The Reports of Bitcoin’s Death Have Been Widely Retweeted, and Are Greatly Exaggerated
(Originally published on Rappler, 19 January 2016.)
On the 14th of January, noted Bitcoin core developer Mike Hearn posted an impassioned article about his departure from the Bitcoin project and his subsequent liquidation of all his Bitcoin holdings. Over 4,000 words, he describes Bitcoin’s fundamentals as “broken,” and predicts that the price will trend downwards in the long-term. He places the blame squarely on the community, and more specifically on the other core developers who have refused to implement changes that would allow the network to continue its unprecedented growth.
Hearn’s departure was quickly covered by such mainstream publications as the NY Times and Forbes, referring to his exit as a “crisis of faith,” and declaring Bitcoin an “inescapable failure,” respectively. It is officially (more or less) the 89th such time that the mainstream media has declared Bitcoin dead over the past 5 years.
The subsequent effect on the Bitcoin price was inevitable and really quite predictable: it dropped from $424 to $358 in 24 hours. (I suppose that it speaks volumes about Bitcoin’s volatility that this was far from the worst drop I’ve personally witnessed and suffered through, but those are war stories for another time.)
The Vocal Minority and False Balance Problem
It’s often said that history is written by the winners, but I would argue that that’s no longer the case in the age of infinitely-republishable social media. In this day and age, there’s a much more difficult situation to wrestle with: the “vocal minority” and the “false balance” problem.
Mike Hearn appears to be the vocal minority. The veracity of his opinion is greatly amplified by his own straightforward, layman-friendly writing, and the media’s tendency to latch on to stories of Bitcoin’s various failures. His aggressively negative position is most strongly shared by people who aren’t adequately familiar with the technical aspects of the problem, and more often than not only function as weak echoes of his own unique perspective.
The fact that it is currently enjoying so much media attention establishes a “false balance,” as if there are only two equally strong opposing sides to the story — Hearn’s and the Bitcoin Core Team’s — when in reality, there are multiple sides and Hearn’s views represent only a small part of the whole picture.
Not surprisingly, other experts have begun to respond to the Hearn essay over the past few days. It was largely dismissed by Bittorrent creator Bram Cohen as “whiny rage-quitting” and “wrong on almost all technical points.” Peter Todd, one of the other senior Bitcoin core developers, noted on Twitter that he was “not going to miss working with blatant liars,” citing specifically the section of Hearn’s essay that mischaracterized the effects of a new Bitcoin feature called RBF.
Bitcoin’s Traffic Problem
The most significant part of Hearn’s writing and arguably the biggest reason for his exit was the “block size debate,” which underscores Bitcoin’s current challenges with scalability. At 250,000 transactions per day, the Bitcoin blockchain is beginning to buckle under the strain and it’s Hearn’s contention that the Bitcoin core dev team have refused to do anything about it.
In possibly the most contrived case-in-point ever, I lost about $200 in value on the very day that Hearn published his essay. I was transferring a fairly large sum of Bitcoin and, due to network congestion, the blockchain took over 12 hours to confirm the transaction. (Normally it takes 10 minutes.) By the time it had arrived at its destination, the Bitcoin USD rate had sunk by over $60, due rather recursively to the very article that declared the technology’s demise.
There is no argument that Bitcoin’s growing popularity has placed the network in dire need of improvement, but it appears that the changes Hearn was trying so hard to push for is on the way to being achieved without his involvement. Before the end of 2015, a proposal was written up by another core developer, Greg Maxwell, that outlines an engineering roadmap for Bitcoin’s capacity increases. Although there continues to be disagreements amongst the core dev team about the efficacy of the plan (most notably from Gavin Andresen, who shepherded Bitcoin after its anonymous creator Satoshi Nakamoto disappeared in 2010), it has received relatively wide support from key members of the industry.
Strength in Numbers
Alongside this roadmap is a series of other “forks” (or “suggested implementations”) called Bitcoin Classic, Bitcoin Unlimited, and Bitpay Core, all of which propose slightly different solutions to the network congestion problem, and are described in more detail here. Although the average user may balk at the growing number of options, it’s important to note that these are network-level changes that will have little discernible effect on the everyday transaction. Even more importantly, having multiple teams working on different solutions to the same problem is inarguably the correct way to find the best path forward.
Although Hearn has left, there remains a diverse braintrust that is utterly devoted to Bitcoin and its continued well-being that he vastly under-represents in his writing. It makes it appear to outsiders that the cryptocurrency is dying (horribly, yet again), but perhaps that was his intention. He has, after all, taken a job with the bank-led R3, a company which seeks to repurpose Bitcoin’s underlying blockchain technology for traditional financial institutions like Citi and Bank of America. But perhaps it’s also a wakeup call to the community that it needs to get its house in order and work together quickly to find a solution, lest it be overtaken by its technological descendants.
At the time of this writing, the price has already begun to rebound and is currently working its way back up to the $400 mark.