Transcription of our Interview with Dr. Craig S Wright

Due to some technical difficulties during our podcast with Dr. Craig Wright, we’ve decided to transcribe the conversation so everyone has the opportunity to read it. We’d like to apologize for being unprepared to capture clean audio. It was full of insight and we want to make sure the valuable knowledge we gained throughout the conversation could be shared.

The topics discussed are italicized. You can listen to the entire conversation here to get the full context around the conversation. If you believe we’ve made an error or misrepresented anything he said, please let us know. We’ll throw you a tip if you provide us with a clearer transcript than what we’ve laid out here.

Thanks again to Dr. Wright for his time.

The Future of Bitcoin Conference presentation and vision for Bitcoin:

CSW:

Segwit was not. There was a few possibilities and Segwit was not going to be one of them.

Claims from the presentation that miners would begin to reject Segwit blocks and that the power of Bitcoin lied within the miners:

CSW:

I should not have needed to be the person to say that. Miners should understand that they have power. It is very simple. Miners are the heart of Bitcoin. With any system if you cut out the heart, it dies.

Mike Hearn struggled to convince miners to switch to XT. Many of which were very averse from going against the perceived authority:

CSW:

Exactly. Unfortunately, there has been a lot of misinformation. A lot of people saying that users matter and that the miners will be punished by the users. Users can do nothing to miners. Users follow what miners do. If the miners stops propagating a block, the blocks stop propagating. If a user stops propagating, nothing. That’s it. Nothing. They can drop off the entire network and be nothing. That is their choice. They mind as well give up and sell their Bitcoins because that is all they’re doing. They have a personal fork that does not mine.

What has it been like to watch that narrative propagate over the years?

CSW:

It has been ridiculous. I can’t imagine how these group of Socialists have come out and said that everyone needs to be equal and that we don t need to actually compete and how we have managed to get here.In some ways, this has been a narrative we have been seeing around the world. If you’re 3 foot 2 and want to be a basketball player, we should help you because it should be a right. It is just ridiculous.

The Bitcoin Network as a small world phenomena:

CSW:

I thought it would be obvious. The idea is not proof of work that you hide. It is proof of work that you get to the network. It only matters when other miners know what you done. That is the whole point. If no one knows that you have solved the problem, so what? You do not have a proof until other people see it. That is the nature of proof. Proof isn’t “I actually have gotten something”. Proof is “I have gone out, written it up and here it is to the world”. That is proof. Proof is when you send it to the globe.

There is an element in addition to not only solving the proof of work but a race to do the proving itself:

CSW:

Exactly. It is a race to be first. If you prove after someone else, then too bad. Very simple. You have to prove you are the first person. Bitcoin does not relay on timestamps. Everyone’s timestamp is individual.When you receive a package, you only care about when you receive the package. Not when someone said they sent it.
“A sailor does not go out to sea without 3 chronometers.” in regards to the original code:
CSW: Yes. That actually comes from Brooks. Brooks back in the 70s and rereleased in the 90s, had some very early programming thoughts. They had to do with system programming and how people used to think about programing. It had to with resilience and in particular if you had 1 or 3, then you could trust it. 1 you do not know if you are correct because if it is out, it is out. 3 then you take the mean of the 2 most accurate ones and discard the least accurate and you are okay. If you have 2, do you select A or B? You just do not know.

How this relates to evolving Bitcoin:

CSW:

It was in the early code, because it was actually an area to be fixed. The 2008 and 2009 version of code was very early and did not have NTP or anything else. This was still in the era when we still had Windows XP and time stamping was horrible. Most people did not have NTP or anything else. We did not have Windows updates requiring that you have time semi-synchronized. Authentication by our coders and everything else was not implemented with the other Windows systems and higher domains. Many machines were all over the place timewise. You could not just trust whatever people told you. You could take your time with a median of times and other variations, but you could not rely on what other people told you. It was too easy to cheat and tell you different times. Over time, Bitcoin should actually improve that. At the moment, it is a median of 11 over 2 hours** and it is a little wide especially as we professionalize miners and run over 1 million installations or more.

On the belief that the academic sciences have become silo’d:

CSW:

It is considered that you cannot be a polymath anymore. It is considered that no one could ever learn more than their discipline and become an expert in it. I find that stupid. It is a way of saying that the only way we are going to advance is to hyper focus in one little area. I disagree. I think by looking across different areas, we actually learn knowledge from each of them. I have spent my career and my life looking across many different areas. I look at biomathematics, law, economics and all of these things actually interact very well. In Biology, there are actually many different areas where biologists push aside and say they are useless for the moment such as the economics of biology. There was a journal I quoted in a previous article, in regards to tulips. It actually had some of the best analysis I had seen for the tulip crisis which was a journal of economic biology. They had talked about these things that were actually there. Tulips were not this new thing In Europe. They were called Greek onions, Turkish onions and few other things. Beforehand they were boring and yellow before people started breeding different qualities, but they existed. To say this new plant came out of nowhere and whatever else was just wrong. To say it did not exist in Europe was just wrong. If we just believed the myths and what we are told, we have this problem. The perfect example, is that we teach children that Marco Polo came back with spaghetti. Marco Polo did not come back with spaghetti. The Romans already had pasta so why did Marco Polo need to discover it again. No one needed to discover pasta. The truth of the matter is that pasta was not a normal thing because it was expensive. Even now there is a lot processing in pasta. It is not too bad now because we have machines, but imagine if we had to do it by hand. I do not know about you but I have made pasta by hand and it is not fun. Even with the machines where you flip it through, it still takes ages. It a few hours to make a spaghetti dish.

Regarding the modeling and economics of Bitcoin, has there been any resistance in academia outside of the Bitcoin environment?

CSW:

I have talked about economic security for the past 15 years and businesses listen to me because they make money and care. I have made a lot of money from casinos because they actually care along with stock exchanges. They have hired me or did in the past when they could afford me. It moves from that over time into a realm where you try and publish papers and people think you are mad. I have spent years arguing back and forth that Akerlof was wrong. Akerlof was the market for lemons. If you look at all the statistical data, it is not supported. It is a nice little hypothesis and he complained that no one took him serious until things became a little more Socialist. The reality is there is no evidence. If you look at used car sales, they do not support his claim. If you look at computer sales, they do not support his claim. This idea that no one can judge the value of used cars is BS. I have done my mechanics certification and licensing. Not only academic but trainings as well. Even before I did that, I would call up the vehicle club IRC and get a piece paper stating whether or not this was a lemon or not. I would negotiate a warranty or not. I did not just assume it was the worst possible vehicle. Next if I went to a small backyard lot and there was guy who had no real investment and there are some like this, I do not quite expect as much as compared to a big glass fronted building with polished chrome. If someone has spent a lot to signal that they are going to be there longer than a week and has invested a lot, I expect that they will actually be there longer than a week. The thing is we are rational. If business were ought to give out money and make enemies instead of actually showing a future, none of us would want to jump in and throw out our money.

Relation to Selfish Mining:

CSW:

It is the typical academic argument out there that we have irrational actors. That someone will throw away money just to damage the system. This may have worked back in the day when Bitcoin was worth a tenth of a cent. When you get to a point where it is now, we are talking about something where if someone has 10% of the network, you are probably spending between 100 to 200 million dollars. It is a million dollar infrastructure. That is before you put in the electricity, staff, and ongoing costs you need to keep up with. Why? Even if you now are Congress, that is too large of an expenditure to do as a secret “I am going to kill off Bitcoin” exercise. It just does not make sense. This idea that someone is going to throw away money instead of something that is easier. Selfish Mining is beyond trivial to detect. You have a block, a block, a block in a row, it is statistically easy. It is not only that you get the block but the timestamps are all off. Now you get a block from a miner with timestamps in ridiculous manners and you could easily detect it with statistical analysis. You now have a scenario where this miner is obviously cheating and why would you want to keep propagating and then why would you allow this miner to make you lose money. The nature of Bitcoin as a small world that works because miners actually blacklist and enable connections towards other miners. They set up trusted relationships in order to ensure good miners are highly connected and bad miners are blacklisted. If you blacklist someone, it is not that they get there in seconds, it is that they get there in about 45 seconds. If you are blacklisted because you did something bad, you still get a block out there but it takes you about 50 times as long. It is basically like putting a gun to your head to spite everyone else and say “I am going to teach you all a lesson”.

