The invisible politics of Bitcoin: governance crisis of a decentralised infrastructure, Internet Policy Review
The invisible politics of Bitcoin: governance crisis of a decentralised infrastructure
Primavera De Filippi, Berkman Klein Center for Internet & Society, Harvard University, United States
PUBLISHED ON: thirty Sep two thousand sixteen DOI: Ten.14763/2016.Trio.427
Contesting interests: The author has proclaimed that no challenging interests exist that have influenced the text.
Citation: De Filippi, P. & Loveluck, B. (2016). The invisible politics of Bitcoin: governance crisis of a decentralised infrastructure. Internet Policy Review, Five(Three). DOI: Ten.14763/2016.Trio.427
Since its inception in 2008, the grand ambition of the Bitcoin project has been to support direct monetary transactions among a network of peers, by creating a decentralised payment system that does not rely on any intermediaries. Its objective is to eliminate the need for trusted third parties, particularly central banks and governmental institutions, which are prone to corruption.
Recently, the community of developers, investors and users of Bitcoin has experienced what can be regarded as an significant governance crisis – a situation whereby diverging interests have run the risk of putting the entire project in jeopardy. This governance crisis is exposing of the limitations of excessive reliance on technological contraptions to solve issues of social coordination and economic exchange. Taking the Bitcoin project as a case explore, we argue that online peer-to-peer communities involve inherently political dimensions, which cannot be dealt with purely on the basis of protocols and algorithms.
The very first part of this paper exposes the specificities of Bitcoin, presents its underlying political economy, and traces the brief history of the project from its inception to the crisis. The 2nd part analyses the governance structure of Bitcoin, which can be understood as a two-layered construct: an infrastructure seeking to govern user behaviour via a decentralised, peer-to-peer network on the one mitt, and an open source community of developers designing and architecting this infrastructure on the other. We explore the challenges faced at both levels, the solutions adopted to ensure the sustainability of the system, and the unacknowledged power structures they involve. In a third part, we expose the invisible politics of Bitcoin, with regard to both the implicit assumptions embedded in the technology and the very centralised and largely undemocratic development process it relies on. We conclude that the overall system displays a very technocratic power structure, insofar as it is built on automated technical rules designed by a minority of experts with only limited accountability for their decisions. Eventually, drawing on the broader framework of internet governance research and practice, we argue that some form of social institution may be needed to ensure accountability and to preserve the legitimacy of the system as a entire – rather than relying on technology alone.
I. Bitcoin in theory and practice
A. The Bitcoin project: political economy of a trustless peer-to-peer network
Historically, money has taken many different forms. Far from being an exclusively economic device, money is closely associated with social and political systems as a entire – which Nigel Dodd refers to as the social life of money (Dodd 2014). Indeed, money has often been introduced as an instrument which can be leveraged to form society in certain ways and as Dodd has shown, this includes powerful utopian dimensions: for sociologist Georg Simmel for example, an ideal social order hinged upon the definition of a “perfect money” (Simmel, 2004). In the wake of economic crises in particular, it is not uncommon to witness the emergence of alternative money or exchange frameworks aimed at establishing different social relations inbetween individuals – more egalitarian, or less prone to accumulation and speculation (North, 2007). On the other forearm however, ideals of self-regulating markets have often sought to detach money from existing social relations, resulting in a progressive “disembedding” of commercial interactions from their social and cultural context (Polanyi, two thousand one ).
Since it very first appeared in 2009, the decentralised cryptocurrency Bitcoin has raised high hopes for its potential to reshuffle not only the institutions of banking and finance, but also more generally power relations within society. The potential consequences of this innovation, however, are profoundly ambivalent. On the one mitt, Bitcoin can be introduced as a neoliberal project insofar as it radicalises Friedrich Hayek’s and Milton Friedman’s ambition to end the monopoly of nation-states (via their central banks) on the production and distribution of money (Hayek, 1990), or as a libertarian desire which aims at reducing the control of governments on the economy (De Filippi, 2014). On the other arm, it has also been framed as a solution for greater social justice, by undermining oligopolistic and anti-democratic arrangements inbetween big capital and governments, which are seen to favour economic crises and inequalities. Both of these claims hinge on the fact that as a socio-technical assemblage, Bitcoin seems to provide a solution for “governing without governments”, which appeals to liberal sentiments both from the left and from the right. Its implicit political project can therefore be understood as effectively getting rid of politics by relying on technology.
More generally, distributed networks have long been associated with a redistribution of power relations, due to the elimination of single points of control. This was one of the main interpretations of the shift in telecommunications routing methods from circuit switching to packet switching in the 1960s and the later deployment of the internet protocol suite (TCP/IP) from the 1970s onwards (Abbate, 1999), as well as the adoption of the end-to-end principle – which proved to be a compelling but also partly misleading metaphor (Gillespie, 2006). The idea was that information could flow through numerous and unfiltered channels, thus circumventing any attempts at controlling or censoring it, and providing a basis for more egalitarian social relations as well as stronger privacy. In practice however, it became clear that network design is much more complicated and that extra software, protocols and hardware, at various layers of the network, could (and did) provide alternate forms of re-centralisation and control and that, moreover, the internet was not structurally immune to other modes of intervention such as law and regulation (Benkler, 2016).
However, there have been numerous attempts at re-decentralising the network, most of which have adopted peer-to-peer architectures as opposed to client-server alternatives, with the underlying assumption that such technical solutions provide both individual freedom and “a promise of equality” (Agre, 2003) 1. Other technologies have also been adopted in order to add features relating to user privacy for example, which involve alternative routing methods (Dingledine, Mathewson, & Syverson, 2004) and cryptography (which predates computing, see e.g. Kahn 1996). In particular, such ideas were strongly advocated embarking from the late 1980s by an informal collective of hackers, mathematicians, computer scientists and activists known as cypherpunks, who eyed strong cryptography as a means of achieving greater privacy and security of interpersonal communications, especially in the face of perceived excesses and manhandles on the part of governmental authorities. Two Indeed, all of these solutions pursue implicit or explicit goals, in terms of their social or political consequences, which can be summed up as enabling self-organised direct interactions inbetween individuals, without relying on a third party for coordination, and also preventing any form of surveillance or coercion.
Yet cryptography is not only useful to protect the privacy of communications; it can also serve as a means to promote further decentralisation and disintermediation when combined with a peer-to-peer architecture. In 2008, a pseudonymous entity named Satoshi Nakamoto released a white paper on the Cryptography Mailing list (metzdowd.com) describing the idea of a decentralised payment system relying on a distributed ledger with cryptographic primitives (Nakamoto, 2008a). One year later, a very first implementation of the ideas defined in the white paper was released and the Bitcoin network was born. It introduces its own native currency (or unit of account) with a immobile supply – and whose issuance is regulated, only and exclusively, by technological means. The Bitcoin network can therefore be used to substitute at least some of the key functions played by central banks and other financial institutions in modern societies: the issuance of money on the one arm, and, on the other palm, the fiduciary functions of banks and other centralised clearing houses.
Supported by many self-proclaimed libertarians, Bitcoin is often introduced as an alternative monetary system, capable of bypassing most of the state-backed financial institutions – with all of their shortcomings and vested interests which have become so demonstrable in the light of the financial crisis of 2008. Indeed, as opposed to traditional centralised economies, Bitcoin’s monetary supply is not managed by any central authority, but is rather defined (in advance) by the Bitcoin protocol – which precisely stipulates the total amount of bitcoins that will ever come into being (21 million) and the rate at which they will be issued over time. A certain number of bitcoins are generated, on average, every ten minutes and assigned as a prize to those who lend their computational resources to the Bitcoin network in order to both operate and secure the network. In this sense, Bitcoin can be said to mimic the characteristics of gold. Just as gold cannot be created out of skinny air, but rather needs to be extracted from the earth (through mining), Bitcoin also requires a particular kind of computational effort – also known as mining – in order for the network protocol to generate fresh bitcoins (and just as gold progressively becomes stiffer to find as the stock gets depleted over, also the amount of bitcoins generated through mining decreases over time).
The establishment and maintenance of a currency has traditionally been regarded as a key prerogative of the State, as well as a central institution of democratic societies. Controlling the money supply, by different means, is one of the main instruments that can be leveraged in order to form the economy, both domestically and in the context of international trade. Yet, regardless of whether one believes that the State has the right (or duty) to intervene in order to regulate the market economy, monetary policies have sometimes been instrumentalised by certain governments using inflation as a means to finance government spending (e.g. in the case of the Argentine excellent depression of 1998-2002). Perhaps most critical is the fact that, with the introduction of fractional-reserve banking, commercial banks acquired the capability to (temporarily) increase the money supply by providing out loans which are not backed up by actual funds (Ferguson, 2008). Three The fractional-reserve banking system (and the tendency of commercial banks to create money at unsustainable rates) is believed to be one of the main factors leading to the global financial crisis of two thousand eight – which has brought the issue of private money issuance back into the public debate (Quinn, 2009).
