Bitcoin is not decentralized

The other night I tried to write a short post about Bitcoin being Civilization 1 of the internet. It received a tepid 8 likes. 

That tells me that either I suck at writing or my writing topics are lacking in excitement.

Let's try this one more time! This time with a sprinkling of personal background.

TL;DR - Bitcoin is failing and disrupting finance is hard. So frustratingly hard that I'm going on sabbatical to work on non-finance stuff for the first time in half a decade.

Here's why:

I got involved with Bitcoin in 2010. I read the paper in '09 but I count myself a bitcoin believer for ~6 years.

Milestones of my adventure in Bitcoinland!

2010 - I became immersed in the concept of bitcoin, began mining, thought it was a cool experiment, and fun to play with - but had no idea it would become a BIG DEAL.

Late 2011-2012 - Helping the core development team with quality assurance and project management. Bitcoin is now a BIG DEAL and shit "Hey random guy, can you check the boat for holes - there's like sharks."

#1 goal: make sure Bitcoin works for people. AKA test stuff.

2012-2013 - Helping to build and run Bitinstant which resulted in a lot of people telling me

That’s where I bought my first bitcoin!
— Bitinstant users at various NYC Bitcoin shindigs

2013-2015 - A band of former Bitinstanters set off to explore new ideas and do research under the banner of CoinApex. We had fun, built a lot of software, took public flak for thinking/talking about the "wrong kind of idea", and mostly learned a lot.

There's been a ton of side-quests and I loved meeting all the smart interesting bitcoin people.

Bitcoinland has wizards, pirates, rogues, belles of the ball, priests, magic, angry anarchist mobs, artists, philosopher economists, lawmen fighting for justice, humble workers, and of course heroes and villains. It has politicians arguing on the floor of the forum while Chinese masterminds hold the pursestrings. Passion, adventure, riches, piracy - I witnessed it all in the land of Bitcoin. 

In my time attempting to disrupt global finance with a technology called Bitcoin I have learned these things:

-Bitcoin is a remarkable experiment and probably our first really substantial internet civilization. I say this because the bitcoin society has monetary policy, group-decision making (voting), and its basis is to serve as a public work. Tell me something else that has those properties and I'll call it Civ 1 of the internet.

-Disrupting finance is hard. It is prohibitively expensive, risky, and mind-dullingly frustrating to play in the sandbox of the US banking system. Here's a brief summary in the form of a quote from a figment banker making decisions about technology

"New tech? gah assemble the boys club. Our 1970s cobol architecture has worked for 40 years -- why fix it if it ain't broken. Look at all the money we're making. Ok fine pay the guys in Washington to make those scrappy entrepreneurs get bank charters with impossible to appease regulatory requirements. We'll let them call it Paypal or Bitcoin-lite but throw out their work and make it use our old systems."

My real experience with it is literally this:

CoinApex: Bitinstant had so many regulatory hurdles, let's build something so innocuous that it doesn't have to deal with financial regulation - merchant payment processing.

The Government: We see that you've spent 6 months building something to disrupt finance that we previously didn't care about. Now we care about it so please take our hint -- stop building stuff.

CoinApex: But those other companies have been doing merchant payment processing for decades, why don't you stop them?

The Government: They've been doing it for years and can afford to lobby us. We've made an exception for them so that only you and two other Bitcoin schmucks are regulated.

My advice if you are looking to start a fintech startup: don't. Go build another picture sharing app. Your sanity is worth much more than fixing finance. Even bankers don't want to fix banks.

-The people I worked with are the best part of it all. Companies always disappoint, but working with good people makes it tolerable.

-All current versions of Bitcoin are not ready for the mainstream and it is futile to attempt to bring them to mainstream until the bugs are fixed. (oh yeah I said it)

In my role as former Bitcoin QA guy I still feel responsible for pointing out major bugs in Bitcoin. Many are apparent and Bitcoin is in fact badly broken right now.

Here's why proof of work (PoW) doesn't work for bitcoin consensus:

Bitcoin PoW is setup to create a game theory situation where miners have to expend energy and compute time (which cost real money) in order to capture a profit from the mining reward and fees. If they do something wrong like allow a double spend -- they can't collect the reward and thus lose the money they spent on compute time and energy during the PoW phase.

This game theory is what facilitates consensus on the Bitcoin network. The miners are incentivized to maintain the same bitcoin ledger as each other (have consensus). If one of the miners breaks the rules or diverges from the majority, they get cut off and lose the money they spent on compute time and energy for PoW.

(Read the following paragraph if you're a pain in my ass)
Sometimes I've said that Bitcoin uses "Proof of Work consensus" to which some Bitcoin experts have scoffed and said "you don't understand Bitcoin". OK to be technical -- Bitcoin uses hashed PoW to power the time-stamping server. If we can get past the jargon we can see that the engine in the car is responsible for the car moving. Yes the drivetrain, wheels, chases, etc. are all important too - but I'm here pointing out that the engine is knocking and that's why the car needs repair.