Censorship of Exchanges and Gateway to Bitcoin Cash:

CSW:

If we are talking about Bitcoin Cash, which is Bitcoin in my opinion, it will definitely be easier and easier. We are helping Centbee with the roll out in Africa and that will make things a lot easier to get on board with. There are other initiatives in South America and Asia. It is not so much the classic exchanges, I want to get on with because many of these exchanges are built so people can speculate. Speculators are necessary. I really do not care. If they want to do their job well and lose money or gain money whatever it is that they do. Good. It is all part of building a vibrant ecosystem. At the same time, I really do not care if they make money or not. All I really care is that there is some market maker there and that we have a vibrant ecosystem of use. I care that people in places like Africa and Philippines can send money back and forth quickly and inexpensively. I care that people will be able to invent new little things that people call spam on the blockchain. I care that new apps get invented and use Bitcoin over time. From use, it will become easier and easier to get Bitcoin. Regarding speculation, I think governments will crack down and it will become like share trading. You will have to have valid accounts and people will not let you gamble things with your Visa card and that is life.

Vision for Bitcoin Cash within stores (with regards to potential cashback):

CSW:

The way I see it, you would be able to go to the store and buy goods. Your cashback would be this thing called change. That is where I see it getting easy. Why would you want to take out money if we have a system where can start getting derivatives to make less volatile. Then we can make it easy to onboard with merchants and pay for goods and bills with. If we hold it, then we get a better appreciation rate on average then we do with the banks, then why would we want to take that to pieces of paper that go down in value.

Adoption in places like Africa without an exchanges, the conversion from fiat to Bitcoin:

CSW:

Part of what is going to happen in places like Africa will be equivalent to a hawala network. There will be individuals who will take money, debts, payments in various forms, and goods in exchange for Bitcoin.

If 32 MB block protocol limit in May were approached with high utility, how easy would it be to increase:

CSW:

If miners agree, then it could happen faster. Personally, I want to see the cap removed. Right now the fees mean you buy another hard drive. The fees if you are a 1% miner, are enough that you buy another hard drive no matter how much. If someone throws you a TB every minute, it is cheaper for you to put in disc arrays and to save that data then not to take the fees. We already reached that point.

Antpool’s announcement that they will start “burning” 12% of the transaction fees:

CSW:

I think it is a stunt. I think they are crazy. That is their choice. This is Bitcoin. The reality is that there is no burning of fees and instead hash collisions sometime before that. There will be people mining for those hash collisions later on when they are more valuable. All you are doing is putting money into the ground. You are digging a hole and burying money in little glass jars. This is directly something out of Keynes. I am not a Keynesian. I don’t like digging holes and filling glass jars with money and encouraging people to go dig up those glass jars. That is a waste. That is the ultimate government boondoggle thinking. You are not burning it and reducing the supply. You are long term encouraging people to find ways of making hash collisions. Remember, every 18 months we lose a bit so eventually Bitcoin will need to change because hash collisions mean that we do not to go all 256 bits. Even then, we have a scenario where some time in the future for example in 10 years, you lose 2 bits every 3 years. Between 6 and 7 bits every decade. Your keys become less and less secure just because of computational power and Moore’s law. Eventually that 256 bit of information will become easier, especially for specialists with ASICs and super computers to break. If it is worth enough, they will. Now we think that they be worth 1 thousand dollars. Maybe in the future that will be worth 10 million dollars per “burnt” address. All you are doing is encouraging organizations in the future to mine “lost” Bitcoin. I do not see why would want to do that. I would equate with getting glass jars. Hiring people to dig holes in the ground. Filling those glass jars with money. Burying them and then getting other people to randomly dig holes until they find the glass jars. Straight out of Keynes.

Biggest threat to Bitcoin Cash in regard to the narrative of Bitcoin Core:

CSW:

I think we go back to Adam Smith. He told us that we have to try and support businesses and at the same time when any business gets into trouble, the first thing we need to do is “regulate me, protect me”. “Nasty competitors will come in and steal my profit.” The first thing and anything a successful business does right now is try to gain regulatory capture. That is what we are seeing now. We are seeing miners and others who are starting to get comfortable where they are. The first thing they are going to want to do is stay comfortable where they are. Competition is great when you are competing and getting ahead but once are at the top, it is only crazy people like me who have this crazy idea of wanting to continue to compete.

Bitmain and market dominance in regards to miner sales:

CSW:

I like Jihan and I like what they are doing but I don’t think Bitmain will be there in 10 years’ time. The nature of competition. If they want to be there in 10 years’ time, they will have to radically change what they do. Cryptocurrency in 10 to 20 years is not going to be this wide area of 50 million different coins popping up all the time. If we want to be successful, then there is going to have to be a choice. The reality is either fiat will be successful or cryptocurrencies will be successful. For cryptocurrency to be successful, it needs to be united. Not us and BTC get to be together. One. One has to decide I am going to scale. One has to decide I will do this now. One has to decide to try and take on everything. Without that, it fails. There is no “we all get to be little bits and all over the place”. It is the old “United” vs “Divided” situation. The reality is right now Jihan and his company are doing some great stuff but they are doing BTC which from a hardware point of view, you can’t really choose what is short-term profitable for miners. From a hardware point of view, they are putting efforts in Ethereum, Monero, Litecoin. If you are distributing your research, you are not focusing. We are not in a race with other people in crypto. Our competitors are not other coins. We have Bank of America, Amazon, Facebook. We have central banks. The Bank of England over here has a multibillion project started. People like to sit there and say our competitor is xyz and we can all work together. This is not some big Kumbaya, hold hands and all hope for the best. There will be one. There will not be 50 Facebooks. If Facebook even survives their current problem and another thing comes up, it will not be because they helped everyone else. Reality is there might be smaller things for little niche areas, just like google has most of the search market but there are smaller other things. When it comes to money, I do not think that this will be the case.

Intellectual Property and Rick Falkvinge referring to one of nChain’s patents as the “Dark Side”:

CSW:

Yes. That is because he is a pirate. It is rather hypocritical to actually come out and say it would be okay if people could technologically protect things and then someone invents something so you could technologically invent it and then they say that is evil. It is rather socialist whether you like it or not. It is to say that all things should be free. All things should not be free. If I invent something, very simple, I invented it. I get to decide how it goes into the world. Patents are actually good in that they force me to publish. They force use. It does not mean that I get to block things from people, but instead it means they have to pay for them. When I publish a patent, it means there will be license fees. We can waive those patent fees for things like Bitcoin Cash. If you want to charge for Ethereum or not charge for Ethereum, great, that is your choice. The argument seems to be is that it is easy and just and idea. There is no thing as “just an idea”. Anyone can think of an idea. You can’t patent ideas. You can patent implementations. We choose to actually patent in the European office which fairly guarantees straight into the US because Europe is harder on business processes. They are harder on everything and therefore we have to have a very robust patent before we actually get it granted. Much harder than if we did in the US. You can say it would be easy and everyone should do it but that is a choice. Giving it up for free is our choice. Someone said that if we did something like blinded thresholds, that would be real innovation and guess what, we did. We have things like atomic swaps coming in May and we have many other things we are about to announce. Everyone said they would be impossible. We actually have used that in part for what we have done in patenting. I have got a patent filing in bilinear pairing where I got to reverse troll Mr. Maxwell last year who dared me to come out with an answer to these values. Well we are doing it a little differently, I am not going to sit on Reddit and answer these crap questions from stupid people. I am going to patent it. I get to answer the arguments to the patent office as to “Was it obvious? Well no, the experts in the field like Mr. Maxwell, we will call him an expert for this reason, said that this was impossible. All these other experts on Reddit and we will call them computer scientists with “PhDs” said it was impossible. Thank you Reddit trolls! You have made my job easier. I love it when these people say what I am doing is impossible. It just makes it so much easier for the patents guys.