Albeit there have been many attempts at establishing alternative currencies, and cryptocurrencies have also been debated for a long time, the creation of the Bitcoin network was in large part motivated in response to the social and cultural contingencies that emerged during the global financial crisis of 2008. As explicitly stated by Satoshi Nakamoto in various blog posts and forums, Bitcoin aimed at eradicating corruption from the field of currency issuance and exchange. Given that governments and central banks could no longer be trusted to secure the value of fiat currency and other financial instruments, Bitcoin was designed to operate as a trustless technology, which only relies on maths and cryptography. Four The paradox being that this trustless technology is precisely what is needed for building a fresh form of “distributed trust” (Mallard, Méadel, & Musiani, 2014).
Trust management is a classic issue in peer-to-peer computing, and can be understood as the confidence that a peer has to ensure that it will be treated fairly and securely, when interacting with another peer, for example, during transactions or downloading files, especially by preventing malicious operations and collusion schemes (Zhu, Jajodia, & Kankanhalli, 2006). To address this issue, Bitcoin has brought two fundamental innovations, which, together, provide for the self-governability and self-sustainability of the network. The very first innovation is the blockchain, which relies on public-private key encryption and hashing algorithms to create a decentralised, append-only and tamper-proof database. The 2nd innovation is Proof-of-Work, a decentralised consensus protocol using cryptography and economic incentives to encourage people to operate and at the same time secure the network. Accordingly, the Bitcoin protocol represents an elegant, but purely technical solution to the issue of social trust – which is normally resolved by relying on trusted authorities and centralised intermediaries. With the blockchain, to the extent that trust is delegated to the technology, individuals who do not know (and therefore do not necessarily trust) each other, can now transact with one another on a peer-to-peer basis, without the need for any intermediary.
Hence Bitcoin uses cryptography not as a way to preserve the secrecy of transactions, but rather in order to create a trustless infrastructure for financial transactions. In this context, cryptography is merely used as a discrete notational system (DuPont, 2014) designed to promote the autonomy of the system, which can operate independently of any centralised third party Five. It relies on plain cryptographic primitives or building blocks (SHA256 hash functions and public-key cryptography) to resolve, in a decentralised manner, the double-spending problem six found in many virtual currencies. The scheme used by Bitcoin (Proof-of-Work) relies on a peer-to-peer network of validators (or miners) who commit their computational resources (hashing power) to the network in order to record all valid transactions into a decentralised public ledger (a.k.a. the blockchain) in a chronological order. All valid transactions are recorded into a block, which incorporates a reference (or hash) to the previous block – so that any attempt at tampering with the order or the content of any past transaction will always and necessarily result in an apparent discontinuity in the chain of blocks.
By combining a multitude of existing technologies with basic cryptographic primitives, Bitcoin has created a system that is provably secure, practically incorruptible and probabilistically unattackable seven – all this, without resorting to any centralised authority in charge of policing the network. Bitcoin relies on a fully open and decentralised network, designed in such a way that anyone is free to use the network and contribute to it, without the need for any kind of previous identification. Yet, contrary to popular belief, Bitcoin is neither anonymous nor privacy-friendly. Fairly the contrary, anyone with a copy of the blockchain can see the history of all Bitcoin transactions. Decentralised verification requires, indeed, that every transaction be made available for validation to all knots in the network and that every transaction ever done on the Bitcoin network can be traced back to its origin. 8
In sum, Bitcoin embodies in its very protocols a profoundly market-driven treatment to social coordination, premised on strong assumptions of rational choice (Olson, 1965) and game-theoretical principles of non-cooperation (von Neumann & Morgenstern, one thousand nine hundred fifty three ). The (self-)regulation of the overall system is primarily achieved through a system relying on flawless information (the blockchain), combined with a consensus protocol and incentives mechanism (Proof-of-work), to govern the mutually adjusting interests of all involved actors. Other dimensions of social trust and coordination (such as loyalty, coercion, etc.) are seemingly expunged from a system which expressly conforms to Hayek’s ideals of catallactic organisation (Hayek, 1976, p. 107ff).
B. From inception to crisis
1. A brief history of Bitcoin
The history of Bitcoin – albeit very brief – consists of a very intense series of events, which have led to the decentralised cryptocurrency becoming one of the most widely used forms of digital cash. The story began in October 2008, with the release of the Bitcoin white paper (Nakamoto, 2008a). In January 2009, the Bitcoin software was published and the very first block of the Bitcoin blockchain was created (the so-called Genesis block) with a release of fifty bitcoins. Shortly after, the very first Bitcoin transaction took place inbetween Satoshi Nakamoto and Hal Finney – a well-known cryptographer and prominent figure of the cypherpunk movement in the 1990s. It is not until a few months later that Bitcoin ultimately acquired an equivalent value in fiat currency nine and leisurely made its way into the commercial area, as it embarked being accepted by a puny number of merchants. Ten
In the early days, Satoshi Nakamoto was actively contributing to the source code and collaborating with many of the early adopters. Yet, he was always very careful to never disclose any individual details, so as to maintain his identity secret. To date, in spite of the various theories that have been put forward, eleven the real identity of Satoshi Nakamoto remains unknown. In a way, the pseudonymity of Satoshi Nakamoto flawlessly mirrors that of his brainchild, Bitcoin – a technology designed to substitute technology for trust, thus rendering the identification of transacting parties unnecessary.
Over the next few months, Bitcoin adoption continued to grow, leisurely but steadily. Yet, the real spike in popularity of Bitcoin was not due to enhanced adoption by commercial actors, but rather to the establishment in January two thousand eleven of Silk Road – an online marketplace (mostly used for the trading of illicit drugs) relying on Tor and Bitcoin to preserve the anonymity of buyers and sellers. Silk Road paved the way for Bitcoin to inject the mainstream, but also led many governmental agencies to raise several concerns that Bitcoin could be used to create black markets, evade taxation, facilitate money laundering and even support the financing of terrorist activities.
In April 2011, to the surprise of many, Satoshi Nakamoto announced on a public mailing list that he would no longer work on Bitcoin. I’ve moved on to other things he said, before disappearing without further justification. Yet, before doing so, he transferred control over the source code repository of the Bitcoin client to Gavin Andresen, one of the main contributors to the Bitcoin code. Andresen, however, did not want to become the foot leader of such a project, and thus granted control over the code to four other developers – Pieter Wuille, Wladimir van der Laan, Gregory Maxwell, and Jeff Garzik. Those entrusted with these administration rights for the development of the Bitcoin project became known as the core developers.
As the popularity of Bitcoin continued to grow, so did the commercial opportunities and regulatory concerns. However, with the exit of Satoshi Nakamoto, Bitcoin was left without any leading figure or institution that could speak on its behalf. This is what justified the creation, in September 2012, of the Bitcoin Foundation – an American lobbying group focused on standardising, protecting and promoting Bitcoin. With a board comprising some of the largest names in the Bitcoin space (including Gavin Andresen himself), the Bitcoin Foundation was intended to do for Bitcoin what the Linux Foundation had done for open source software: paying developers to work full-time on the project, establishing best practices and, most importantly, bringing legitimacy and building trust in the Bitcoin ecosystem. And yet, concerns were raised regarding the legitimacy of this self-selected group of individuals – many of whom had dubious connections or were allegedly related to specific Bitcoin scams twelve – to act as the referent and public face of Bitcoin. Beyond the irony of having a decentralised virtual currency like Bitcoin being represented by a centralised profit-driven organisation, it soon became clear that the Bitcoin Foundation was actually incapable to take on that role. Plagued by a series of financial and management issues, with some of its ex-board members under criminal investigation and most of its funds depleted, the Bitcoin Foundation has today lost much of its credibility.
But even the fall of the Bitcoin Foundation did not seem to significantly affect Bitcoin – most likely because the Foundation was merely a facade that never had the capability to effectively control the virtual currency. Bitcoin adoption has continued to grow over the past few years, to eventually reach a market capitalisation of almost US seven billion dollars. Bitcoin still has no public face and no actual institution that can represent it. Yet, people proceed to use it, to maintain its protocol, and to rely on its technical infrastructure for an enlargening number of commercial (and non-commercial) operations. And albeit a few Bitcoin-specific regulations have been enacted thus far (see e.g. the NY State BitLicense), regulators around the world have, for the most part, refrained from regulating Bitcoin in a way that would significantly impinge upon it (De Filippi, 2014).
