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Who Sets the Rules of Bitcoin as Nation-States and Corps Roll In

www.coindesk.com 29 November 2021 21:03, UTC
Reading time: ~3 m

“Little by little, and then all at once.”

That’s how people go bankrupt, of course. But it’s also a fair description of bitcoin’s ascendance from radical experiment to widely used technology. Recall, if you dare, that in March 2020 BTC was trading at about $5,000 per token and had been in the doldrums for years. Then COVID-19 lockdowns juiced boredom-driven day trading and increased interest in crypto, ultimately unleashing a string of transformational moments for Bitcoin It was in 2021 there was a big BTC buy by Tesla, integration into Twitter, high-profile legislative debates in the U.S., a record-setting stadium name deal and national adoption in El Salvador.

This article is part of Future of Money Week, a series exploring the varied (and sometimes weird) ways value will move in the future.

The arrival of nation-states and tech corporations in Bitcoinland is a huge, positive milestone. Twitter and El Salvador are directly exposing new mass audiences to crypto usage instead of just speculation. Because bitcoin is more useful as more people use it (the “network effect”), these moves also increase the appeal of future integrations. Major corporate buys, meanwhile, open the door for more institutional investment and legitimize bitcoin’s inflation-hedge thesis.

But those new players also bring new risks – arguably risks of a sort the world has never before seen. An array of centrally run, sometimes very powerful entities now have vested interests in the design and growth of a system they all share. History suggests their interests will, sooner or later, diverge, and that some will try and change bitcoin to their liking.

They will find the system used to propose and execute changes to bitcoin is barely a “system” at all. Unlike a company or a national government, the Bitcoin blockchain doesn’t have a formal leadership structure (with one debatable exception). Instead, as developer Gavin Andresen put it in 2015, Bitcoin’s design and evolution “really comes down to, what code are people running, and how influential are the people who are running the code?” In other words, Bitcoin upgrades are largely a matter of persuasion.

So what if Twitter or Tesla or Germany decide that they want Bitcoin to be something else? With enough money, with courtrooms and jails, with an army division or two, could they force their vision on the most powerful stateless entity on the planet?

Why change Bitcoin?

We got a preview of such a conflict in the so-called “Blocksize War” of 2015-2017, recently chronicled in an excellent book by Jonathan Bier. In very broad strokes, the conflict was between entities, including companies like BitPay and Coinbase, that advocated for larger “blocks” of transactions to increase the network’s speed. They were opposed by “small blockers,” who warned that increasing the block size would make it more expensive and difficult to run a Bitcoin node, threatening the system’s decentralization and, ultimately, its resilience.

The Blocksize War is an important episode when considering the future of Bitcoin, because it illustrates both the motives and methods that we might see replayed on a still larger scale. In this case, the motives for big blockers were largely commercial. Businesses like BitPay needed more throughput to turn bitcoin into a coffee-cup currency. The other side of the debate, at least in Bier’s telling, was made up of people prioritizing long-term stability and what we’d now call the “store of value” model, even if it meant bitcoin transactions stayed fairly slow.

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