Bitcoin Cash’s evolution and what you see the network maturing as:

CSW:

I see it as the Internet of Money. The payment backbone for everything. I see it changing and revolutionizing the entire globe. Imagine that instead of home loans, getting equity in your home. Then raising and paying off equity by actually having a way to do that. We are changing everything as a service of economics. Truly a world where if you are not using it, it gets used by others. A more efficient global economy.
I think we have a 20 to 30 year timeframe and in that time, I believe that we have a completely economized world. It is a world where people can start putting a monetary value on anything that has a monetary value. We get rid of the typical tragedy of the commons issue. We get rid of the arguments as to why governments need to exist for many areas that it does not such as roads, health services and other such things. We start changing the very nature of how we help people. We start seeing the value that is actually there in a global world. We start opening up a world where instead of nationalist borders, we start realizing this is one world where humans are humans regardless of location. We are one global species and one global trading group. Instead of being politically correct, we can look at cultures that actually work best. I will say this even though it is politically incorrect. Multiculturalism is a load of sh**. The truth is what matters works best. Not what has worked in the past that has gotten people to where they are. What actually takes us forward? Saying that some these cultures that treat women like shit and that is it their “right” is messed up. If a culture treats women like sh**, they should be called out. If a culture exploits children, they should be called out. If a culture differentiates because of different religious beliefs, color or ethnic origin, they should be called out. The truth is that none of that is Islamic. The whole Fundamentalist regime of Islam came about to be in 1860 and was equivalent of fundamentalism in the US with Christianity. It was a small cult that has gained in popularity since then. Before that, it was actually very different. Most of the Islamic world was actually more tolerant than the West to different religions etc. We should start to call people out no matter where they are from. Not because of their religion. If they want to believe, let them as long as it does not impact others. When they start talking about mutilating women, we should call them out and tell them that they are bunch of dicks and treat them that way. If they want to treat children like commodities, we should call them out for what they do. The same thing could happen if you happen to be these Christian sects or even fundamentalist atheists. It does not matter. We are humanity and what matters in this global world is how we interact. That is the great thing with trade. Trade forces us to interact with other people. It was not all these civil right movements that started to get get black baseball players to play professionally, it was economics. Some of the first people to hire black baseball players, were racist. They just realized they could make money. The first people to start hiring black entertainers did so because they made money. The more interaction we had between people globally, the more we started to understand and accept. Not to say that everything is good and many things are indeed bad. Most of the west has had flaws. Most of the rest of the worlds has flaws. Sitting there and blaming Western Imperialism is flawed. Reality is we should look at everything that all of us do and where it creates growth, where it has to integrate and forces us to be better people. We have to discard the rest. We get this from trade because we have to deal with people from trade. That is the world Bitcoin Cash is going to bring.

On targeted trolling campaigns against him:

CSW:

It is very simple. They do not have an answer. If you cannot disprove the science, discredit the mathematics, then you discredit the person. At the same time of all this, controversy is not all that bad. I have now become the 323rd most read scientific author globally. I get feedback from all of the different sites. Some of my papers are the most highly rated in the last month. Like it or not, the more crap they throw at me, the larger the hole they are digging long term. My other point is I do not care. I have enough money that nothing they do matters. I have enough resources, that nothing they do matters. I have enough people on my team, that nothing they do matters. We do not have a runaway problem because nothing they do matters. We do not need to go out to market and watch the share price, because nothing they do matters. All I have to do is get adoption with Bitcoin. I do not care if it takes me 20 years. I would like it earlier. My goal is if 5 billion people know what Bitcoin Cash is in 5 years. If I do that, no matter what they do they fail. The more “anti” me, the more other people start to listen.

Thoughts on church of Satoshi in relation to Dune and a mythological following:

CSW:

My favorite author is Dostoevsky and there is a very good section of “The Brothers Karamazov”, where the pastor talks about the second coming of Christ. Christ comes back and they kill him again because obviously that would not be good for the church. [Christ proves himself and rises. It is accepted in the church and obviously you are Jesus Christ. We cannot let the world know and we are going to have to kill you because you really are not good for the Church. I am sorry]

Relationship with David Kleiman:

CSW:

We had a relationship for many years. I did not see him physically much. He was someone I called, emailed, IM, IRC all the time. He was a co-author with me. He helped with my research. Dave is listed on several of my papers. Dave was that person who filled and completed everything that needed to be there. I have said this many times before, I am the 90% guy. I will get it to 90% of where it needs to be before passing it off and move on to the next thing to get to 90% in order to pass off to the next guy. I have a team now and generally I get a paper or patent to where it can be understood and dump things off to them because it is now their job. Dave, it was not his job. Dave and I worked together but Dave completed many things I would not have completed.

On Gavin Andresen and 2015:

CSW:

I don’t like how Gavin was treated. I do not like what happened to him after all the other bits and pieces. Unfortunately, I did not handle everything that occurred and I let other people control certain things in my life, say things and tell others what would and wouldn’t happen. At the end of the day though, what I can say is if there was a group and there is no longer a group, then there is nothing. If there were multiple people and some of them aren’t there, then the entirety of what was is dead. Trying to bring it back otherwise is ridiculous. If we take the band Queen. After Freddy Mercury died, so did Queen. They may have another singer and go on tour but they are now a tribute band. Without Freddy Mercury, the other 3 with other singers are a tribute band. Without him, as good as the other guys are, they had a great guitarist and drummer, but without Freddy Mercury, they are not Queen.

Bitcoin is open source and maybe when the protocol development is complete, there may be some private protocol development:

CSW:

Yes someone will try do something a little better and try to patent it or keep it as a trade secret. They may license and charge it out for their innovation or keep it in house so they have their own edge. This is how I see it.

On “community”:

CSW:

Here is the problem. It is who you call the community. The community is not Bitcoin Cash users. The community is not Ethereum users. The community is not BTC users. It is not all cryptocurrency users. Our community is everyone who wants to use money. Full stop. Right now, some of those people do not get a chance. Some of them are too poor, too uneducated and too isolated. Some of them have crappy little phones that they cannot use yet. That is our community. Community is a thing we call Earth. Everyone that wants to use money. If you do not want anything to do with the community then you can become a communist who does not believe in anything but group ownership and try to make that work for the first time in human history. Good luck to you. For everyone else, community is very simple. It is every one of us.

Adoption and how much does a merchant need to know:

CSW:

They do not need to care. Stop making it hard and make it nice simple. Develop a nice frontend to develop a simple way to accept money. Build a simple wallet in order to integrate things they want, such as putting spam on the blockchain by adding coffee tokens that get recorded every time you buy a coffee at Starbucks. Include reward tokens that can be automated for things that can flash on your screen that cannot be cheated and let the merchant know this person has bought their hundredth coffee or whatever. It is what people want. Stop saying it should not occur because it is too capitalist or commercial. If you do not like capitalist or commercialized then stop buying from supermarkets and go out, live in the middle of nowhere buy your own grain.

***Conversation was concluded and wanted to thank Dr. Craig S Wright for giving us the time to have this discussion. We truly learned a lot and hope to continue teaching others about the importance of Bitcoin (Cash) to the globe.***

Bitcoin and The Road to Serfdom

Introduction
”I don’t believe we shall ever have a good money again before we take the thing out of the hands of government. That is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t.”