Bitcoin thus proceeds to operate, and resumes to be regarded (by many) as an open source software platform that relies on a decentralised peer-to-peer network governed by distributed consensus. Yet, if one looks at the underlying reasons why Bitcoin has been created in the very first place, and the ways it has eventually been adopted by different categories of people, it becomes clear that the original conception of Bitcoin as a decentralised platform for financial disruption has progressively been compromised by the social and cultural context in which the technology operates.
Following the very first wave of adoption by the cypherpunk community, computer geeks and crypto-libertarians, a 2nd (larger) wave of adoption followed the advent of Silk Road in 2011. But what actually brought Bitcoin to the mainstream were the fresh opportunities for speculation that emerged around the cryptocurrency, as investors from all over the world began to accumulate bitcoins (either by purchasing them or by mining) with the foot purpose of generating profits through speculation. This trend is a clear reflection of the established social, economic and political order of a society driven by the capitalistic values of accumulation and profit maximisation. Accordingly, even a decentralised technology specifically designed to promote disintermediation and financial disruption can be incapable to protect itself from the inherent tendencies of modern capitalist society to concentrate wealth and centralise power into the forearms of a few (Kostakis & Bauwens, 2014).
The illusion of Bitcoin as a decentralised global network had already been challenged in the past, with the advent of large mining pools, mostly from China, which nowadays control over 75% of the network. But this is only one part of the problem. It took a elementary – yet very controversial – protocol issue to realise that, in spite of the open source nature of the Bitcoin platform, the governance of the platform itself is also very centralised.
Two. The block size dispute
To many outside observers, the contentious issue may seem remarkably specific. As described earlier, the blockchain underpinning the Bitcoin network is composed of a series of blocks listing the totality of transactions which have been executed so far. For a number of reasons (mainly related to preserving the security and stability of the system, as well as to ensure effortless adoption), the size of these blocks was primarily set at one megabyte. In practice, however, this technical specification also sets a limitation on the number of transactions which the blockchain can treat in a particular time framework. Hence, as the adoption of Bitcoin grew, along with the number of transactions to be processed, this arbitrary limitation (which was originally perceived as being innocuous) became the source of heated discussions – on several internet forums, blogs, and conferences – leading to an significant dispute within the Bitcoin community (Rizzo, 2016). Some argued that the one megabyte cap was effectively preventing Bitcoin from scaling and was thus a crucial impediment to its growth. Others claimed that many workarounds could be found (e.g. off-chain solutions that would take off the fountain from the main Bitcoin blockchain) to resolve this problem without enhancing the block size. They insisted that maintaining the cap was necessary both for security reasons and for ideological reasons, and was a precondition to keeping the system more inclusive and decentralised.
On fifteen August 2015, failing to reach any form of consensus over the issue of block sizes, a spinoff project was proposed. Frustrated by the reluctance voiced by the other Bitcoin developers to officially raise the block size limit (Hearn, 2015), two core developers, Gavin Andresen and Mike Hearn, released a fresh version of the Bitcoin client software (Bitcoin XT) with the latent capacity of accepting and producing an enhanced block size of eight megabytes. This client constitutes a particular kind of fork of the original software or reference client (called Bitcoin Core). Bitcoin XT was released as a soft fork, thirteen with the possibility to turn into a hard fork, if and when a particular set of conditions were met. Primarily, the software would remain identical to the Bitcoin Core software, with the exception that all the blocks mined with the Bitcoin XT software would be “signed” by XT. This signature serves as a proxy for a poll: beginning from eleven January 2016, in the event that at least 75% of all most latest 1,000 blocks have been signed by XT, the software would embark accepting and producing blocks with a maximum block size of eight megabytes – with the cap enlargening linearly so as to dual every two years. This would mark the beginning of an actual hard fork, leading to the emergence of two blockchain networks featuring two different and incompatible protocols.
The launch of Bitcoin XT proved very controversial. It generated a considerable amount of debate among the core developers, and eventually led to a full-blown conflict which has been described as a civil war within the Bitcoin community (Hearn, 2016). Among the Bitcoin core developers, Gregory Maxwell in particular was a strong proponent of maintaining the one megabyte cap. According to him, enlargening the block size cap would constitute a risky switch to the fundamental rules of the system, and would inherently bring Bitcoin towards more centralisation – because it would mean that less powerful machines (such as home computers) could no longer proceed to treat the blockchain, thus making the system more prone to being overrun by a petite number of big computers and mining pools. Similarly, Nick Szabo – a prominent cryptographer involved since the early days in the cypherpunk community – announced that enhancing the block size so rapidly would constitute a large security risk that could jeopardise the entire network. Eventually, another argument raised against the Bitcoin XT proposal was that enlargening the block size would possibly lead to variable, and delayed confirmation times (as larger blocks may fail to be confirmed every ten minutes).
Within the broader Bitcoin community, the conflict gave rise to copious amounts of flame-wars in various online forums that represent the main sources of information for the Bitcoin community (Reddit, Bitcoin Info, Bitcoin.org, etc.). Many accused the proponents of Bitcoin XT of using populist arguments and alarmist strategies to bring people on their side. Others claimed that, by promoting a hard fork, Bitcoin XT developers were doing exactly what the Bitcoin protocol was meant to prevent: they were creating a situation whereby people from each side of the network would be able to spend the same bitcoins twice. In some cases, the conflict eventually resulted in outright censorship and banning of Bitcoin XT supporters from the most popular Bitcoin websites. Fourteen Most critically, the conflict also led to a multiplicity of individual attacks towards Bitcoin XT proponents, and several online operators who voiced support for Bitcoin XT experienced Distributed Denial of Service (DDoS) attacks.
In the face of these events, and given the low rate of adoption of Bitcoin XT by the Bitcoin community at large, fifteen Mike Hearn, one of the core developers and key instigators of Bitcoin XT, determined to resign from the development of Bitcoin – which he believed was on the brink of technical collapse. Hearn condemned the emotionally charged reactions to the block size debate, and pointed at major disagreements among the appointed Bitcoin core developers in the interpretation of Nakamoto’s legacy.
But the conflict did not end there. Bitcoin XT was only the very first of a series of improvements which were subsequently proposed to the Bitcoin protocol. As Bitcoin XT failed to build up mass adoption, it was eventually abandoned on January 23rd. Fresh suggestions were made to resolve the block size problem (see e.g., Bitcoin Unlimited, Bitcoin Classic, BitPay Core). The most popular today is most likely Bitcoin Classic, which proposes to increase the block size cap to two megabytes (instead of 8) by following the same scheme as Bitcoin XT (i.e. after 75% of bitcoin miners will have endorsed the fresh format). One interesting aspect of Bitcoin Classic is that it also plans to set up a specific governance structure that is intended to promote more democratic decision-making with regard to code switches, by means of a voting process that will account for the opinions of the broader community of miners, users, and developers. Bitcoin Classic has received support from relevant players in the Bitcoin community, including Gavin Andresen himself, and presently accounts for 25% of the Bitcoin network’s knots.
It is, at this moment in time, fairly difficult to predict where Bitcoin is heading. Some may think that the Bitcoin experiment has failed and that it is not going anywhere; sixteen others may think that Bitcoin will proceed to grow in underserved and inaccessible markets as a gross settlement network for payment obligations and safe haven assets; seventeen while many others believe that Bitcoin is still heading to the moon and that it will proceed to surprise us as time goes on. Eighteen One thing is sure tho’: regardless of the robustness and technical viability of the Bitcoin protocol, this governance crisis and failure in conflict resolution has highlighted the fragility of the current decision-making mechanisms within the Bitcoin project. It has also emphasised the pressure inbetween the (theoretically) decentralised nature of the Bitcoin network and the very centralised governance model that has emerged around it, which ultimately relied on the goodwill and aligned interests of only a handful of people.
II. Bitcoin governance and its challenges
Governance structures are set up in order to adequately pursue collective goals, maintain social order, channel interests and keep power relations under check, while ensuring the legitimacy of deeds taken collectively. They are therefore closely related to the issue of trust, which is a key aspect of social coordination and which online socio-technical systems address by combining informal interpersonal relations, formal rules and technical solutions in different ways (Kelty, 2005). In the case of online peer-production communities, two essential features are decisive in shaping their governance structure, namely the fact that they are volunteer-driven and that they seek to self-organise (Benkler, 2006). Thus, compared to more traditional forms of organisations such as firms and corporations, they often need to implement alternative means of coordination and incentivisation (Demil & Lecocq, 2006).
