The world of bitcoin is in a state of conflict. An existential battle over the future of the still nascent digital currency. Years of discussion about potential, explosive potential, has yielded little in the way of mass adoption. Blockchain-based technology is a perennial phrase in discussions of cutting edge fintech: Better clearinghouses, transaction immutability, more accessible chain of custody, property records that can’t be forged. The implications are attractive, but the first product, bitcoin, is still getting up to speed. The current debate centers around transaction numbers, and scaling bitcoin to handle increasing volumes of transactions. The debaters have devolved into factions. Mirroring the resilience shown to mainstream criticism, the factions have turned the same vitriol against each other.
Bitcoin believers enjoy referencing the decentralized nature of bitcoin. This is somewhat hollow, as the dominant development team is somewhat decentralized and democratic, but mining groups and ownership of bitcoin is decidedly not decentralized. Part of the debate around proposed changes, things like segregated witness or Schnorr signatures, is aimed at limiting the power of miners. Miners are key to the propagation of the blockchain, ensuring transactions are processed and the literal blockchain continues forward. As often happens when idealism meets reality, bitcoin users and miners discovered a natural tendency toward centralization, or monopoly, in the absence of central design or regulation. Engaging in a campaign to improve or update bitcoin has met resistance by users who are profiting from the status quo. Jihan Wu is a key opponent, and his weight as a miner means he currently has the means to prevent a “consensus” from signaling their support for any major updates to the bitcoin protocol. That’s right, one person can scuttle the forward progress of a ‘decentralized’ cryptocurrency.
Perhaps a bigger problem is the lack of leadership in bitcoin. More mainstream leaders have been driven out of bitcoin by the ferocity and ideological bent of the community. Dominated by otherwise fringe belief systems, bitcoin’s main proponents meet primarily in online forums, sharing thoughts and opinions that reflect their beliefs rather than ideas that will best make bitcoin useful. Together with developers who are willing to embrace fanatical approaches, the community has driven itself into a state of discord. Without adequate leadership, key decisions are attempted through community agreement. In some cases, even 100% agreement has been defined as the mark to meet. This is both impractical and implausible. Maintaining the status quo is continuing to put bitcoin at a disadvantage, as the lessons learned by the first cryptocurrency are increasingly put to good use by future offspring.
This strife is being papered over by the recent and dramatic rise in price. Bitcoin has been able to maintain itself as a store of value, representing a means for people in stressed economic areas to relieve their capital concerns through digital currencies. Unregulated exchanges become proxies for capital flight. This crutch will continue to prop up bitcoin, but represents a threat as well. Chinese, Venezuelan, Russian, or other consumers use bitcoin for utility, not ideology. As soon as another option exists, with lower volatility, better liquidity, or some other advantage, these users will not stick with bitcoin. Bitcoin believers mistake the price for long term success; bitcoin may be iterated out of dominance by improved technology.
The inability of bitcoin believers and developers to come to a consensus represents a long-term risk for bitcoin as a digital currency. Driving out rational voices, failing to improve the technology, and creating an incentive for new cryptocurrencies are all substantial risks that could prove to unite in a fatal blow. Over time, bitcoin loses novelty. Technology that ages tends to die. A solution needs to be found to improve the bitcoin protocol. Consensus other than unanimous, or near unanimous, agreement should not be discarded. Bitcoin users are reinventing the wheel by discovering that idealism rarely suits reality.