During the recent Democracy4All Conference in Barcelona, Dr Craig S. Wright held a presentation on ‘Bitcoin, Stability and the Decentralisation of Power’. In his presentation, Wright dispelled misunderstandings of concepts such as Bitcoin’s decentralisation and proof-of-stake.
The Myth of Decentralisation
Dr Wright began his presentation by referring to one of his statements in 2010 when he stated that the code is set in stone and that there’s a reason why money is a protocol that doesn’t change. The reason for these statements is the fact that someone who can decide to change the protocol, also controls the network. Therefore, decentralisation is a mere myth in Ethereum and BTC – as the protocol changes are being used to exert power.
Although it is commonly assumed that Ethereum and BTC are decentralised because they have more nodes or assign them supposedly important tasks, these nodes ultimately have little influence. Changes to the protocol, as they constantly occur in these networks, have tremendous implications for businesses.
The impact of protocol changes on contracts, projects and businesses
If you can change the rules in a system, you also change how profits and losses are made. For a project that spans even five years, protocol changes are therefore major risks that can quickly ruin a business. Dr Wright pointed to the financial sector, where projects can easily extend over several decades. This means that any innovations that use a particular protocol as a foundation must constantly be prepared for change, and risk that foundation being pulled from under their feet.
To illustrate the point, Wright cites the network protocol, TCP, which was launched in 1981. Since that time, it underwent only one change on the first of April in 2003, which is known as the ‘evil bit’. As it was meant as a humorous gimmick and not an actual protocol change, the protocol has gone 40 years without any significant change. This is still true, even for the time since the emergence of the IPv6 protocol.
Stepping back from Bitcoin
Having established that a stable protocol is needed to provide utility and a fundament for innovation in society, Dr Wright goes on to say how hard it was to step back from Bitcoin:
‘One of the hardest things in creating a system is stepping back. When I launched Bitcoin, I said the rules are fixed and set in stone forever. I didn’t do that because I thought I was perfect, that there were no flaws in how Bitcoin could ever be, and that someone couldn’t make a slightly better way of doing the protocol.
I don’t have that much hubris in my life. I’m not that silly that I believe that. But it’s good enough. And by setting it, I don’t control it. I don’t get to say who wins and loses. I don’t get to say what does and doesn’t happen.’
Proof-of-stake and the centralisation of power
Wright then talked about Ethereum and its claim of being decentralised through its proof-of-stake protocol. The claim of being decentralised can be easily dismissed when realising that Vitalik Buterin, one of the co-founders of Ethereum, and the Ethereum foundation hold 40% of all Ethereum, he said.
As there is a minimum amount of Ethereum that you have to hold to be able to vote in Ethereum, this translates to 70% of the voting power being held by just Buterin and the Ethereum foundation.
For one, this invalidates the claim that Ethereum is decentralised. Second, the entire concept of voting in both Ethereum and Bitcoin is questionable on its own.
Voting on Bitcoin
Wright also discussed voting in Bitcoin – noting that in the white paper, voting is regarded negatively in the context of a one-IP-one-vote voting system that can be easily subverted by the accumulation of IP addresses.
He goes on to explain that it would be pointless to vote on the atomic weight of gold, for example. It is an allusion to the common view of BTC as digital gold. He further mentions that one of the reasons why gold is regarded as valuable is because it does not change and is limited in supply.
The inventor of Bitcoin uses another example to illustrate why decentralisation of power and stability go hand in hand. To this end, he goes into the repeatedly discussed possibility of digitising voting or running it via a blockchain:
‘If you now start allowing everyone to just vote at home, how do we know you haven’t been coerced? The difficulty of voting systems isn’t that someone can vote on a blockchain and have quick counting.’
‘The difficulty is how do we control the system to keep the bad actors away. How do we create a system that doesn’t have coercion? How do we know that someone hasn’t replaced the software on your phone? That you don’t have a Trojan? How do we know that what is being put on the blockchain is really what the people voted for?’
Public Goods
Wright compares the approach of the crypto-anarchic scene to communist or other collectivist systems, where a minority pretends to know better what is best for the common good and decides over the heads of the majority. He then makes a plea for republicanism, where everyone has the chance to participate, engage and take a stance in publicly handled politics.
To make his point clear, he asks the audience if they have ever done a code audit. He goes on to say that a full audit for a single entity takes quite a few years. The US military uses a version of Linux that is fully audited and is 20 years behind. It took them over a hundred people and more than 15 years to complete the audit.
Wright said that it would have taken him eight years to audit Bitcoin’s code fully. Therefore, it was a much better approach to just publish the code, as has happened in 2008, and have a public audit. Here, he also mentions why Bitcoin is not cryptographic:
‘The whole thing with Bitcoin is you see the change. It’s not about cryptography. Bitcoin isn’t cryptographic. It uses a digital signature algorithm. It uses scripting. It uses hashes. That’s not the secret. It’s all public. It’s all clear text.’
Another important point Wright makes in this context is that implications of changes cannot be overseen easily in any given system, it erodes trust and therefore requires the involvement of third parties, which act as ‘watchtowers … monitoring the system’.
Exchange of values, free markets and utility
Having established that voting on constant changes to the protocols is bad for the utility of a protocol, Wright highlighted the roles of nodes in Bitcoin. He notes that they were never meant to play central roles as in BTC or Ethereum.
He added that the first version of Bitcoin had IP-to-IP transactions and that these were one of the first features removed from the original code after he had left. Yet he never intended for it to have node networks of meshes that hide transactions from the government. IP-to-IP transactions imply that Bitcoin was designed to have people transact with each other directly.
Bitcoin was meant to have people talking, buying, selling and invoicing each other directly and to have a record of these transactions, as he further explains. Even for small, casual transactions, i.e. micropayments:
‘I created a system that will deliver micropayments. When you can sell something for a 10th of a cent and pay fees as low as a thousandth of a cent, that opens opportunities. That pushes things out to the edge of the network.’
‘It means no longer do we need to create Silicon Valley’s model of building apps, building things to be bought. It is no longer about how many consumers I get in my bloody community. […] It is about making a profitable system, a system that is viable not because it will be bought by Silicon Valley, but because you can run it and sell it and have it there as a corporation. Whether people like it or not, your consumers want to buy from you. You can self-fund. That’s it. That’s really what it’s about.’
Outlook and conclusion: What matters?
Wright said he wants BSV blockchain to reach millions of transactions per second in 2023. Currently, hundreds of thousands are possible. He also has a goal for the transaction fee of Bitcoin. At the moment, they are at a hundredth of a cent or less. The goal for this year is to get them to a thousandth of a cent or less.
Wright then asks questions about the true meaning and purpose of Bitcoin, ‘What matters in the system? What is decentralisation? Why are we doing this?’
According to him, the answer is to open up the world and enable everyone to participate as opposed to a proof-of-stake worldview, where the rich ones decide for the sake of everyone.
‘What is better? A society where we have to engage as people. Where we have to talk and be open. Not hiding behind pseudonyms, but standing up for something we believe in.
‘Or a system where anonymous trolls, people with power, and people with money get to dictate. Decentralisation isn’t what you’ve been told. Decentralisation requires responsibility.’