Nicolas Auray has shown that, albeit the nature of online peer-production communities can be very different (ranging from Slashdot to Wikipedia and Debian), they all face three key challenges which they need to address in order to thrive (Auray, 2012):
definition and protection of community borders;
establishment of incentives for participation and acknowledgment of the status of contributors;
and, ultimately, pacification of conflicts.
Understanding how each of these challenges is addressed in the case of the Bitcoin project is particularly difficult, since Bitcoin is composed of two separate, but very interdependent layers, which involve very different coordination mechanisms. On the one mitt, there is the infrastructural layer: a decentralised payment system based on a global trustless peer-to-peer network which operates according to a specific set of protocols. On the other forearm, there is the layer of the architects: a puny group of developers and software engineers who have been entrusted with key roles for the development of this technology.
The Bitcoin project can thus be said to comprise at least two different types of communities – each with their own boundaries and protection mechanisms, prizes or incentive systems, and mechanisms for conflict resolution. One is the community of knots within the network, which includes both passive users merely using the network to transfer money around, and “active” users (or miners) contributing their own computational resources to the networks in order to support its operations. The other is the community of developers, who are contributing code to the Bitcoin project with a view to maintain or improve its functionalities. What the crisis described above has exposed is the difficulty of establishing a governance structure which would decently interface both of these dimensions. As a consequence, a petite number of individuals became responsible for the long-term sustainability of a large collective open source project, and the project rapidly fell prone to interpersonal conflict once consensus could no longer be reached among them.
This section will describe the specificities of the two-layered structure of the Bitcoin project and the mechanisms put in place to address these key challenges, in order to better understand any shortcomings they may display.
A. The Bitcoin network: governance by infrastructure
As described earlier, the Bitcoin network purports to be both self-governing and self-sustaining. Nineteen As a trustless infrastructure, it seeks to function independently of any social institutions. The rules governing the platform are not enforced by any single entity, instead they are embedded directly into the network protocol that every user must abide to. 20
Given the open and decentralised nature of the Bitcoin network, its community borders are utterly lithe and dynamic, in that everyone is free to participate and contribute to the network – either as a passive user or as an active miner. The decentralised character of the network however, creates significant challenges when it comes to the protection thereof, mainly due to the lack of a centralised authority in charge of policing it. Bitcoin thus implemented a technical solution to protect the network against malicious attacks (e.g. so-called sybil attacks) through the Proof-of-Work mechanism, designed to make it economically expensive to cheat the network. Yet, while the protocol has proved successful thus far, it remains subject to a lot of criticism. Beyond the problems related to the high computational costs of Proof-of-Work, twenty one the Bitcoin network can also be co-opted by capital. If one or more colluding actors were to control at least 51% of the network’s hashing power, they would be able to arbitrarily censor transactions by validating certain blocks at the expense of others (the so-called 51% attack).
With regard to status recognition, the Bitcoin protocol eliminates the problem at the root by creating a trustless infrastructure where the identity of the participant knots is entirely irrelevant. In Bitcoin, there is no centralised authority in charge of assigning a network identifier (or account) to each individual knot. The notions of identity and status are thus eradicated from the system and the only thing that matters – ultimately – is the amount of computational resources that every knot is providing to the network.
Conversely, the prize system represents one of the constitutive elements of the Bitcoin network. The challenge has been resolved in a purely technical manner by the Bitcoin protocol, through the notion of mining . In addition to providing a protection mechanism, the Proof-of-Work algorithm introduces a series of economic incentives to prize those who are contributing to maintaining and securing the network with their computational resources (or hashing power). The mining algorithm is such that the very first one to find the solution to a hard mathematical problem (whose difficulty increases over time) twenty two will be able to register a fresh block into the blockchain and will earn a specific amount of bitcoins as a prize (the prize was originally set at fifty bitcoins and is designed to be halved every four years). From a game-theoretical perspective, this creates an interesting incentive for all network participants to provide more and more resources to the network, so as to increase their chances of being rewarded bitcoins. Twenty three Bitcoin’s incentive mechanism is thus a complicated, albeit mathematically elegant way of bringing a decentralised network of self-interested actors to collaborate and contribute to the operations of the Bitcoin network by relying exclusively on mathematical algorithms and cryptography. Over time, however, the growing difficulty of mining due to the enhancing amount of computational resources engaged in the network, combined with the decreasing amount of prizes awarded by the network, has eventually led to a progressive concentration of hashing power into a few *mining pools, *which are today controlling a large majority of the Bitcoin network – thereby making it more vulnerable to a 51% attack. Twenty four Hence, in spite of its original design as a fully decentralised network ruled by distributed consensus, in practice, the Bitcoin network has evolved into a very centralised network ruled by an increasingly oligopolistic market structure.
Eventually, with regard to the issue of conflict resolution, it is very first significant to determine what constitutes a conflict at the level of the Bitcoin infrastructure. If the purpose of the Bitcoin protocol is for a decentralised network of peers to reach consensus as to what is the right set of transactions (or block) that should be recorded into the Bitcoin blockchain, then a conflict arises whenever two alternative blocks (which are both valid from a purely mathematical standpoint) are registered by different network participants in the same blockchain – thus creating two contesting versions (or forks) of the same blockchain. Given that there is no way of determining objectively which blockchain should be favoured over the other, the Bitcoin protocol implements a specific fork-choice strategy stipulating that, if there is a conflict somewhere on the network, the longest chain shall win. Twenty five Again, as with the former two mechanisms, the longest-chain rule is a ordinary and straightforward mechanism to resolve the emergence of conflicts within the Bitcoin network by relying – solely and exclusively – on technological means.
It is clear from this description, that the objective of Satoshi Nakamoto and the early Bitcoin developers was to create a decentralised payment system that is both self-sufficient and self-contained. Perhaps naively, they thought it was possible to create a fresh technological infrastructure that would be able to govern itself – through its own protocols and rules – and that would not require any third-party intervention in order to sustain itself. And yet, in spite of the mathematical elegance of the overall system, once introduced in a particular socio-economic context, technological systems often evolve in unforeseen ways and may fall prey to unexpected power relations.
In the brief history of Bitcoin, indeed, there have been significant tensions related to border protection, prizes systems and conflict resolution. Some of these issues are inherent in the technological infrastructure and design of the Bitcoin protocol. Perhaps one of the most exposing of the possible ways of subverting the system is the notion of selfish mining whereby miners can increase their potential comes back by refusing to cooperate with the rest of the network. Twenty six While this does not constitute a technical threat to the Bitcoin protocol per se, it can nonetheless be regarded as an economic attack, which contributes to potentially reducing the security of the Bitcoin network by switching the inherent incentive structure. Twenty seven Other issues emerged as a result of more exogenous factors, such as the Mt. Gox scandal twenty eight of two thousand fourteen – which led to the loss of 774,000 bitcoins (worth more than US four hundred fifty million dollars at the time) – as well as many other scams and thefts that occurred on the Bitcoin network over the years. Twenty nine Most of these were not due to an actual flaw in the Bitcoin protocol, but were mostly the result of ill-intentioned individuals and bad security measures in centralised platforms built on top of the Bitcoin network (Trautman, 2014).
Accordingly, it might be worth considering whether – independently of the technical soundness of the Bitcoin protocol – the Bitcoin network can actually do away with any form of outward regulation and/or sanctioning bods, or whether, in order to ensure the decent integration (and assimilation) of such a technological artefact within the social, economic and cultural contexts of modern societies, the Bitcoin network might require some form of surveillance and arbitration mechanisms (either internal or outer to the system) in order to preserve legitimate market dynamics, as well as to ensure a decent level of consumer protection and financial stability in the system.
B. The Bitcoin architects: governance of infrastructure
Just like many other internet protocols, Bitcoin was primarily released as an open source software, encouraging people to review the code and spontaneously contribute to it. Despite their formal emphasis on openness, different open source software projects and communities feature very different social and organisational structures. The analysis of communication patterns among various open source projects has shown tendencies ranging from very distributed exchanges inbetween core developers and active users, to high degrees of centralisation around a single developer (Crowston & Howison, 2005). Moreover, different open source communities love a more or less formalised governance structure, which often evolves as the project matures. Broadly speaking, open source communities have been categorised into two main types or configurations: democratic-organic versus “autocratic-mechanistic” (de Laat, 2007). The former display a very structured and meritocratic governance system (such as the Debian community, most notably), whereas the latter feature less sophisticated and more implicit governance systems, such as the Linux community, where most of the decision-making power has remained in the palms of Linus Torvald – often referred to as the “benevolent dictator’. Bitcoin undoubtedly falls into the 2nd category.
