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!

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