Friedrich Hayek [1]

Prior to the official declaration of World War II and the wide scale rise of Nazi ideology, Germany stood as an example of the progress that could be made when the radical economic planning traditionally used in wartime could be repurposed in peacetime. Across Europe, politicians and economists were envisioning a post-capitalism and post-war world where economic planning could be used to build a better life for all. As World War II neared, however, fewer people pointed to Germany as a success of the economic planners. World War II is declared, and the machinations of the State are used globally to engineer the war effort.

It is 1944, and World War II is coming to a close. There is (again) fierce debate across the continent on how to rebuild each country when peacetime returns. Friedrich Hayek becomes the first to propose the idea that any model of economic planning, like the one used by Germany after WWI, would inevitably lead to fascism and the restriction of individual freedom. The first page of Hayek’s The Road to Serfdom reads, “To the socialists of all parties.” Foreseeing the danger in his “liberal” peers’ call for the State to utilize the economy for “peaceful” purposes, Hayek’s piece reads as a final warning that when World War II inevitably ends, intellectuals need to be well-equipped to preserve the market forces that allowed free trade and enterprise to flourish and to not succumb to the temptation of a centrally planned society.

When Bitcoin was first created, libertarians were some of the first to evangelize the currency to their peers. Capitalists of all kinds viewed it as a revolutionary tool to free individuals from the shackles of State-backed currency and to allow global peer-to-peer trade. The desire to create a decentralized and free economy is rooted in the message attached to the Bitcoin Genesis block: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” These were the first of Satoshi Nakamoto’s words to be recorded on the Bitcoin blockchain. This message will be written within Bitcoin’s immutable database for the entirety of the currency’s existence. Why Satoshi included this reference in the genesis block is a subject of much debate, but examining the referenced article [2] itself, it becomes clear it has a deeper nuance than is often touted. Most agree that this message, and therefore the creation of Bitcoin, is linked directly to the widescale criticism of the “bailouts” of America’s largest financial institutions following the 2008 market crash. But this interpretation ignores the content of the article Satoshi was referencing. A closer look reveals that the article was not about a bailout, per se, but something much more nefarious: “The Chancellor will decide within weeks whether to pump billions more into the economy as evidence mounts that the £37 billion part-nationalisation last year has failed to keep credit flowing. Options include cash injections, offering banks cheaper state guarantees to raise money privately or buying up ‘toxic assets’, The Times has learnt.” You see, at the time of the article’s writing, the bailout had already occurred. The article reveals that the government was poised to go a step further by buying up the toxic bank assets as part of a nationalization effort! In this scenario, according to the Times, “a ‘bad bank’ would be created to dispose of bad debts. The Treasury would take bad loans off the hands of troubled banks, perhaps swapping them for government bonds. The toxic assets, blamed for poisoning the financial system, would be parked in a state vehicle or ‘bad bank’ that would manage them and attempt to dispose of them while ‘detoxifying’ the main-stream banking system.” The article outlines a much more nightmarish scenario than bank bailouts, one that would effectively remove any element of private enterprise from banking and use the State to seize the bank’s assets. Like Hayek, Satoshi clearly had an appreciation for the necessity to move away from government-controlled money. This appreciation led Satoshi to publish his whitepaper that defines Bitcoin quite clearly in its own title: “Bitcoin: A peer to peer electronic cash system.” In the years since, this ethos has disappeared from the BTC community and, unfortunately, the fish rots from the head. In this piece, I will outline, with the help of Hayek’s words in The Road to Serfdom, how Bitcoin (BTC) has been overtaken by the Central Planners Hayek warned us about.

When I first sat down to write this piece, I titled it “BTC: The Road to Serfdom.” Since then, I have noticed a rise of those in the Bitcoin Cash community that believe Bitcoin is a flawed system from which users must be protected by the “safeguards” and “fixes” introduced by software developers. Bitcoin, as it was designed, is an inherently capitalist system which, when economic changes are introduced, suffers from the unintended consequences all economic planning leads to. As a result, I feel compelled to address this piece to a broader audience and outline the current state of planning in the Bitcoin Cash world as well. I hope this piece serves as a wakeup call to those in the BTC community, as well as a warning to those in the Bitcoin Cash community: In the face of all economic planning, we must resist.

Bitcoin and The Road to Serfdom

To the socialists of all chains.

“Socialism means the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of ‘planned economy’ in which the entrepreneur working for profit is replaced by a central planning body.”

Friedrich Hayek – The Road to Serfdom

“If my government simply ASKS me to stop, I will submit as a faithful subject. Disobedience is not something I consider acceptable.”

Luke Dashjr – Bitcoin Core developer and Blockstream contractor [3]

Blockstream and the Bitcoin Core developers funded by Blockstream are the gatekeepers of BTC. This is a controversial statement, but a few hours of historical research on this topic confirms it. The standard response to this is, of course, “anyone can contribute to Bitcoin Core – it is an open source project.” This, as Orwell presciently warned us about, is doublespeak. Today, 5 developers have commit access to the Core Github repository. This means that, as a contributor, you can make all the changes you want, but they will only be merged with Bitcoin Core once one of these 5 individuals approve them [4]. 2 of the 5 individuals with commit access are currently employed by Blockstream. Over 93% of the nodes on the BTC network today run Bitcoin Core, granting them a monopoly on the changes that are made to the BTC network. The centralized nature of software development on the BTC chain manifests itself in very destructive ways. When Satoshi left the project, Gavin Andresen was seen as the de facto leader of the project. Gavin never asked for this responsibility, and quickly handpicked individuals to also hold the “keys” to the Github repository in the event that something happen to him. This decision, through no fault of Gavin’s, would prove to change the course of Bitcoin forever. We will discuss that in depth later. On May 2nd, 2016, Gavin Andresen published a blog post stating his belief that Craig Wright was Satoshi Nakamato based on proof that Craig showed him privately – a position that Gavin maintains to this day, alongside others such as Jon Matonis [5]. Later that day, Gavin Andresen’s commit access to the Github repository was revoked under the justification that Gavin’s account had been “hacked.” Despite not being hacked, Gavin’s commit access has never been restored.

“Probably it is true enough that the great majority are rarely capable of thinking independently, that on most questions they accept views which they find ready-made, and that they will be equally content if born or coaxed into one set of beliefs or another. In any society freedom of thought will probably be of direct significance only for a small minority. But this does not mean that anyone is competent, or ought to have power, to select those to whom this freedom is to be reserved. It certainly does not justify the presumption of any group of people to claim the right to determine what people ought to think or believe.”

Friedrich Hayek – The Road to Serfdom.

Editor’s note: Blockstream’s employees aren’t clearly identified on their website. Gregory Maxwell appears to have resigned as CTO in November 2017, the same month that convincing evidence came out showing he most likely engaged in the hacking of Reddit accounts associated with the /r/btc subreddit [16]. Since it is nearly impossible to get employee information from Blockstream, and since this piece is being written from a historical perspective, we cannot separate Maxwell’s actions from Blockstream.

Blockstream was founded in 2014 by Bitcoin Core developers Gregory Maxwell, Dr. Pieter Wuille, Matt Corallo, Jorge Timón and Mark Friedenbach, as well as several non-Bitcoin Core developers including hashcash inventor Dr. Adam Back. Luke Dashjr, a moderator on /r/Bitcoin and Core contributor, works for Blockstream as a contractor [6]. Peter Wuille and Gregory Maxwell are two of the 5 developers with commit access. Despite Blockstream employees’ consistent projection about others using sock puppet accounts to bolster their arguments, it was Adam Back, Blockstream’s CEO, who recently admitted that it is “a large team’s full time job to debunk and disprove [fear uncertainty and doubt]” on the internet [7]. What is this, other than an admission that Blockstream pays people to push agendas online? In November 2016, a user named John Blocke posted a detailed analysis of the history of censorship on the /r/Bitcoin subreddit [17]. This piece makes it is clear that Blockstream employees have been involved in massive censorship campaigns and sock puppet brigading to amplify and propagate their arguments and positions. Mike Hearn, an early Bitcoin developer whose early correspondence with Satoshi shows a clear onchain scaling roadmap18, expressed his frustrations in a blog post in January 2016 where he details why he is leaving Bitcoin19. Censorship and gas lighting directed against Bitcoin XT were big points of frustration for Mike:

“In August 2015 it became clear that due to severe mismanagement, the “Bitcoin Core” project that maintains the program that runs the peer-to-peer network wasn’t going to release a version that raised the block size limit. The reasons for this are complicated… but obviously, the community needed the ability to keep adding new users. So some long-term developers (including me) got together and developed the code necessary to raise the limit. That code was called BIP 101 and we released it in a modified version of the software that we branded Bitcoin XT. By running XT, miners could cast a vote for changing the limit. Once 75% of blocks were voting for the change the rules would be adjusted and bigger blocks would be allowed.

