Satoshi Nakamoto’s Biggest Failing: The Importance of Moral Authority in the Cryptocurrency Industry
Cryptocurrency founders have taken on a very strong presence since the growth of cryptocurrency in 2016 and 2017. Whether it’s Vitalik Buterin doing an interview for INC, Charlie Lee tweeting about his position on the cryptocurrency industry, or Brad Garlinghouse on CNBC, these founders have a big impact on price and sentiment.
But that wasn’t always supposed to be the case, at least not based on the way Satoshi Nakamoto acted. In 2008, back when Bitcoin was just an idea, Satoshi released a white paper to a group of hackers online. It was a technical document describing a new, decentralized currency and the way it could be built. But as opposed to most cryptocurrencies projects today, this white paper actually came with a ‘mostly’ working product. Once the initial positive reception was received, Satoshi went to work.
By 2009, the product was released and a few people found it useful. This story has been told hundreds of times at this point and I imagine you don’t need a refresher. But I’d like to draw attention to how Satoshi left the project. After being prominent in the community for a number of years, his involvement tapered. In mid-2010, he asked one of the co-developers of the Bitcoin project to take on the primary contact point for the project, and then unexpectedly removed the Satoshi email. After this point, Satoshi was effectively out of the project.
Given the timing and quiet exit Satoshi had, we can draw some conclusions about how he viewed his role in the project. Instead of being an enduring figure, Satoshi just saw himself as the lead developer and incubator behind the project. We might guess that in Satoshi’s eyes, the project should not need an enduring figure after a certain period. The core ethos of the project was to be a trustless, autonomous piece of software that ran without central controls. And by leaving the project, Satoshi made a big statement: “I am not needed anymore”. The project should be able to survive without further intervention.
But was Satoshi right?
Moral Authority
We tend to think of organizations and projects on a purely property based viewpoint. If I own 51% of X corporation, then by law I am the rightful own of that group. If I started a project and own the commit rights (that is, the right to change the code and allow others to change it) to said project, I am the driving force behind the project. From a decision making perspective, this is accurate, but this does not always translate to the community believing the project owners are the real owners.
This is a non-trivial point. Businesses that come in through hostile takeovers need to completely remove the old management team to get people who will follow their vision. Open source projects that source identical codebases from, say, Ethereum, can’t get off the ground because no one believes in their vision. Companies that remove a charismatic CEO often struggle under ‘better’ management because the old employees are still loyal to their old boss’ vision.
One of the best examples of this was when Steve Jobs returned as the CEO of Apple. In the mid-90’s Apple had been slowly losing market share to Microsoft and other competitors, with each CEO struggling to regain control of the organization. During this time, Apple had decided to diversify to everything from printers to video games systems, making the company bloated and unable to find a market fit. When Steve Jobs re-entered, he had a very simple plan, so simple it was able to be described in four quadrants:
After his return, everything outside these boxes got cut (mostly), everything inside these boxes got top priority and resources, and the rest is history. There’s a lot of reasons why Steve Jobs was effective as the leader of Apple, but what if you had taken Steve Jobs and put him at the head of, say, HP in 1997? Do you think he could have gone into a board room, cut most of the products and convinced a room full of HP lifers that this was a good idea?
Not a chance in hell. When Jobs returned to Apple, he didn’t just bring with him 20 years in the computer business, he brought the right to make these changes. He had built the organization years before and understood what Apple meant, convincing many of the people within the Apple community that he knew what he was doing. Someone else with the exact same business plan and skill could have entered the role and would have been met with massive push back from the employees, just as Apple’s previous CEO’s had experienced. Things moved quickly because Steve Jobs had the moral authority to make things happen.
Leadership in Cryptocurrency
As more projects are moving in favor of decentralization and open source, the role of moral authority is only increasing in importance. Businesses that create products can often hire talent based on finances alone and fake the culture (for a period). However, decentralized projects often don’t have this luxury. No one can compel a group of developers to start helping with a decentralized project. No one can compel a group of writers to build out documentation and media. No one, even at the top, can force compliance.
This means that projects must rely on their vision, community and leadership to get people on board. This has created a different sort of leader in the cryptocurrency world, one that focuses highly on a cult of personality to drive a project to a wider audience. People often don’t join projects for the long-term financial benefits, but because they believe in the project vision and the leadership behind it.
We’ve seen this play out a few times already (to great effect). Ethereum’s Vitalik Buterin has taken on an almost religious position in the community, having a lot of pull through his social accounts on twitter and his personal blog. FluffyPony of Monero fame has an active leader in his community, leading the development team through many, many additions to the project and staying active online. Charlie Lee has been an active leader in the Litecoin community, keeping constant contact with his followers and pointing out scams and other non-sense where it appears.