Indeed, since its inception, Satoshi Nakamoto was the main person in charge of managing the project, as well as the only person with the right to commit code into the official Bitcoin repository. It was only at a later stage, when Satoshi began to disengage from the Bitcoin project, that this power was eventually transferred to a puny group of ‘core developers’. Hence, just like many other open source projects, there is a discrepancy inbetween those who can provide input to the project (the community at large) and those who have the ultimate call as to where the project is going. Indeed, while anyone is entitled to submit switches to the software (such as bug fixes, incremental improvements, etc.), only a puny number of individuals (the core developers) have the power to determine which switches shall be incorporated into the main branch of the software. This is justified partly by the high level of technical expertise needed to decently assess the proposed switches, but also – more implicitly – by the fact that the core developers have been entrusted with the responsibility of looking after the project, on the grounds of their involvement (and, to some extent, collective ideology) with the original concept of Satoshi Nakamoto.
With this in mind, we can now provide a 2nd perspective on the three key challenges facing Bitcoin, and analyse how they are being dealt with from the side of its architects: the Bitcoin developers.
The definition and protection of community boundaries, and of the work produced collectively, is a key issue in open source collectives. It classically finds a solution through the setting up of an alternative intellectual property regime and licensing scheme – copyleft, which ensures that the work will be preserved as a common pool resource – but also enforces a number of organisational features and rules intended to preserve some control over the project (O’Mahony, 2003; Schweik & English, 2007). In the case of Bitcoin, community borders are – at least in theory – fairly clearly defined. Just like many other open source software projects, there exists a dividing line inbetween the community of users and developers at large, who can provide input and suggest modifications to the code (by making a pull-request, for example), and the core developers who are in charge of preserving the quality and the functionality of the code, and who are the only ones with the power to accept (or reject) the proposed modifications (e.g. by merging pull-requests into the main branch of the code). However, the distinction inbetween these two communities is not as clear-cut as it may seem, since the community at large also has an significant (albeit indirect) influence on the decisions concerning the code.
Specifically, consensus formation among the Bitcoin core developers has been formalised through a process known as Bitcoin Improvement Proposals (BIPs) 30, which builds powerfully on the process in place for managing the Python programming language (PEPs or Python Enhancement Proposals). Historically, both of these processes share similarities with (and sometimes explicitly refer to) what can be considered the “canonical” treatment to consensus formation for designing and documenting network protocols: RFC or Request For Comments, used to create and develop the internet protocol suite (Flichy, 2007, p. 35ff). The BIP process requires that all source code and documentation be released and made available to anyone, so that a multiplicity of individuals can contribute to discuss and improve them. Yet, the final call as to whether a switch will be implemented ultimately relies on the core developers assessing the degree of public support which a proposal has built, and finding a consensus among themselves:
We are fairly liberal with approving BIPs, and attempt not to be too involved in decision making on behalf of the community. The exception is in very infrequent cases of dispute resolution when a decision is contentious and cannot be agreed upon. In those cases, the conservative option will always be preferred. Having a BIP here does not make it a formally accepted standard until its status becomes Active. For a BIP to become Active requires the mutual consent of the community. Those proposing switches should consider that ultimately consent may rest with the consensus of the Bitcoin users. 31
This description provides a concise overview of the structures of legitimacy and accountability which govern the relationship inbetween the Bitcoin architects (or core developers) and the Bitcoin users. While the community is open for anyone to participate, decision-making is delegated to a puny number of people who attempt to keep intervention to a minimum. Yet, ultimately, the sovereignty of the overall project rests with the people – i.e. the Bitcoin users and miners. If the core developers were to make a modification to the code that the community disagrees with (the miners, in particular), the community might simply turn down to run the fresh code. This can be regarded as a form of “vetoing power’ thirty two or “market-based governance’ thirty three which assures that legitimacy of the code ultimately rests with the users.
Regarding acknowledgment of status, this requires balancing prizes for the most active and competent contributors, while promoting and maintaining the collective character of the overall endeavour. Indeed, open source developers are acutely aware of the symbolic retributions which they can acquire by taking part in a given project, and are also monitoring other contributors to assess their position within communities which display a strongly meritocratic orientation (Stewart, 2005). Some communities rank individuals by resorting to systems of marks which provide a quantitative metric for reputation; others rely on much less formalised forms of evaluation. In the case of Bitcoin, some measure of reputation can be derived from the platform used to manage the versioning of the software – Github – which includes metrics for users” activities (such as number of contributions, number of followers, etc.). However, the reputation of the core developers is on a totally different scale, and is mostly derived from their actual merit or technical expertise, as well as a series of less lightly defined individual qualities which can be understood as a form of charisma.
Ultimately, conflict management is very likely the most difficult issue to deal with in consensus-oriented communities, since it requires a way to avoid both paralysing deadlocks and divisive fights. Taking Wikipedia as an example, the community relies on specific mechanisms of mutual surveillance as the most basic way of managing conflicts; however, extra regulatory procedures of mediation and sanctions have been established and can be resorted to if needed (Auray, 2012, p. 225). The Debian community is also well known for its sophisticated rules and procedures (Lazaro, 2008). However not immune to deadlocks and fighting, these communities have managed to scale while maintaining some degree of inclusivity, by shifting contentious issues from substantive to procedural grounds – thus limiting the opportunities for private disputes and ad hominem attacks.
Obviously, the Bitcoin community lacks any such form of conflict management procedures. As described above, failure to reach consensus among the core developers concerning the block size dispute led to an actual forking of the Bitcoin project. Forking is a process whereby two (or more) software alternatives are provided to the user base, who will therefore need to make a choice: the adoption rate will ultimately determine which branch of the project will win the competition, or whether they will both evolve as two separate branches of the same software. Forking is standard practice in free/libre and open source software development, and albeit it can be seen as a last resort solution which can sometimes put the survival of a project at risk (Robles & González-Barahona, 2012), it can also be considered a key feature of its governance mechanisms. For Nyman and Lindman: The right to fork code is built into the very definition of what it means to be an open source program – it is a reminder that developers have the essential freedom to take the code wherever they want, and this freedom also functions as a looming threat of division that trusses the developer community together (Nyman & Lindman, 2013).
In sum, it can be stressed that, at all three levels (defining borders, acknowledging status, and managing conflicts), the governance of the Bitcoin project relies almost exclusively on its leaders, lending credit to the view that peer production can often lead to the formation of oligarchic organisational forms (Shaw & Hill, 2014). More specifically, in classic weberian terms – and as can often be observed in online communities – Bitcoin governance consists in a form of supremacy based on charismatic authority (O’Neil, 2014), largely founded on presumed technical expertise. The latest crisis experienced by the Bitcoin community exposed the thresholds of consensus formation inbetween individuals driven by sometimes diverging political and commercial interests, and underlined the discrepancies inbetween the overall goals of the project (a self-regulating decentralised virtual currency and payment system) and the excessively centralised and technocratic elites who are in charge of the project.
III. The invisible politics of Bitcoin
Vires in Numeris (latin for: Strength in Numbers) was the motto printed on the very first physical Bitcoin wallets thirty four – perhaps as an ironic reference to the “In God we Trust” motto printed on US dollar bills. In the early days, the political objectives of Bitcoin were clearly and explicitly stated through the desire of switching existing power dynamics inbetween individuals and the state. Thirty five Yet, while some people use Bitcoin as a vehicle for voicing their political views (e.g. the community of so-called cypherpunks and crypto-libertarians), others believe that there is no real political ideology voiced within the technology itself. Seventeen Indeed, if asked, many will say that one of the core benefits of Bitcoin is that it operates beyond the scope of governments, politics, and central banks. Thirty six But it does not take much of a open up to realise that this desire to remain a-political constitutes a political dimension in and of itself (Kostakis & Giotitsas, 2014).
Decentralisation inherently affects political structures by removing a control point. Regarding Bitcoin, decentralisation is achieved through a peer-to-peer payment system that operates independently of any (trusted) third party. As a result, not only does Bitcoin question one of the main prerogatives of the state – that of money issuance and regulation, it also sheds doubts on the need (and, therefore, the legitimacy) of existing financial institutions. On the one forearm, as a decentralised platform for financial transactions, Bitcoin sets a limit on the power of central banks and other financial institutions to define the terms and conditions, and control the execution of financial transactions. On the other forearm, by enabling greater disintermediation, the Bitcoin blockchain provides fresh ways for people to coordinate themselves without relying on a centralised third party or trusted authority, thus potentially promoting individual freedoms and emancipation. Thirty seven More generally, the blockchain is now raising high hopes as a solution which, beyond a payments system, could support many forms of direct interactions inbetween free and equal individuals – with the implicit assumption that this would contribute to furthering democratic goals by promoting a more horizontal and self-organising social structure (Clippinger & Bollier, 2014).