The release of Bitcoin XT somehow pushed powerful emotional buttons in a small number of people. Among them was an admin of the bitcoin.org website and top discussion forums. He had frequently allowed discussion of outright criminal activity on the forums he controlled, on the grounds of freedom of speech. But when XT launched, he made a surprising decision. XT, he claimed, did not represent the “developer consensus” and was therefore not really Bitcoin. Voting was an abomination, he said, because ‘One of the great things about Bitcoin is its lack of democracy’. So he decided to do whatever it took to kill XT completely, starting with censorship of Bitcoin’s primary communication channels: any post that mentioned the words “Bitcoin XT” was erased from the discussion forums he controlled, XT could not be mentioned or linked to from anywhere on the official bitcoin.org website and, of course, anyone attempting to point users to other uncensored forums was also banned. Massive numbers of users were expelled from the forums and prevented from expressing their views.”

Mike’s frustrations around XT continue later on in the post. Shockingly, he outlines the DDoS (Distributed Denial of Service) attacks that plagued any user who tried to run an XT node. Users were DDoS’d so heavily that in one case an entire rural ISP was taken down. “In other cases, entire datacenters were disconnected from the internet until the single XT node inside them was stopped. About a third of the nodes were attacked and removed from the internet in this way. Worse, the mining pool that had been offering BIP101 was also attacked and forced to stop. The message was clear: anyone who supported bigger blocks, or even allowed other people to vote for them, would be assaulted.”

This is not only alarming, but absolutely terrifying. How many BTC supporters know this bit of history? Who has the resources to perform such a massive DoS attack?

“Everything which might cause doubt about the wisdom of the government or create discontent will be kept from the people. The basis of unfavorable comparisons with elsewhere, the knowledge of possible alternatives to the course actually taken, information which might suggest failure on the part of the government to live up to its promises or to take advantage of opportunities to improve conditions–all will be suppressed. There is consequently no field where the systematic control of information will not be practiced and uniformity of views not enforced.”

Friedrich Hayek – The Road to Serfdom

“I’ve moderated forums since long before Bitcoin (some quite large), and I know how moderation affects people. Long-term, banning XT from /r/Bitcoin will hurt XT’s chances to hijack Bitcoin. There’s still a chance, but it’s smaller. (This is improved by the simultaneous action on bitcointalk.org, bitcoin.it, and bitcoin.org)… I do have power over certain centralized websites, which I’ve decided to use for the benefit of Bitcoin as a whole (as best I can).”

Michael Marquardt AKA Theymos [10]

Theymos is an administrator for the Bitcointalk forums as well as a moderator on the /r/Bitcoin subreddit. To blame him solely for the mass censorship of users supporting the block size increase across the three largest Bitcoin forums would be disingenuous. Every Core developer, Blockstream employee, and Bitcoin Core supporter is responsible for personally destroying the one thing they love to tout about their small-block chain: censorship-resistance. To be complacent is to be complicit, and it is absolutely despicable that Luke Dashjr and Gregory Maxwell themselves personally engage in this same censorship under the guise of “moderation.” By silencing those who supported larger blocks and employing a “large team” to promote a specific agenda, Bitcoin Core and Blockstream have created a false echo chamber, one that maintains the appearance of consensus on a number of “popular” opinions where there is none. Like the governments Bitcoin was designed to hold accountable, Blockstream and Bitcoin Core have used propaganda and censorship to keep themselves in power. BTC supporters ought to be ashamed for allowing censorship, propaganda, and personal attacks to rule the discourse on Bitcoin. It is absolutely despicable and unforgiveable.

When Satoshi Nakamoto introduced Bitcoin, there did not exist a limit on the amount of transactions that could fit into a block. At the suggestion of Hal Finney, a block limit was implemented by Satoshi and Ray Dillinger to prevent a potential DoS attack while the Bitcoin network was young and growing. When Ray recounted this on the Bitcointalk forum in February 2015, he said the limit had served its purpose and advocated for the limit to be removed as it was “no longer necessary. It has been more-or-less replaced by a profitability limit that motivates people to not waste blockchain bandwidth, and miners are now reliably dropping transactions that don’t pay fees” [8]. Furthermore, in a bitcointalk forum post from 2010 [14], Satoshi addresses someone’s concern about the block size limit with the following post:

“[The blocksize increase] can be phased in, like:

if (blocknumber > 115000)
maxblocksize = largerlimit

It can start being in versions way ahead, so by the time it reaches that block number and goes into effect, the older versions that don’t have it are already obsolete.

When we’re near the cutoff block number, I can put an alert to old versions to make sure they know they have to upgrade.”

What Satoshi was proposing was an upgrade via hard-fork of the protocol. Of course, if you read the whitepaper itself, it is clear that hard-forks were always the way the protocol was meant to be upgraded. Thus, if you want to make a change to the code, it is up to you to convince miners (the market) that your change is worth upgrading to. In other words, your fork/upgrade can only survive if the market agrees that it is valuable. In February of 2013, a user came back into the above bitcointalk thread surprised that there was still no change to the block limit. Discussion then ensued with most users in favor of a block size increase. 2 months later, Adam Back, who would become the CEO of Blockstream about a year later, introduced himself as a “newbie” to the bitcointalk forum who did not own any Bitcoin13. What made Adam want to join Bitcoin in 2013 after ignoring Satoshi when he was contacted in 2008? Why were Blockstream and the group of Core developers so opposed to not only a block size increase but any hard fork in general? Why does Luke Dashjr think the limit should actually be smaller than 1MB? [11] Their arguments, supposedly rooted in the technical aspects of Bitcoin, is a modern display of the desire of technocrats to economically plan systems they do not understand.

By late 2015, the scaling debate was in full swing and Bitcoin enthusiasts were greatly divided in two camps: those who wanted to raise the block size to allow for more transactions per second, and those who wanted to keep the blocks at 1MB in size. Bitcoin XT was being censored across all of the major Bitcoin forums. Miners were being attacked for running Bitcoin XT, and it appeared that powerful individuals had successfully disallowed any growth of competing clients to the Bitcoin Core repository, thereby ensuring that the block size limit imposed on miners relied solely on Bitcoin Core developers. In a recent Reddit AMA, Mike details his attempts to get miners to switch to the Bitcoin XT client: “I spent significant amounts of time trying to persuade miners to raise the block size limit towards the end of 2015 and they refused to do so because they were terrified of anything that might be perceived as disobedience to authority” [22].

“Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his absolute mercy. And an authority directing the whole economic system of the country would be the most powerful monopolist conceivable… it would have complete power to decide what we are to be given and on what terms. It would not only decide what commodities and services were to be available and in what quantities; it would be able to direct their distributions between persons to any degree it liked.”

Friedrich Hayek – The Road to Serfdom

In August 2015, Adam Back agrees with Jeff Garzik to increase the blocks to “2MB now, then 4MB in 2 years [2017] and 8MB in 4 years [2019] then re-asses [sic]” [9]. Gavin, who was working on Bitcoin XT at the time, responds saying “2MB is absurdly small… [The] average web page size is 2MB.” Adam then states his intention to continue the discussion on a podcast/panel with Gregory Maxwell. A user, @CoinCadence, responds almost prophetically saying “While a live panel would be nice, this feels an awful lot like the old “bait and switch”…” The aforementioned panel with Gavin never occurred – instead Adam Back and Gregory Maxwell appear on a podcast to voice caution on a block size increase which goes unchalleneged by the host. In the words of Hayek, “One need not be a prophet to be aware of impending dangers. An accidental combination of experience and interest will often reveal events to one man under aspects which few yet see.”