PoW is the spark plugs that are causing the consensus engine to freak out. This is why we have to switch to laser igniters instead of spark plugs.

I always hear that bitcoin is decentralized, but it's clearly not and PoW is the reason. Miners spend real money on mining equipment and electricity to run complex math problems (double sha256). Electricity and electronic manufacturing is cheap in China. Thus, it is easier for people in China to do PoW. Furthermore, Bitcoin is centralized as it is controlled in practice by miners in China.

One ASIC may equal one vote, but people in China can buy and run more ASICs than other people. That's not decentralization. Some special citizens get most of the votes. That's an oligarchy. It also happens to result in a lot of pollution.

Bitcoinland is so focused on how to make the spark plugs get less clogged that it's not focusing on replacing the spark plugs entirely. Even finding laser igniters is not enough. In my mind, the only interesting pursuits in Bitcoin are in the fields of identity and trust networks. Take PoW out of the consensus engine.

Right now Bitcoin expends energy and time which results in carbon emissions. It also results in a game of whoever has the cheapest electricity and computer manufacturing gets to make decisions for the public. The definition of an oligarchy. Sure Bitcoin has some checks and balances left (which is why I classify it in its entirety as a democracy) - but the power in democracies historically ends up in the hands of the rising oligarchy.

My economist friends might remind me that in order for us to create value in a virtual system we need to expend value. The laws of thermodynamics yadda yadda. 

My proposal is that we explore using pseudonymous identity and web of trust to create a system where social capital: reputation - is the resource we expend to create digital value.

If we can quantize reputation as concretely expendable social capital, we can derive a system to transfer that value and use it as a medium of exchange. 

A short post on internet civilizations

Going into 2016, here is my thesis on the macro matters affecting the Bitcoin experiment:

Bitcoin is an amazing attempt to create an internet-based civilization. It was formed as a republic but has devolved into a state of democracy. 

The Bitcoin society focuses primarily on monetary policy (ie. issuing a currency) but it has a lot of the typical symptoms of a civilization. It involves people engaging in commerce -- with policies, enforcement, and property. It has figureheads, castes, enterprise, voting, a writing system, specialization of labor, taxation, and looming debates of public policy and social issues.

I classify Bitcoin as being initialized as a republic but having devolved to democracy (like so many republics before it).

Some background on why I think the hypothesis is valid:

The story of republic->democracy->oligarchy is not new in the history of human civilizations. It is a pattern spoken about by such greats as Plato himself, albeit with older terminology. A well-read statesmen more recently described the concept of civilizations requiring repetitive turnover to reset after the inevitable transition to oligarchy:

The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants
— Thomas Jefferson 1787

Mr. Jefferson even paid homage to the Christian bible in the longer version of that quote. He paraphrased; that God forbids man from a lack of revolution.

Perhaps some Bitcoiners would agree that Bitcoin society is on the verge of schism with such discussions as the blocksize debate. It is certainly one of the more polarizing contentious issues. I would even venture to say that the debate is before officials as a matter of public outcry requiring legislative action at present.

There are still many other unresolved matters of civil unrest: fungibility, privacy, identity, mining centralization, and 51% attack to name a few. Often times the Bitcoin law (or protocol) requires unanimous agreement with the dooming possibility of a rouge nation if all parties do not compromise.

I could go on writing and probably should elaborate on why I equate tx fees to a tax, the scripting language to a written language, mining pools to the bureaucracy, developers to the legislative branch, and mining clients to law enforcement. But this is supposed to be a short post.

Conclusion and predictions:

The problem is that Bitcoin is the cutting edge and I am a concerned citizen. Fortunately I'm not yet worried about bandits or other civilizations pillaging my land because I would venture to say that Bitcoin is the first true civilization on the internet. I say this due to its robust design with thoughtful separation of powers, currency, and other civil infrastructure -- to which I see no rivals.

It was initially setup with rules, founding principles, and the separate powers (users, miners, developers) having relatively effective checks and balances against each other. Those checks and balances have failed in that mining centralization and corporate interests have allowed an oligarchy to develop. The oligarchy naturally has special interests and we can expect to see the decisions about policies like the blocksize debate factoring in those special interests. It should be self-evident that those special interests go against the wishes and best interests of the general public, to which the checks and balances were initially designed to protect. My preferred "One CPU one vote" de jure has been undermined by centralized mining and corporate interest de facto.

I see two possible outcomes: revolution or the furtherance of the oligarchy. Unfortunately there is traditionally a lot of resources held by an oligarchy which tends to try to preserve itself for as long as possible -- resulting in a possibly lengthy period of public suffering.

Now this is all a bit silly. We're talking about magic internet money and it's unlikely that the tech-savvy Bitcoin public will suffer real-world destruction due to the bitnocrats. But as blockchains begin to replace the infrastructure of the traditional offline civilizations - should we be paying more attention to how this all plays out? 

Maybe it's not too crazy to get a 3D printed toga for the quadcopter races. You can find me on the soap box at the forum. What a time to be an internet pleb waiting for a triumph!