In this post I look at the recent stumbling of Decentralization within Bitcoin - a 17 year old first of its kind experiment. How that could impact Bitcoins price (in USD). Why Decentralization is important and why it is so hard to achieve.
Centralization vs Decentralization
It sounds pretty abstract and boring (except to you - the intrigued mind) until you realize its impact in the world and your life.
Quite simply, Centralization is a person, entity or power structure being able to control something fully. And Decentralization is the opposite. No single person, entity or power structure can control something fully.
It is extremely easy to achieve centralization and exceptionally difficult (or potentially impossible) to achieve decentralization. The Bitcoin experiment has been going almost 17 years now. It has been highly successful, however it has clear cracks in the foundation to do with centralization.
The control system that we live in gravitates to absolute centralization. For this means absolute control over all participants.
The control system despises Decentralization as, no matter what, the power level of the wielding entity, they cannot change something they do not control. Bitcoin - to my knowledge is the first and most successful monetary project to bypass the control system that we are subject to. The amount of wealth stored in Bitcoin recently peaked at 2.5 Trillion USD. The most successful decentralized monetary system that has ever existed.
2.5 Trillion Dollars of value. Running 24/7 for 17 years, no downtime. All running without Front Desk Clerks, no Bank Managers, no expensive glossy lobby.
Quite mind blowing.
Mechanisms for Decentralization
A brief overview of higher level aspects of how Bitcoin achieves decentralization
Peer to Peer Network & Distributed Ledger
Bitcoin uses peer to peer nodes to run the network. So this means your machine, my machine, my neighbors machine. Rather than being on a server in California (centralized/one place). Anyone can run a node to propagate and verify the network. If one goes down others exist or pop up.
To avoid having one Database that everyone reads from as that would be centralized, each node in the peer to peer network has it’s own copy of that ledger. It’s really a historical stack of data, that the node uses Consensus Rules to figure out what to look at.
Consensus Rules
Each node on the peer to peer network has a strict set of rules that it adheres to. When a node receives information that is invalid they do not propagate that invalid information out to the wider network. The chain with the most accumulated Proof of Work (and therefore expended energy) is the valid chain.
Governance
Protocol changes (via BIPs) require voluntary adoption across miners, merchants, exchanges, and users. No foundation or central entity can mandate updates.
It’s All Good Until It Isn’t
Satoshi’s Whitepaper saw Bitcoin as a graph of peer to peer nodes. Each exherting real world effort to “mine Bitcoin” as well as talking with other nodes to propagate information.
There was no delineation between “miners” and “nodes”. Early nodes were miners as well. Using a home computer you could solve trivial math problems to be rewarded with a Bitcoin. But as difficulty rose, technological innovation kicked in to find dedicated hardware (ASICs) that could solve more math in the same time.
And with miners struggling, they move forward with technology to keep on mining. You are then left with those without ASICS and those with ASICS. Due to the high cost and effort to implement meant that Miners are a tiny handful of corporations with the resources and ability to implement Capital intensive hardware. This Tiny number of big miners became a point for centralization.
Observant people have been cautious of this scenario for quite a while now. One must think adversarily and project out that these centralized miners will be targeted by law or coercion.
The Forcing of the Miner’s hand
The Bitcoin Core team last year decided it would be a good idea to expand the footprint of what Bitcoin was from a Monetary Network to “everything” by including large amounts of arbitrary data. Adversarially thinking, this is an attack point that can be exploited to store state secrets, copyright information as well as terrible images.
Recently, ~20% of Nodes voted against this by running node software that signals BIP 110 (Bitcoin Improvement Protocol). The day came for miners to acknowledge and signal for the same. And it passed. No change from the miners.
Those that were expecting the miners to come on board were calm, collected and had rationally laid out all of what they expected to happen. They parroted game theory on how it would force the miners to comply.
The miners didn’t. The game theory died. And a week of grieving and bamboozlement passed for those wanting the miners to change.
For a selection of people who know Bitcoin better than most - the undertanding of the foundational information for which they base their decisions on was wrong. Hence their confusion and dismay.
Clearly the design and implementation of the system isn’t as cut and dry as they had understood.
An influential set of Bitcoin Developers now regard Bitcoin as captured and are all-hands-on-deck taking action. They are painting a picture that the miners have gone rogue and are mining an invalid algorithm now and all of the blocks being actively mined by miners as now being invalid.
Their break-glass reaction is to change the algorithm that Miners operate on from SHA256 to BLAKE2b algorithm. This will mean miners can and will carry on mining on SHA256 Algorithm, while “Propper” Bitcoin has now changed to BLAKE2b algorithm.
However, if just a handful of people think something is something. It doesn’t mean the rest of the world does.
They are furiously working on changing the Proof of work algorithm (plus a few more spring cleaning/best-foot-forward improvements). Their goal is brining Bitcoin back to having a core focus on monetary transactions and upholding Decentralizations as a core tenet.
What Is Bitcoin
Well if this new Bitcoin is Bitcoin and the old one is Bitcoin - how does the layman identify what’s what? Right now there is no way - without deep understanding of the internals of Bitcoin.
At a high level - the Bitcoin Knots development team are the team technically behind this change. For the new fork, it will be launched early September and too with that comes a price for the new coin. If you held Bitcoin before this split you now have 2 “coins”. Old and new. My guess is that the new will be a fraction of the price of the old.
From the research I have done, the Miners didn’t technically deviate from the protocol that can be objectively measured. However they did drift away from a fairly large band of Bitcoiners and node operators. Disregarding their opinion on the matter.
Obviously im all for a smaller attack surface as that makes the system more likely to live longer. And I’m also obviously for anything that can be done to decentralize a system further.
Re-reading Satoshi’s whitepaper (it’s worth a read if you haven’t read it) it is very high level without much guidance as to rules of thumb or technical detail. Which is understandable - I’m sure the author/authors didn’t expect it to go as far as it did.
So if this rift has appeared, but on paper the Miner’s hadn’t deviated objectively from the Bitcoin protocol, then what yard stick can one spot something gone awry? This scenario was not covered in any way when looking back at the Whitepaper for reference.
Given that there are only loose instructions in the whitepaper and we’re way past the naive initial reference ideas from the whitepaper, we’re in uncharted territory. Miner centralization has emerged from a clear miss on the whitepaper.
As annoying as it seems. Identifying Bitcoin is subjective down to which you think it is.
One group of Bitcoiners are happy to expand the foot print of what Bitcoin is and push back on attack points.
The other group pushing for smaller attack surface and removing miner centralization.
You can guess which group Wallstreet backs.
Steps Towards Decentralization
Maybe everything is cyclical and every 10 years there is a re-birth of Bitcoin free, clear and have shed its past issues.
This chain split does absolutely decentralize Bitcoin, you’ve now got two competing factions. Those mining in the new fork, likely, will be decentralized.
It appears that there is no “this is Bitcoin”.
That means people have to think for themselves and maybe that is the cost of being Decentralized.
The War against Perception
The hard part of people thinking is that they are under 24/7 bombardment of mis-information, FUD and propoganda. Your reality is your perception. And your perception is targeted all day every day.
Clearly shaping peoples thoughts is valuable. That is why the System has whole departments of government set up for it along with news, media and influencers. Its an unfathomable amount of money that goes into it every year.
The Fiat Control System outlays an astonishing amount of resources evey year to maintain that control. I don’t ever see mass adoption (of Bitcoin being used as a medium of Exchange) until the Bitcoin network matches like for like the same level of energy expendature on shaping peoples perceptions like for like.