“Little known fact – The idea of a ‘Chain of digital signatures’ was first used in 2001. Bitcoin’s innovation is not this. It is the use of economics to ensure security.”

Dr. Craig Wright [12]

We will briefly define what will be referred to as “the security model” of the network. In Bitcoin, mining is the force that secures the network. What that means is that your transactions are protected in the immutable ledger by an ever increasing share of computing power. To change the history of the Bitcoin blockchain, it requires an immense amount of computing resources. The “difficulty” associated with obtaining enough computing power to perform this rewriting increases over time as a direct result of the competitive mining structure Bitcoin incentivizes. Because of this, Bitcoin’s security model is directly tied to the economic structure that governs it.

The biggest mistake that is made by those in the Bitcoin community is to assume that the economics of the system can be separated from the system itself. Bitcoin itself is a study of economics, and understanding Bitcoin requires an understanding of economics. Blocks on the Bitcoin network are designed to be found once every ten minutes. This is not a defined law in Bitcoin, but a consequence of the hash puzzle design; the probability of a miner finding a block averages out to around once every ten minutes. Given this time constraint, restricting the block limit to 1MB, and thereby regulating the amount of transactions miners are allowed to fit into a block, the protocol effectively caps the number of transactions that can be added to the chain each day. According to Blockstream and the central planners of BTC, Bitcoin should only process 259,200 onchain transactions a day, assuming network saturation. Thus, in the market for miners, this protocol effectively enforces a quota.

The effects of this production quota has been felt by every Bitcoin user:
1. High fees
2. Slow confirmations
3. Merchants removing Bitcoin as a payment option
4. Bad press
5. An overall reduction of the security of the network

We can address this last point pretty succinctly. For the first 6-7 years of Bitcoin’s growth, 0-confirmation transactions were seen as generally safe to receive as a merchant due to the fact that all transactions that filled the mempool could fit into the next found block. Due to the resulting fee market the production quota above produced, the Core developers introduced a protocol change called “Replace by Fee” (RBF). This change allowed users to modify transactions that had already been submitted to the network and adjust the fee associated with the transaction. As a result, all merchants were forced to stop accepting 0-confirmation transactions as it was impossible to tell if a transaction would be modified further prior to being accepted into a block. The Bitcoin Cash network hastily removed RBF when they forked from the BTC chain.

Let’s assume Blockstream is not a malicious entity – that these individuals actually believe that they have Bitcoin’s best interests in mind. Let’s ignore the fact that Blockstream’s own profit model relies on the use of sidechains and maximizing the number of offchain transactions. It doesn’t matter why Blockstream intends to subvert the economics, and therefore the security model of Bitcoin. It matters only that they view themselves as the central arbiters of what Bitcoin should be. They have designated themselves as the central authority for how we safely scale Bitcoin. This designation will lead us into the most important aspect of why Blockstream is inherently a threat to the economic sovereignty Bitcoin affords the individual.

“Because in modern society it is through the limitation of our money incomes that we are made to feel the restrictions which our relative poverty still imposes upon us, many have come to hate money as the symbol of these restrictions. But this is to mistake for the cause the medium through which a force makes itself felt. It would be much truer to say that money is one of the greatest instruments of freedom ever invented by man. It is money which in existing society opens an astounding range of choice to the poor man, a range greater than that which not many generations ago was open to the wealthy… If all rewards, instead of being offered in money, were offered in the form of public distinctions or privileges, positions of power over other men, or better housing or better food, opportunities for travel or education, this would merely mean that the recipient would no longer be allowed to choose, and that, whoever fixed the reward, determined not only its size but also the particular form in which it should be enjoyed.”

Friedrich Hayek – The Road to Serfdom

For our purposes, it matters not who is responsible for the current state of BTC, but only that the effects of the choices made by those groups/individuals are felt today. By openly cheering for the blocks to be full and popping “champaign” [sic] when the transaction fee rewards exceeds the block reward [19], BTC supporters seem to be openly challenging Satoshi’s vision of how economic incentives built into the Bitcoin protocol govern the network. If Segwit and Lightning Network are to be the main things that scale Bitcoin, then we must examine the implications for how this affects the economic incentives in Bitcoin. Who benefits but the wealthy in the implementation of Lightning hubs? When an individual can’t afford an onchain transaction and is forced to use a Lightning channel to transact in Bitcoin, are we not restricting their choice in how they can move Bitcoins? In truth, Lightning redistributes the power in Bitcoin away from the miners and into the hands of the planners. No longer are individuals required to continually reinvest in the network to hold “power” in the network (the nature of mining). Instead, a wealthy individual must simply hold enough liquidity to establish a Lightning channel and economically constrain you from transacting outside of their hubs. In this system, you as the user lose choice. This is significant, and perhaps is one of the reasons a company like Blockstream is advocating for this as the main scaling roadmap in Bitcoin. Through the restriction of the block size, power can be allocated as the central planners see fit. The market system is replaced, and therefore the security model is broken.

“Within the market system, security can be granted to particular groups only by the kind of planning known as restrictionism (which includes, however, almost all the planning which is actually practiced!).

‘Control,’ i.e., limitation of output so that prices will secure an “adequate” return, is the only way in which in a market economy producers can be guaranteed a certain income. But this necessarily involves a reduction of opportunities open to others. If the producer, be he entrepreneur or worker, is to be protected against underbidding by outsiders, it means that others who are worse off are precluded from sharing in the relatively greater prosperity of the controlled industries.

Every restriction on the freedom of entry into a trade reduces the security of all those outside it. And, as the number of those whose income is secured in this manner increases, the field of alternative opportunities which are open to anyone who suffers a loss of income is restricted; and for those unfavorably affected by any change the chance of avoiding a fatal diminution of their income is correspondingly diminished.”

Friedrich Hayek – The Road to Serfdom

This is a remarkably observant quote, and if you’re surprised with how much relevance Hayek’s words have in Bitcoin, you should be re-thinking what you know about Bitcoin. As an economic system, we need only to apply market economics to the security model of Bitcoin (mining) to understand the grave dangers a block size limit pose. Bitcoin mining is an inherently competitive (capitalist) system. Miners are in a constant state of competition with each other, which puts every miner at risk of being displaced suddenly. As soon as a miner stops competing, they begin a slow decline into irrelevance to the network. With a 1MB block size, miners don’t need to keep innovating and competing. They are guaranteed high rewards because of the fee market a block size limit creates (See figure below) [23].

To actively cheer on such a scenario, as Maxwell does, is to either misunderstand or directly reject the free market theory Bitcoin is built upon. What benefits does a high fee market give to an entrepreneur wanting to build a business on top of Bitcoin? Does a high fee market enable the poor to build businesses on top of Bitcoin? Of course not – the fee market solely benefits the wealthy and forces the poor to use second layer solutions that act simply as settlement layers. What then is the difference between Lightning Network and the current banking system? What is the difference between Lightning Network and Venmo? It is through a totalitarian usurpation of power that BTC transactions have been forced offchain. What is more surprising, though, is how willing BTC users have been to go along with the plan, under the reasoning that the ends justify the means. Unfortunately, Hayek foresaw this as well.

“The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule… The most effective way of making everybody serve the single system of ends toward which the social plan is directed is to make everybody believe in those ends. It is essential that the people should come to regard them as their own ends… This is, of course brought about by the various forms of propaganda… the skillful propagandist then has the power to mold their minds in any direction he chooses, and even the most intelligent and independent people cannot entirely escape that influence if they are long isolated from all other sources of information… If the feeling of oppression in totalitarian countries is in general much less acute than most people in liberal countries imagine, this is because the totalitarian governments succeed to a high degree in making people think as they want them to.”