The thing that makes these leaders important is not just their intelligence and ‘position’ in the current hierarchy, but where they came from. Each of these people were important figures in the genesis and growth of their cryptocurrencies. When their blockchain was just a fledgling project, they were working hard to bring value to the future community, whatever that value might be. They build skin in the game over the course of years, even when nobody cared. So when pivotal points came, these leaders and their decision became focal points of attention.
During the DAO hack in 2016, Vitalik made his opinion very clear that they were going to alter the blockchain despite the objections from some of the community. His opinion and actions solidified the community around a common goal and allowed Ethereum to pass through that process relatively unscathed. More importantly, Vitalik has made a point not to comment on other major hacks (like Parity), which resulted in no action from the community (and no further hardforks).
FluffyPony of Monero also showed his ability to affect the community last year during a fake announcement. After being fed up with how prices were affected by ‘announcements’ that often panned out to be nothing, FluffyPony said at Consensus that he was going to announce some great new feature to Monero. The price of XMR exploded in anticipation of the event. Then, when it came time to make an announcement, FluffyPony said he was trolling the community and told speculators to go away. The price returned to its pre-announcement valuation, showing the impact one leader can have.
Leaders have an important impact on the community and their voice stabilizes it. Their moral authority and ability to affect the community gives them the ability to define what is worth pursuing and what is not. People can feel free to do what they wish (that is the nature of open source software), but much of the community will rely on their leader’s opinions to guide their decisions, creating cohesiveness that would not exist otherwise.
Bitcoin and the Hard Forks
After Satoshi left the community, there was something of a void left in the community, but the relative peace since his absence masked this. That was until a pivotal decision needed to be made.
In late 2016, it became very clear that the number of transactions on the Bitcoin blockchain were reaching their natural limits. The network was stuck at 8 Transactions Per Second as the mempool of unconfirmed transactions swelled in size. The price of a Bitcoin transaction went from pennies to dollars and eventually peaked at over $50. Something needed to be done about this.
A few solutions were proposed. On the one hand, there was an update to the network that could have been made to make each individual transaction smaller in size and to allow for interesting future functionality. This solution was known as Segregated Witness (or SegWit). Another solution was to increase the blocksize on the Bitcoin blockchain from 1MB to something bigger (anywhere from 2MB to 8MB was proposed). There were lots of benefits and drawbacks to each of these solutions and the community needed to decide on the answer.
The result of this was not agreement, but a fracturing of the community. In late 2017, two new blockchains, Bitcoin Cash (or Bcash for short) and Bitcoin Gold were created to each address the scaling problem. And even today, the debate rages on to decide which chain is the one true ‘Bitcoin’. The Bitcoin twitter handle was purchased to start promoting Bitcoin Cash as the real ‘Bitcoin’, and attempts were made to rebrand Bitcoin as ‘Bitcoin Core’ to give Bcash a larger advantage.
The debate on scaling completely fractured the Bitcoin community in ways we’ve never seen with other blockchains. Even in the case of Ethereum and Ethereum Classic, the projects had some strife to begin with, but eventually moved their separate ways. Bitcoin cannot say the same thing. My belief is that this is directly the result of a lack of moral authority in the Bitcoin community.
As a thought experiment, imaging this: the community is debating which scaling solution is the best for the community (and whether any change is needed at all). Now imagine that instead of Satoshi Nakamoto removing himself, he remained an active component of the community. And then Satoshi gave his opinion on the best solution in unambiguous terms and executed on this vision.
Is it possible that a fork could have come from this scenario? Absolutely. We could have seen a split of the community much like with Ethereum Classic. Would there have been as much fighting about the solution? I think not. After all, most people would not be so bold as to question the person who invented Bitcoin and the concept of cryptocurrency. The community, at least most of the community, would have solidified on whatever Satoshi’s opinion was. And finally, would anyone doubt that Bitcoin was the ‘true’ Bitcoin, and that Bitcoin Cash (or the other forks) was something different? No, they would not. Because the founder, unambiguously, gave his opinion. You could disagree if this is the right decision, but you can’t hijack the brand.
And this is the problem with Satoshi’s absence. So many people today are acting as if they know what Satoshi would want when they are just guessing. But they are in a position where they must guess, because no one in the community can speak with that authority. The forks of Bitcoin are the inevitable result of a community that lost it’s leader. And every new problem that creates enough of a stir within the Bitcoin community will result in more confusions (and likely new forks).
The only person who could re-collect the community today before it shards further is the one person who does not see that as their job. It’s possible that as time goes on, a new moral authority will get solidified within the community and start marching forward But this is not something that is earned easily or even guaranteed. The only person we know has that has authority is the only person not willing to speak. And that is a problem not easily solved.