As Bitcoin evolves – and in the eventuality that it gets more broadly adopted – it will need to face a growing number of technical challenges (e.g. related to blockchain scalability), but it will also encounter a multitude of social and political challenges – as the technology will proceed to impinge upon existing social and governmental institutions, ushering in an increasingly divergent mix of political positions.
The mistake of the Bitcoin community was to believe that, once technical governance had been worked out, the need to rely on government institutions and centralised organisations in order to manage and regulate social interactions would eventually vanish (Atzori, 2015; Scott, 2014). Politics would progressively give way to fresh forms of technologically-driven protocols for social coordination (Abramowicz, 2015) – regarded as a more efficient way for individuals to cooperate towards the achievement of a collective objective while preserving their individual autonomy.
Yet, one cannot get rid of politics through technology alone, because the governance of a technology is – itself – inherently tied to a broad range of power dynamics. As Yochai Benkler elegantly puts it, there are no spaces of flawless freedom from all constraints, only different sets of constraints that one necessarily must choose from (Benkler, 2006). Bitcoin as a trustless technology might perhaps escape the existing political framework of governmental and market institutions; yet, it remains subject to the (invisible) politics of a handful of individuals – the programmers who are in charge of developing the technology and, to a large extent, determining upon its functionalities.
Implicit in the governance structure of Bitcoin is the idea that the Bitcoin core developers (together with a petite number of technical experts) are – by virtue of their technical expertise – the most likely to come up with the right decision as to the specific set of technical features that should be implemented in the platform. Such a technocratic treatment to governance is problematic in that it goes counter to the original conception of the Bitcoin project. There exists, therefore, an evident discrepancy inbetween the libertarian vision of Bitcoin as a decentralised infrastructure that cannot be regulated by any third party institution, and the actual governance structure that dictates the technological development of Bitcoin – which, in spite of its open source nature, is very centralised and undemocratic. While the (a)political dimension of the former has been praised or at least acknowledged by many, the latter has remained, for a long time, invisible to the public: the technical decisions to be taken by the Bitcoin developers were not introduced as political decisions, and were therefore never debated as such.
The block size debate is a good illustration of this tendency. Albeit the debate was framed as a value-neutral technical discussion, most of the arguments in favour or against enlargening the size of a block were, in fact, part of a hidden political debate. Indeed, except for the few arguments concerning the need to preserve the security of the system, most of the arguments that animated the discussion were, ultimately, worried with the socio-political implications of such a technical choice (e.g. supporting a larger amount of financial transactions versus preserving the decentralised nature of the network). Yet, insofar as the problem was introduced as if it involved only rational and technical choices, the political dimensions which these choices might involve were not publicly acknowledged.
Moreover, if one agrees that all artefacts have politics (Winner, 1980) and that technology frames social practice (Kallinikos, 2011), it goes after that the design and features of the Bitcoin platform must be cautiously thought through by taking into account not only its influence on the technology as such (i.e. security and scalability concerns), but also its social and political implications on society at large.
Politics exist because, in many cases, consensus is hard to achieve, especially when issues pertaining to *social justice *need to be addressed. Social organisations are thus faced with the difficult challenge of accommodating incompatible and often irreconcilable interests and values. The solutions found by modern day liberal democracies involve strong elements of publicity and debate. The underlying assumption is that the only way to ensure the legitimacy of collective decisions is by making conflicts apparent and by discussing and challenging ideas within the public sphere (Habermas, 1989). Public deliberations and argumentation are also necessary to achieve a greater degree of rationality in collective decisions, as well as to ensure utter transparency and accountability of the ways in which these decisions are both made and put into practice. But the antagonistic dimensions of social life permanently undermine the opportunities for consensus formation. A truly democratic treatment needs, therefore, to acknowledge – and, ideally, to balance or compromise – these spaces of irreconcilable dissent which are the most exposing of embedded power relations (Mouffe & Laclau, 2001; Mouffe, 1993).
This is perhaps even more crucial for technologies such as the internet or Bitcoin, which seek to implement a global and collective infrastructure for fresh forms of coordination and exchange. Bitcoin as an information infrastructure must be understood here as a means of introducing and shaping a certain type of social relations (Starlet, 1999; Bowker et al., 2010). Yet, just like many other infrastructures, Bitcoin is mostly an invisible technology that operates in the background (Starlet & Strauss, 1999). It is, therefore, all the more significant to make the design choices lounging behind its technical features more visible, in order to shed light on the politics which are implicit in the technological design.
It should be clear, by now, that the political intentions of a technology cannot be resolved, only and exclusively, by technological means. While technology can be used to steer and mediate many kinds of social interactions, it should not (and cannot) be the foot and main driver of social switch. As Bitcoin has shown, it is unrealistic to believe that human organisations can be governed by relying exclusively on algorithmic rules. In order to ensure the long-term sustainability of these organisations, it is necessary to incorporate, on top of the technical framework, a specific governance structure that enables people to discuss and coordinate themselves in an authentically democratic way, but also – and perhaps more importantly – to engage and come up with decisions as to how the technology should evolve. In that regard, one should always be wary that the decision-making process involve not only those who are building the technology (i.e. developers and software engineers) but also all those who will ultimately be affected by these decisions (i.e. the users of that technology).
Different dimensions of the internet have already been analysed from such a perspective within the broader framework of internet governance (DeNardis, 2012; Musiani et al., 2016), providing significant insights about the performative dimensions of the underlying software and protocols, and the ways they have been put to use. These could prove useful in better understanding and formulating a novel governance structure for the Bitcoin project – one that is mediated (rather than dictated) by technological rules.
Conclusion: Bitcoin within the broader framework of internet governance
The internet, understood as a sophisticated and heterogeneous socio-technical construct, combines many different types of arrangements – involving social norms, legal rules and procedures, market practices and technological solutions – which, taken together, constitute its overall governance and power structures (Brousseau, Marzouki, & Méadel, 2012). Most of the research on internet governance has focused on the interplay inbetween infrastructures on the one forearm, and superstructures or institutions on the other – particularly those which have emerged on top of the network during the course of its history (such as ICANN or IETF), sometimes generating conflictual relationships with existing national and international legal frameworks, private corporations, or even civil society at large (Mueller, 2002; Mueller, 2010; Mathiason, 2009; DeNardis, 2009; Bygrave & Bing, 2009). 38
Internet governance has been fraught with many frictions, controversies and disputes over the years – an international fight to control the basic rules and protocols of the internet described by some as a global war (DeNardis, 2014). Even the much praised governance model of the internet protocol suite – based on the IETF’s (deceptively plain) rule of “rough consensus and running code” – effectively involved, at certain points, fair amounts of power fights and even autocratic design (Russell, 2014). The idea that consensus over technical issues can be reached more lightly because it only involves objective criteria and factual observations (i.e. something either works or doesn’t) neglects the reality that “stories about standards are necessarily about power and control – they always either reify or switch existing conditions and are always conscious attempts to form the future in specific ways” (Russell, 2012).
Set within the broader framework and history of internet governance, the Bitcoin case is particularly instructive insofar as it draws on a certain number of fresh, but also already existing practices, to promote some of the ideals which have been associated with the internet since its inception: furthering individual autonomy and supporting collective self-organisation (Loveluck, 2015). As we have seen, Bitcoin can be understood as a dual-layered construct, composed of a global network infrastructure on the one forearm, and a petite community of developers on the other. Albeit the trustlessness of the network seeks to obliviate the need for a central control point, in practice, as soon as a technology is deployed, fresh issues emerge from unanticipated uses of technology – which ultimately require the setting up of social institutions in order to protect or regulate the technology. These institutions can be more or less attuned with the overall aims of the technology, and can steer it in different directions. For example, while the IETF managed to implement a relatively decentralised and bottom-up process for establishing standards, the Domain Name System (DNS) has shown that even a distributed network might, at some point, need to rely on a centralised control point to administer scarce resources (such as domain names). This has led to the emergence of centralised – and somewhat contested – institutions, such as, most notably, the ICANN – a US-based non-profit corporation that is in charge of coordinating all unique identifiers across the world broad web.
