dissatisfaction with the current system. Although this is admittedly a more Westernized perspective, not allowing people to choose is the antithesis of self-determination.
- The line between anarchy and authoritarianism is never clear cut but as it stands now, many governance systems tend to favor the powerful as power tends to accrue disproportionately. Such technology levels the playing field as stakeholders are disincentivized to go against the wishes of the community else risk losing their stake (remember the community can just choose to fork and invalidate the chain where such manipulation happens)
If the scope for forks can be determined, social coordination will likely result in the majority looking less like a tyrant and more like an amorphous entity which community members can choose to be a part of at any given time. Those that disagree with the main chain can revolt by gaining support for their cause but more importantly, they can’t be censored. Each minority will have to consider the implications of their choices rather than being coerced into making a decision. The question then more closely resembles ‘How strongly does society agree with this cause?’ rather than ‘How do I survive in the current system while gaining support for something that goes against it?’.
What such technologies do is bring our systems one step closer towards the ideal form of governance as it rebalances the playing field at a time when trusted institutions have abused their power due to the inability of society as a whole to hold them accountable. As argued here, underlying all the calls for decentralization of trust is actually a more critical issue which is that of holding individuals accountable for their actions. Ultimately, code should never be absolute as it is a tool used to benefit society and to that end codifying our governance processes via such technologies is a step in the right direction.