Friedrich Hayek – The Road to Serfdom

Through this totalitarian restriction on the output of miners, we see two factions emerge: The users/miners/developers (organized labor), and Blockstream (organized capital). Note that while the latter is the “main source of [monopolistic] danger” in the historical context of the scaling debate, there is nothing limiting others from filling this role.

“The impetus of the movement toward totalitarianism comes mainly from the two great vested interests: organized capital and organized labor. Probably the greatest menace of all is the fact that the policies of these two most powerful groups point in the same direction. They do this through their common, and often concerted, support of the monopolistic organization of industry; and it is this tendency which is the great immediate danger. While there is no reason to believe that this movement is inevitable, there can be little doubt that if we continue on the path we have been treading, it will lead us to totalitarianism.

This movement is, of course, deliberately planned mainly by the capitalist organizers of monopolies, and they are thus one of the main sources of this danger. Their responsibility is not altered by the fact that their aim is not a totalitarian system but rather a sort of corporative society in which the organized industries would appear as semi-independent and self-governing ‘estates.’ But they are as short-sighted as were their German colleagues in believing that they will be allowed not only to create but also for any length of time to run such a system. The decisions which the managers of such an organized industry would constantly have to make are not decisions which any society will long leave to private individuals.

A state which allows such enormous aggregations of power to grow up cannot afford to let this power rest entirely in private control. Nor is the belief any less illusory that in such conditions the entrepreneurs will be long allowed to enjoy the favored position which in a competitive society is justified by the fact that, of the many who take the risks, only a few achieve the success the chances of which make the risk worth taking.”

 Friedrich Hayek – The Road to Serfdom

In the context of this quote, we have quite explicitly laid out the role of Blockstream in the development of monopoly, but we also need to examine the role all of us play in creating the monopolies. If the competitive system miners are placed under is changed in such a way that the risk miners take is not determined by market forces, but by central groups of developers, then we allow the creation of “favored positions” in the Bitcoin ecosystem and justify it under the pretense of protecting users. Bitcoin’s incentive structure promotes honesty. It is Satoshi who first outlined this in the original whitepaper: “Honest miners grow the longest chain” [21]. The block size limit is justified because there is a belief by those who don’t understand Bitcoin that users need to be protected from miners, and therefore validate transactions themselves on their home computers. The argument is fundamentally rooted in a distrust of capitalism and a belief that individuals who take risks to compete and earn reward will work to destroy the system that provides them with that reward. There is, in fact, no requirement to protect oneself as a user from the actions of miners – we are already protected by the market forces in Bitcoin that punish dishonesty and malice. As Satoshi said, “the system is designed in a way to just let users be users” [24] with no obligation to validate the network at the user level since the capitalist nature of the system does that already.

In the context of the scaling debate, we have properly deconstructed the economic planners behind the folly of BTC. When Bitcoin Cash forked on August 1, 2017, it was a rejection of the propaganda, censorship, and monopoly that the totalitarian economic planners of BTC have perpetuated on the Bitcoin community for far too long. In the BCH community, open dialogue is encouraged and competing software clients work to build the best software a miner could want to run. We have removed the totalitarian structure of BTC and restored what makes Bitcoin great: competition. Unfortunately, it is also clear that the cancer of economic planning is alive and well in BCH today, and it is disguised under the ethos of protection from more non-existent attack vectors.

Bitcoin Cash – Double Spends and Selfish Mining

I will not be using mathematics in this piece. I don’t need mathematics or code to make the arguments I’m about to make. This, according to many in both the BTC and BCH community, disqualifies me and others from having an opinion on the topic. I am not arguing that the opinion of those who don’t write code or who don’t understand the mathematics behind Bitcoin is worth more than a developer’s opinion. I am also not arguing that the opinion of an entrepreneur who builds a Bitcoin business is worth more than the opinion of a developer/mathematician. I am arguing that due to Bitcoin being a purely economic system, arguments must be rooted in the economic reality of the system to be valid. The arguments for Selfish Mining and 0-conf being inherently unsecure are not rooted in any basis of economic reality. Therefore, they cannot be used to justify changes to the protocol. Changing the market forces in Bitcoin with code is the economic planning Hayek warns us about, and it represents a fundamental misunderstanding of the economic incentives inherent to Bitcoin.

Protocol changes such as those instituted in response to “selfish mining” and double spending are an attempt to outlaw through central planning behaviors that could be more reliably eliminated through the market. Miners are governed by profit, so why would a protocol change ever be justified if the “attack vector” being referenced does not maximize profit over the honest strategy? In the case of a double spend, you have two solutions: one that is governed by market forces, and one that will be forced on miners/users with a protocol change. As expected, market forces are already solving this problem. How do we know this is true? Coingeek has now announced it will be orphaning any block that includes a transaction that was either double spent or associated with a double spend transaction. This happened independently of any protocol change. Coingeek’s profit is maximized when BCH is used as a global instant peer to peer cash system. They don’t believe that double spends and fraudsters having their transactions in blocks is a good thing for BCH’s value, so they have announced this initiative with close to 50% of miners already agreeing to it. I firmly believe that number will become 100% by the time nodes implement the ability to monitor double spends (such as Bitcoin XT does today). Now, if you are a miner with the ability to run a node such as Bitcoin XT that allows you to identify addresses that double spend, are you going to risk your block reward by including the faulty transaction and getting orphaned? Or are you going to include a transaction committing theft and risk your profit? Of course not. Thus, market forces can effectively “regulate” miner behavior without a protocol change. Market forces work better than economic planning 10 times out of 10.

Selfish Mining is also used to justify things like weak blocks and/or subchains. So – let’s again examine how the “attack vector” affects a miner’s profit. People on either side of the SM argument agree that SM diminishes overall revenue in favor of getting more than the miner’s “fair share” of blocks. What some fail to see is that a selfish miner will always make MORE profit under the honest strategy. Selfish mining may allow a miner to gain a greater share of blocks, say 30% rather than 25%. But if it reduces the total number of blocks mined, the miner may still end up finding fewer blocks than under the honest mining strategy. Why would a miner choose the selfish path? Simple – they wouldn’t, and thus why they haven’t. In fact, despite Emin Gun Sirer’s assertion to users to sell their bitcoins in 2014 because of the “security flaw” he had discovered, in the entire history of Bitcoin (BTC + BCH), a selfish mining attack has never succeeded. It may be innocent enough for an academic to write a paper with a title claiming that Bitcoin mining is broken, but is it really broken if the system punishes miners that behave in that way already? Capitalism is not something we compromise on, and technocrats hell-bent on fixing things that the market is equipped to resolve is the existential threat Bitcoin is facing and will continue to face.

Conclusion

In conclusion, Bitcoin’s capitalist nature makes it a prime target for the economic planning against which Hayek warned us. One of the most important questions that I believe should be asked of all developers proposing changes to the protocol is whether or not they are proponents of free market capitalism and if they believe in market forces. We have no desire to create a cult, but capitalism is something that inherently provides the most fair system possible, and the only way we can ruin Bitcoin is by interfering in that market. On Bitcoin Cash, we must now ask ourselves whether the problem we are trying to fix can be fixed in a better way with market forces. Historically, the answer has always been yes. We cannot build a fully “fair” Bitcoin through protocol changes. Bitcoin is inherently fair. We must leave it that way.

“We must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice.”