The lessons from the past – taking account of both the success stories and failures of internet governance – can serve as useful indications as to what should be attempted or, on the contrary, avoided in terms of Bitcoin governance. In particular, it should be acknowledged that socio-technical systems cannot – by virtue of their embeddedness into a social and cultural context – ensure their own self-governance and self-sustainability through technology alone. Any technology will eventually fall prey to the social, cultural and political pressures of the context in which it operates, which will very most likely make it grow and evolve in unanticipated directions (Akrich, 1989; MacKenzie & Wajcman, 1999).
The Bitcoin project has evolved significantly over the years, for reasons which are both endogenous and exogenous to the system. From a petite network run by a few crypto-libertarians and computer geeks impatient to experiment with a fresh liberation technology (Diamond, 2010), the Bitcoin network quickly scaled into a global network which is fighting to meet the fresh requests and expectations of its growing user base and stakeholders.
The block size debate created an actual schism within the Bitcoin community – and, by doing so, ultimately stressed the need for a more democratic governance system. Drawing on the many different arrangements which have been experienced at different levels of internet governance, each with their own distinctive forms of deliberation and decision-making procedures (Badouard et al., 2012), the Bitcoin development process could perhaps be improved by introducing an alternative governance structure that would better account for the many other dimensions (other than technical) that the technology might have, especially with regard to its social, economic and political implications on society at large.
The Bitcoin Foundation was a very first attempt in this direction, however it never managed to establish itself as a standardisation assets precisely due to a lack of legitimacy and accountability in its own governance process. A centralised governance bod (similar to ICANN) in charge of ensuring the legitimacy and accountability for the future developments of the Bitcoin project would obviously fail to obtain any kind of legitimacy from within the Bitcoin community – since eliminating the need for fiduciary institutions or other centralised authorities was the very purpose of the Bitcoin network. The technologically-driven treatment presently endorsed by the Bitcoin project, aiming to create a governance structure that is solely and exclusively dictated by technological means (governance by infrastructure) has also been shown to be roped to failure, since a purely technological system cannot fully account for the entire spectrum (and complexity) of social interactions. In this regard, one of the main limitations of the Bitcoin protocol is that it is based on algorithmically quantifiable and verifiable deeds (i.e. how much computing resources people are investing in the network) and it is therefore incapable to prize those who contribute to the network in different manners, other than through hashing power.
A more interesting treatment would involve using the underlying technology – the blockchain – not as a regulatory technology that will technologically enforce a particular set of predefined protocols and rules (as Bitcoin does), but rather as a platform on which people might encode their own sets of rules and procedures that will define a particular system of governance – one that can benefit from the distinctive characteristics of the blockchain (in terms of transparency, traceability, accountability, and incorruptibility) but would also leave room for the establishment of an institutional framework that could operate on top of that (decentralised) network. This would make sure that technology remains a device of empowerment for people, who would use it to enable and support fresh models of governance, rather than the opposite.
Given the experimental nature and current lack of maturity of the technology, it is difficult to predict, at this specific point in time, what would be the best strategy to ensure that the Bitcoin project evolves in accordance with the interests of all relevant stakeholders. Yet, regardless of the treatment taken, it is our belief that a decent governance structure for Bitcoin can only be achieved by publicly acknowledging its political dimensions, and substituting the current technocratic power structure of the Bitcoin project with an institutional framework capable of understanding (and accommodating) the politics inherent in each of its technical features.
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1. See also Oram 2001. The case of file-sharing and its effects on copyright law have been particularly salient (David, 2010).
Two. See Hughes, 1993; Levy, 2001.
Trio. In a fractional-reserve banking system, commercial banks are entitled to generate credits, by making loans or investment, while holding reserves which only account for a fraction of their deposit liabilities – thereby effectively creating money out of skinny air . A report from the Bank of England estimates that, as of December 2003, only 3% of the money in circulation in the global economy was represented by physical cash (issued by the central bank), whereas the remaining 97% is made up of loans and co-existent deposits created by private or commercial banks (McLeay, Radia, & Thomas, 2014).
Four. “[Bitcoin is] entirely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is total of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in sways of credit bubbles with hardly a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts… With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.” (Nakamoto, 2009).
Five. On seven November 2008, Satoshi Nakamoto explained on the Cryptography mailing list that [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and build up a fresh territory of freedom for several years. Governments are good at cutting off the goes of a centrally managed network like Napster, but unspoiled P2P networks like Gnutella and Tor seem to be holding their own (Nakamoto 2008b).
6. The double-spending problem is a problem commonly found in many digital cash systems, whereby people can spend the same digital token twice by simply duplicating it. It is usually solved through the introduction of a centralised (trusted) third party, which is in charge of verifying that every transaction is valid, before authorising it.
7. Unless one or more colluding parties control over 51% of the network. See below for a more detailed explanation of the Bitcoin security model.
8. Of course, a multiplicity of instruments can be used to reduce the degree of transparency inherent in the blockchain. Just like public-key encryption has enabled more secure communications on top of the internet network, specific cryptographic mechanisms (such as homomorphic encryption and zero-knowledge proofs) can be used to conceal the content of blockchain-based transactions, without reducing the verifiability thereof. The most popular of these technologies is Zerocash, a privacy-preserving blockchain which relies on zero-knowledge proofs to enable people to transact on a public blockchain without disclosing neither the origin, the destination, nor the amount of the transaction.
9. In October 2009, Bitcoin was very first estimated with an exchange rate of one USD for 1,309 BTC by the Fresh Liberty Standard, calculated according the costs of electrical play that had to be incurred in order to generate bitcoins at the time.
Ten. The very first commercial Bitcoin transaction known to date is the purchase by a Florida-based programmer, Laslo Hanyecz, of a pizza purchased (by a volunteer) from Papa John’s for a face value of Ten,000 BTC.
11. Over the years, several people have been outed as being Satoshi Nakamoto – these include: Michael Clear (Irish graduate student at Trinity College); Neal King, Vladimir Oksman and Charles Bry (who filed a patent application for updating and distributed encryption keys, just a few days before the registration of the bitcoin.org domain name); Shinichi Mochizuki (Japanese mathematician); Jed McCaleb (founder of the very first Bitcoin exchange Mt. Gox); Nick Szabo (author of the bit gold paper and strong proponent of the notion of “smart contract”); Hal Finney (a well-known cryptographer who was the recipient of the very first Bitcoin transaction); and Dorian Nakamoto (an unfortunate case of homonymy). Most recently, Craig Steven Wright (an Australian computer scientist and businessman) claimed to be Satoshi Nakamoto, without however being able to provide decent evidence to support his claim (2016). To date, all of these claims have been dismissed and the real identity of Satoshi Nakamoto remains a mystery.
12. The Bitcoin Foundation has been strongly criticised due to the various scandals that its board members had been associated with. These include: Charlie Shrem, who had been involved in aiding and abetting the operations of the online marketplace Silk Road; Peter Vessenes and Mark Karpeles, who were very involved with the scandals of the now defunct Bitcoin exchange Mt. Gox; and Brock Pierce, whose election in spite of his questionable history in the virtual currency space has created massive controversy within the Bitcoin Foundation, eventually leading to the resignation of nine members.
13. In general, forks can be categorised into soft and hard forks: the former retains some compatibility or interoperability with the original software, whereas the latter involves a clear break or discontinuity with the preceding system.
14. For example, one of the largest US Bitcoin wallet and exchange company, Coinbase, was liquidated from Bitcoin.org upon making the announcement that they would be experimenting with Bitcoin XT.
15. As of eleven January 2016, only about 10% of the blocks in the Bitcoin network had been signed by XT knots (Palmer, 2016).
16. Mike Hearn, interview with the authors, April 2016.
17. a. b. Patrick Murck, interview with the authors, April 2016.
Legal. Peter Todd and Pindar Wong, interview with the authors, April 2016.
Nineteen. See supra, part I.A.
20. This exposes a significant bias of the Bitcoin community towards technological determinism – a vision whereby technological artefacts can influence both culture and society, without the need for any social intervention or assimilation (Bimber, 1994).
21. As the name indicates, the Proof-of-Work algorithm used by Bitcoin requires a certain amount of work to be done before one can record a fresh set of transactions (a block) into Bitcoin’s distributed transaction database (the blockchain). In Bitcoin, the work consists in finding a particular nounce to be embedded into the current block, so that processing the block with a particular hash function (SHA-256) will result in a string with a certain number of leading zeros. The very first one to find this nounce will be able to register the block and will therefore be rewarded with a specific number of bitcoins (Nakamoto 2008a). The amount of work to be done depends on the number of leading zeros necessary to register a block – this number may increase or decrease depending on the amount of computational resources (or hashing power) presently available in the network, so as to ensure that a fresh block is registered, on average, every ten minutes. While this model was useful, in the earlier stages of the network, as an incentive for people to contribute computational resources to maintain the network, the Proof-of-Work algorithm creates a competitive game which encourages people to invest more and more hashing power into the network (so as to be rewarded more bitcoins), ultimately resulting in a growing consumption of energy.