Friedrich Hayek

References

1. https://www.youtube.com/watch?v=EYhEDxFwFRU#t=19m23s
2. https://www.thetimes.co.uk/article/chancellor-alistair-darling-on-brink-of-second-bailout-for-banks-n9l382mn62h
3. https://twitter.com/LukeDashjr/status/927469235554738176
4. https://www.reddit.com/r/Bitcoin/comments/5riy1j/list_of_people_who_have_had_commit_access_to/
5. http://gavinandresen.ninja/satoshi
6. https://bitcoinmagazine.com/articles/who-funds-bitcoin-core-development-how-the-industry-supports-bitcoin-s-reference-client-1459967859/
7. https://twitter.com/adam3us/status/943876564856348673
8. https://bitcointalk.org/index.php?topic=946236.msg10388435#msg10388435
9. https://twitter.com/adam3us/status/636410827969421312
10. https://www.reddit.com/r/btc/comments/3z0pkq/theymos_caught_redhanded_why_he_censors_all_the/
11. https://calvinayre.com/2017/04/03/bitcoin/bitcoin-core-developer-argues-block-size-already-large-now/
12. https://twitter.com/ProfFaustus/status/940349925954486272
13. https://bitcointalk.org/index.php?topic=15672.msg1873483#msg1873483
14. https://bitcointalk.org/index.php?topic=1347.msg15366#msg15366
15. http://www.trustnodes.com/2017/10/26/blockstreams-business-plan-revealed-profit-transaction-fees
16. https://www.reddit.com/r/btc/comments/7eil12/evidence_that_the_mods_of_rbitcoin_may_have_been/
17. https://medium.com/@johnblocke/a-brief-and-incomplete-history-of-censorship-in-r-bitcoin-c85a290fe43
18. https://blog.plan99.net/the-resolution-of-the-bitcoin-experiment-dabb30201f7
19. https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2017-December/015455.html
20. https://news.bitcoin.com/bitfury-as-big-brother-mining-company-tracks-bitcoiners/
21. https://bitcoin.org/bitcoin.pdf
22. https://www.reddit.com/r/btc/comments/89z483/ama_ask_mike_anything/
23. https://www.coindesk.com/charts-determining-ideal-block-size-bitcoin/
24. http://satoshi.nakamotoinstitute.org/posts/bitcointalk/287/

 

Special thanks to Stephanie and user @Kokansei for editing this!

How is there a finite amount of Bitcoin (Cash)?

For those unfamiliar with the mining process, new Bitcoin Cash is created every time a new block is mined on the Bitcoin blockchain. This happens approximately every 10 minutes. The reason you may hear that there will be only “21 million Bitcoins” produced by the year 2140 is the geometric decrease in block reward resembling the rate in which commodities like gold are mined. The protocol states that there is a 50% reduction in block reward every 210,000 blocks mined. Utilizing the assumption that a block is mined every ~10 minutes, this halving of block reward should happen about every 4 years. The ~10 minute duration in solving the “puzzle”, uses a difficulty adjustment algorithm in order to ensure that miners face a certain level of difficulty in solving the “puzzle”. The difficulty adjustment algorithm essentially uses multiple factors in order to keep the difficulty of mining a block high enough to take at least 10 minutes. The current block reward today (3/27/2018) is 12.5 targeting to half to 6.25 in 2021. Eventually this block reward will approximate to 0 and at this point the only revenue for miners will be fees. However, it is important to note that by this time, there will be so many transactions using Bitcoin Cash, the fees will remain at extremely low level. Higher the utility and velocity of Bitcoin Cash, the lower the fees will remain… The true vision of Satoshi Nakamoto’s Bitcoin.

Bitcoin Accountability and Financial Freedom

Bitcoin was first created on January 3, 2009 shortly after the 2008 financial crisis. This global crisis was triggered by many mistakes made from several financial institutions with regard to the management of risk. Satoshi Nakamoto, the pseudonym used by the creator of Bitcoin, was the first to bring a comprehensive and complete concept of a decentralized monetary system to the world. Often overlooked in the current Bitcoin ecosystem, this decentralized monetary system was for the whole world and not just for certain countries, wealth classes or financial entities. Different types of financial collapses tend to be instigated by centralized systems abusing power and control of a societal monetary system. The people belonging to these societies trust this central entity in order to ensure the society’s right to free trade. When individuals make mistakes in life, they suffer the consequences of their wrongful actions. This standard of correction should apply to every single person and every entity regardless of financial or political class. Bitcoin provides solutions to the many challenges current economic systems face, and the most impactful feature of Bitcoin is the instilment of accountability and trust into a global monetary system.

The idea of accountability and responsibility in systems has always fascinated me. Healthy societies teach adolescents about fairness and respect in hopes of raising “good” contributing individuals into the world. How or why this sense of “good” versus “bad” behavior has been instilled in humans is up for debate, but the majority is inclined to believe that these traits exist. The older we grow, the more we realize life isn’t necessarily fair and our perception of equality is flawed. Americans are fortunate to grow up in a country that prides itself on freedom and equal opportunity. While governments continually attempt to take away these rights from their citizens, sufficiently free market societies correct these mistakes and hold the ideologies of liberty in place. Market forces providing fair opportunity brings us to Bitcoin and the right to financial freedom for everyone worldwide.

Similar to gold, there is a finite amount of Bitcoins (21 million). In order to create more bitcoins, one must use a proof of work process called mining. Mining consists of many nodes or computers competing amongst each other to mine the next block whilst recording and validating the transactions between peers within the Bitcoin blockchain. In order to mine a block, a significant amount of computing power is required. Contrary to current government-backed financial systems where a central entity is capable of simply printing more money at any given time, miners are required to continually invest in the network to introduce more bitcoins into the economy. Many have used this to conclude that Bitcoin is the solution to save the global economy from a situation similar to the 2008 financial crisis and bailouts. However, we should focus on the root of the problem that led to this crisis instead. Just like a weed, if you do not pull out the root, the weed will eventually return to the surface. The core problem in 2008 and other historical financial crises was the lack of financial risk management and accountability. Countries like Zimbabwe and Venezuela are modern day reminders that economies built on improper accountability do not last forever.

An economy built on top of a finite decentralized monetary system requires both financial institutions and individuals to act in a responsible manner. Holding riskier entities accountable will inherently reduce the risk of a financial and economical tragedy. In the game of baseball, a batter is given three 3 strikes before he or she is out, while the pitcher is given 4 balls before the batter is allowed to take his or her base. The limits placed on both the pitcher and batter now force each competitor to strategically compete amongst each other instead of recklessly pitching as fast as one can or swinging the bat at every pitch. Similarly, having finite limits on the monetary system forces both entities and members of the society to act in a strategic and responsible manner when handling their wealth. If too much risk is absorbed, negative consequences can and will occur. 

During financial recessions, the purchasing power of individuals is significantly damaged. The 2008 crisis has set the precedent that governments will bail out failing financial institutions for the greater good of the economy. This action does not solve the issue, but merely enables the risky behavior even further. During a child’s adolescent years, consequences or punishment negate bad behavior while positive reinforcement supports good behavior. In the implementation of Bitcoin, where a bailout is impossible, financial entities must act in a proactive and responsible manner. If they don’t, the market loses trust in the entity, and members of the society will utilize more trustful competitors with their wealth. Along the lines of Charles Darwin’s theory of survival of the fittest, institutions must act responsibly and strategically in order to survive and grow in the market. 

Institutions and other financial entities managing risk and funds appropriately accelerates the necessity for individuals to more properly manage their own personal financial risk. Prior to the housing crisis in 2008, a culture where individuals spend more than they can actually afford to survive was being encouraged. This overspending culture was enabled by entities lending more than an individual deserved, let alone could afford. Under the financial transparency and accountability inherent to Bitcoin, the members of the society must live within their means in order to support themselves and their families. This trickle-down system of financial accountability creates a society motivated by strategic competition and responsibility, while retaining freedom and liberty. In the emerging digital era, Satoshi Nakamoto’s Bitcoin resolves the problems of inconvenient trade while also correcting the risks of manipulated inflation. Bitcoin holds irresponsible entities and individuals accountable for their reckless management of wealth. The security and immutability from attack results in a truly decentralized financial system. Everyone worldwide deserves equal opportunity and freedom with accountability through Bitcoin.