22. The difficulty of said mathematical problem is dynamically set by the network: its difficulty increases with the amount of computational resources engaged in the network, so as to ensure that one fresh block is registered in the blockchain, on average, every ten minutes.
23. In the early days, given the limited number of participants in the network, mining could be lightly achieved by anyone with a private computer or laptop. Subsequently, as Bitcoin’s adoption grew and the virtual currency acquired a greater market value, the economic incentives of mining grew to the point that people embarked to build specific hardware equipments (ASICs) created for the foot purpose of mining, making it difficult for people to mine without such specialised equipment. Note that such an evolution had actually been anticipated by Satoshi Nakamoto himself, who wrote already in two thousand eight that, even if “at very first, most users would run network knots, [. ] as the network grows beyond a certain point, [mining] would be left more and more to specialists with server farms of specialized hardware.”
24. Bitcoin mining pools are a mechanism permitting for Bitcoin miners to pool their resources together and share their hashing power while splitting the prize identically according to the amount of shares they contributed to solving a block. Mining pools constitute a threat to the decentralised nature of Bitcoin. Already in 2014, one mining pool (GHash) was found to control more than half of Bitcoin’s hashing power, and was thus able to determine by itself which transactions shall be regarded as valid or invalid – the so-called 51% attack. Today, most of the hashing power is distributed among a few mining pools, which together hold over 75% of the network, and could potentially collude in order to take over the network.
25. Note that the longest chain is to be calculated by taking into account the number of transactions, rather than the number of blocks. The reason for such an arbitrary choice is that the longest chain is likely to be the one that required the greater amount of computational resources, and is therefore – probabilistically – the less likely to have been falsified or tampered with (e.g. by someone willing to censor or alter the content of former transactions).
26. Selfish mining is the process whereby one miner (or mining pool) does not broadcast the validated block as soon as the solution to the mathematical problem for this blockchain has been found, but rather proceeds to mine the next block in order to benefit from the first-mover advantage in terms of finding the solution for that block. By releasing validated blocks with a delay, ill-intentioned miners can therefore attempt to secure the block prizes for all subsequent blocks in the chain, since – unless the network manages to catch up with them – their fork of the blockchain will always be the longest one (and thus the one that required the most Proof-of-Work) and will thus be the one that will ultimately be adopted by the network (Eyal & Sirer, 2014).
27. Selfish miners encourage fair, but profit-maximising knots to join the coalition of non-cooperating knots, thus eventually making the network more vulnerable to a 51% attack.
28. Mt. Gox was one of the largest Bitcoin exchanges, treating over 70% of all bitcoin transactions as of April 2013. Regulatory issues brought Mt. Gox to be banned from the US banking system, thus making it tighter for US customers to withdraw funds into their bank accounts. On seven February 2014, Mt. Gox halted all bitcoin withdrawals, claiming that they had encountered issues due to the “transaction malleability” bug in the Bitcoin software (which enabled people to pretend a transaction did not occur, when it actually occurred, so as to bring the client to create an extra transaction). On twenty four February, the Mt. Gox website went offline and an (allegedly leaked) internal document got released demonstrating that Mt. Gox had lost 774,408 bitcoins in an (allegedly unnoticed) theft that had been going on for years. On twenty eight February, Mt. Gox filed for bankruptcy reporting a loss of US four hundred seventy three million dollars in bitcoin.
29. These include, amongst others, the Bitcoin Saving and Trust bitcoin-based Ponzi scheme; the hacking of exchanges such as Bitcoinica, BitFloor, Flexcoin, Poloniex, Bitcurex, etc; or even online Bitcoin wallet services such as Inputs.io and BIPS.
30. BIP stands for Bitcoin Improvement Proposal. A BIP is a design document providing information to the Bitcoin community, or describing a fresh feature for Bitcoin or its processes or environment. The BIP should provide a concise technical specification of the feature and a rationale for the feature. We intend BIPs to be the primary mechanisms for proposing fresh features, for collecting community input on an issue, and for documenting the design decisions that have gone into Bitcoin. The BIP author is responsible for building consensus within the community and documenting dissenting opinions. (https://github.com/bitcoin/bips/blob/master/bip-0001.mediawiki)
32. “Bitcoin governance is mainly predominated by veto power, in the sense that many parties can choose to stop a switch; we haven’t seen much use of power to thrust through switches. The main shortcoming is users have, in practice, less veto power than they should due to coercion.” (Peter Todd, interview with the authors, April 2016).
33. “If numerous rivaling implementations of the Bitcoin protocol exist, mining pool operators and wallet providers must determine which code to run. Their decision is disciplined and constrained by market coerces. For mining pool operators, poor policy decisions can lead miners to withdraw hashing power from the pool. Wallet providers may find users shift their keys to another provider and exchange services may find liquidity moves to other providers. This structure favors stability, resilience and a conservative development process. It also makes the development and standards setting process resilient to political coerces.” (Patrick Murck, interview with the authors, April 2016).
34. The very first kinds of physical Bitcoin wallets consisted of a pre-loaded Bitcoin account whose private address was stored in the form of physical coins that people could hold.
35. As detailed above in Part I.A.
36. Mike Hearn, Pindar Wong, and Patrick Murck, interview with the authors, April 2016.
37. Peter Todd, interview with the authors, April 2016.
38. For example, what happens when the freedom of expression made possible by the network impinges on country-specific laws? And who should determine (and on what grounds) whether the fresh .amazon generic Top Level Domain (gTLD) should be attributed to the US American company which has trademarked the name, or to the Brazilian government which lays claim to a geographical area?
Sandro Blum What alternative governance
What alternative governance treatment would you suggest for design decisions? Should very technical design questions be determined by social media surveys or democratically elected committees? And how would you go about forcing the developers to implement whatever the committee has ruled?
I very doubt Bitcoin would be where it is today if we had substituted technocracy with politics and democracy for design decisions. There are not many people on our planet that have the skill set required for doing Bitcoin core development. They are intrinsically motivated and believe in what they do. If you attempted to have them implement something that goes against their own belief they would rather leave the project and begin something fresh.
Also I think the governance process is not as undemocratic as the paper makes it out to be. Keep in mind that nobody is being coerced to use Bitcoin (it is not even a legal tender). The Bitcoin code is open-source, anybody can fork the code and implement a rivaling currency (which many have done). Right now hundreds of contesting crypto currencies are being developed. Everybody that thinks that the current Bitcoin developers are doing a bad job or does not agree with the political consequences of their decisions can fork the code and rival or join/support any other team that they think does a better job. Isn’t having this choice much more democratic than the situation we have with many legal tender currencies in the world? (Thinking of countries with hyper inflationary currencies that people are compelled to use with properties designed by politically elected committees.)
james black > the size of these blocks
> the size of these blocks was originally set at one megabyte
It was not primarily set at 1MB. The 1MB limit was added as a softfork.
> Bitcoin XT was released as a soft fork, thirteen with the possibility to turn into a hard fork, if and when a particular set of conditions were met.
Please explain what you mean by this? I do not see how Bitcoin XT was released as a softfork by any reasonable definition.
> Most critically, the conflict also led to a diversity of individual attacks towards Bitcoin XT proponents,
This does not seem balanced. Individual attacks were made by both sides.
> Bitcoin Classic has received support from relevant players in the Bitcoin community, including Gavin Andresen himself, and presently accounts for 25% of the Bitcoin network’s knots.
It should be noted that a higher proportion of Classic knots did not store the entire chain when compared to clients compatible with the existing rules. In addition to this the Classic knots were far more volatile, often joining and leaving the network at the same time. There was a website which ran hundreds of instances of these knots, financed by donations from the Classic community.
> the very centralised governance model that has emerged around it
The governance model is not very centralized. This is a confused interpretation of how the system works. Anyone is free to make switches to the code, without permission. The number of developers has been and continued to increase. A blocksize increase is a specific kind of switch that requires widespread community support in order to occur, since it requires all knots to upgrade. Any significant minority is able to block this kind of switch, this is an inherent characteristic of the system due to the game theory involved. This characteristic is what enables Bitcoin to have some potential as a store of value and a “money”. Without this characteristic switches could be made to stakeholders money against their will. It is a mistake to regard this characteristic as centralization, it is in fact decentralization, since no single group can make these switches to other people’s money and any significant group in the community has veto power over this kind of switch.